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Regulation predictions

Cutting the red tape of civil aviation

2022 is set to be a busy year for UK civil aviation regulatory reform, with a focus on General Aviation (GA). In response to a public consultation on GA opportunities for change after leaving the EASA system, in April 2021 the UK Civil Aviation Authority (CAA) drew up a GA Change Programme for 2021/2022. The programme has three strategic projects, an overarching aim being to streamline and to cut red tape, but not at the expense of air safety, which remains of paramount importance. The first is the simplification and rationalisation of GA flight crew licensing. Progress is already in hand: in their Virtual Voyage webinar series in October 2021 the CAA announced its intention to launch a streamlined case management system to simplify and rationalise the pilot licensing application process. The second is the simplification and rationalisation of GA airworthiness maintenance regulations and third, the exploration of GA medical requirements and benefits including a review of the pilot medical declaration process.

Liability exposures under UK spaceflight regulations: is a solar storm brewing?

We foresee the potential for disputes arising on the application and interpretation of the Space Industry Act (SIA) and its associated Space Industry Regulations 2021. For strict liability of operator licensees for uninvolved third party land (and sea) injury and damage claims, there is a degree of read-across from the civil aviation field: decided case law on analogous issues will serve as a reference point and guidance. Elsewhere, there are grey areas that will make claims ripe for protracted dispute and judicial determination. For example, an express defence is afforded to operators for claims brought in nuisance or trespass where spaceflight activities have been carried out, in compliance or “substantially in compliance” with the SIA or with SIA or CAA imposed requirements and conditions (including licence conditions). Just how much leeway the qualifying term “substantially” will afford is unclear. What of operator liability to spaceflight participants? Helpfully for space insurers and their insureds, together with a swathe of other potential claimant categories, spaceflight participants are carved out from the SIA strict liability provisions. So, for such claims we are on the familiar ground of negligence. Familiar yes, but there will be a challenge for the courts in grappling with the concepts of “negligence” and “inherent risk” in the context of a fledgling and highly technical commercial spaceflight industry. The role of experts here will be key.


Unmasking the risk of discrimination claims

Changing government guidance will result in more discrimination claims. While the wearing of face coverings in indoor settings was no longer a mandatory requirement in England following the lifting of COVID-19 restrictions in July 2021, the UK Government re-introduced the requirement on 30 November 2021 in the wake of a new variant of COVID-19. The use of face coverings is still mandatory in certain settings in Scotland, Wales and Northern Ireland as well. The confusion around allowing access to services to those who are unable to wear a mask due to a medical exemption and those who simply refuse to wear a mask has led to many claims for disability discrimination being made over the last 12 months. As this measure has been reintroduced in England, we predict more discrimination claims will be made as businesses struggle to implement ever changing government guidance on this issue.

Greater focus on whole body vibration

According to the British Occupational Hygiene Society, health studies show that whole body vibration (WBV) is associated with back pain, cardiovascular disease, digestive problems, headaches, dizziness, motion sickness and possibly cancer. WBV is commonly transmitted through the seats or feet of vehicle drivers and to users of some heavy pneumatic tools. Although it is difficult to prove that such health problems are caused by WBV in the workplace, given that employers have a duty to control it under the Control of Vibration at Work Regulations 2005, it is an area that we anticipate will receive greater attention from the HSE over the next few years, especially for vehicle operators.

The HSE will focus on a safe transition to a carbon neutral economy

As part of Build Back Greener, the HSE will be supporting the delivery of the Government’s 10-point plan for a green industrial revolution and a safe transition to a carbon neutral economy. The HSE will also be working with the Government and other stakeholders on new and emerging technologies in the workplace to reduce risk from activities such as 3D printing, systems involving artificial intelligence and the use of drones. In 2022 the HSE will focus on a review of its regulatory framework as it applies to current and future net zero activity – identifying the policy, regulatory, operational and evidential steps needed to support the innovation and development of new technology during the transition to net zero.


Teething problems from most significant building regulation in a generation

The Building Safety Bill will become law during 2022 and will usher in the most significant change in residential development in a generation. The Bill, along with its raft of associated regulations and guidance, will drive the improvement of standards across the building construction and management sector. Organisations operating in architecture, construction, facilities management, fire safety and the supply chain will begin to review their systems and processes if they have not done so already. Many will struggle to achieve the new competency requirements and the existing skills gap will be amplified. New build projects will face delay through a combination of skills shortages, availability of compliant materials and the new gateway system through which all higher risk buildings will have to pass. The Building Safety Regulator will initially look to regulate by co-operation and significant enforcement action is not expected imminently. Some businesses with existing higher risk buildings will struggle to collate the golden thread of information and all those owning and managing buildings will have a significant training requirement to fulfil to ensure their new obligations are fully discharged.


Expect greater regulatory scrutiny over cookie consent mechanisms and associated litigation

2021 saw a new wave of litigation arising in connection with alleged infringements of the Privacy and Electronic Communications Regulations’ cookie rules. Complaints focused on the placement of non-essential cookies on users’ devices without appropriate consent being obtained. In September 2021, the Information Commissioner’s Office (ICO) called on G7 data protection authorities to collaborate in overhauling cookie consent banners. Shortly after, the European Data Protection Board established a cookie banner taskforce to coordinate the response to circa 450 cookie banner complaints filed with European data protection regulators by None Of Your Business. We expect 2022 to see a continued increase in the volume of associated claims and, in tandem, greater scrutiny over the use and classification of non-essential cookies, and appropriate regulatory controls as highlighted in the Government’s consultation on reforms to the UK’s data protection regime. We predict that any proposed changes are unlikely to come into effect in 2022.

Data protection and breach reporting legislative changes are on the horizon

The Government announced a consultation on reforms to the UK’s data protection regime in September 2021. This includes a review of the current breach reporting requirement under Article 33 UK GDPR, that an organisation should report all breaches save for those where there is likely to be no risk to individuals’ rights and freedoms. The Government’s concern is that the low threshold results in over-reporting of data breaches to the Information Commissioner’s Office (ICO) and increased costs to business and the ICO. In 2022, greater scrutiny will be given as to whether to increase the threshold so that organisations must report breaches unless the risk to individuals is not material. Any change in UK reporting thresholds will present problems with international breaches given the existing EU GDPR threshold and the gap that will be introduced if the UK threshold changes.

Germany enacts new law on IT and cyber security in companies

Germany revised its IT Security Act in summer 2021. The law previously targeted the IT security of so-called critical infrastructure operators (energy providers, banks, insurers, public healthcare, etc.). Now, however, companies of “special economic interest” will also have to comply with the requirements of the law. It is currently unclear which companies fall under this category because further implementation of the law is still taking place. The IT Security Act contains organisational requirements for companies. On the basis of this, German authorities have issued detailed specifications for corporate networks, their structure, set-up, monitoring and IT security. These specifications are an important basis for the question of what the respective “state of the art” of a network is – which is of course also of importance in insurance matters.

Contributed by our German Legalign partner, BLD.


Directors set to face yet more regulatory oversight

There is an array of developments which mean that directors will face increased regulatory oversight. These range from reforms introduced by the Pension Schemes Act 2021, which enhance the powers of The Pensions Regulator to take enforcement action against directors, to the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill which is set to assist the Insolvency Service in pursuing director disqualification proceedings. Perhaps most notable are the anticipated reforms aimed at improving corporate governance standards. These are expected following the BEIS White Paper in March 2021, and subsequent consultation, and we are likely to see the Government press ahead with measures which will impose additional duties on directors regarding matters such as internal company controls, financial reporting and the detection and prevention of fraud.

New German insolvency liability law will not reduce claims

With the new Act on the Stabilisation and Restructuring Framework for Business being in force (in German, abbreviated to StaRUG), the structure of claims for so called forbidden payments after insolvency have also been modified. There is now a central regulation in the German insolvency code that uniformly applies to all forms of businesses regardless of the legal structure. Whereas the basic principles that were already known in the past remain unchanged, directors are now able to prove that the business did not suffer any loss through a payment after the insolvency. That might open the door for defences in individual cases, but will not change the trend in general. As long as insured, such claims will drive the German SME D&O market.

Contributed by our German Legalign partner, BLD.

New law on supply chains will increase pressure on risk management

The EU Commission and the European External Action Service (EEAS) have published a general guide on corporate due diligence. This is intended to help EU companies address the risk of forced labour in their operations and supply chains in line with international standards. Risk management and compliance have been constant D&O claims drivers in the past. The more legislation we see expanding the requirements to be met, the higher the risk of an increase in future D&O claims. For example, in Germany, the Supply Chain Due Diligence Act will become effective on 1 January 2023.

Contributed by our German Legalign partner, BLD.


New regulatory framework will shape the future of financial services in the UK

In November 2021, HM Treasury published its proposals for reform of UK financial services regulation following the UK’s departure from the European Union. While many of the changes will be technical in nature, such as converting UK statutory instruments into FCA rules, at the same time the UK regulators will have flexibility to amend the substance of the rules themselves. While we expect any divergence from EU standards to be evolutionary rather than revolutionary, firms and industry bodies should look to identify any opportunities that may now present themselves and prepare their arguments to the regulators in favour of such changes. Arguments linked to the PRA and FCA’s proposed new growth and international competitiveness secondary objective are likely to carry particular weight.

FCA’s planned ‘Consumer Duty’ means firms will need to evidence compliance to manage early challenges from claims management companies

Having reported on its consultation to introduce a new Consumer Duty by 31 December 2021, the FCA will make final rules by 31 July 2022. At the time of writing, it proposes a ‘paradigm shift’ towards consumer-centric cultures and behaviours. It wants firms to monitor, test and adapt their products and services to ensure clear communications to inform clearly and properly consumers decisions. This will further sharpen the focus on the treatment of vulnerable customers. Products and services should only be marketed and sold to those consumers whose requirements they are designed to meet. All of this should then be at a price which represents fair value. Consideration is also being given to a private right of action for breaching the duty. Firms should therefore assess, test and document carefully their compliance with the proposed duty at each stage of the customer journey, to manage successfully both regulatory supervision as well as the inevitable influx of complaints on behalf of consumers from claims management companies and claimant law firms.

Spanish traders and financial entities must assess the financial impact of climate change risks

Spain’s new regulatory framework for fighting climate change (Law 7/2021) came into force in May 2021. This sets ambitious national targets for reducing emissions and promoting energy efficiency and renewable energy by 2030 and 2050. Its wide reach covers transportation and infrastructure, building materials, mineral explorations and extraction, financial investments and more. Financial entities and regulated companies are subject to reporting obligations and must submit an annual report assessing the financial impact of risks associated with climate change generated by their activities. Also from 2023, credit institutions must publish decarbonisation targets for their financial portfolios. These measures will see Spain as a committed player in the global fight against climate change.

Contributed by our Madrid office.

Northern Ireland Protocol creates uncertainty

The friction over the Northern Ireland Protocol agreed as part of the Brexit deal will continue to create uncertainty for insurers in the UK and Ireland. The UK Government has proposed replacing it with a system that allows goods to circulate freely in Northern Ireland if they conform to either EU or UK regulations. At present, they have to meet EU standards. The Government also wants to remove the roles the European Commission and the European Court of Justice have in overseeing the protocol. If the UK does not secure changes to the protocol, it could decide to trigger Article 16 of the protocol which allows either side to suspend any part of the agreement that causes “economic, societal or environmental difficulties”. A UK decision to exploit Article 16 could prompt the EU to respond with measures which would impose tariffs (or import taxes) on aspects of trade between the two sides. Any move in this direction would be extremely disruptive for businesses, increasing costs and creating new risks around non-compliance and tax avoidance.


Regulator activism on wordings set to continue

The FCA test case on policy response to business interruption losses was an unprecedented intervention by a regulator. The speed of the litigation, through to a final appeal, was exceptional. But so too was the granularity of the issues in which the regulator took an interest. This is unlikely to be the last time a regulator scrutinises the market response to widespread events and practices. On 28 September 2021, the FCA wrote a Dear CEO letter covering a range of topics which the FCA described as ‘risks of harm’ insurers posed to their consumers and the markets in which they operate. At least three of these topics concern product development and wordings issues. The first is ensuring that products ‘provide fair value’ and meet customer needs. The second is an emphasis on delivering claims outcomes that are ‘fair and timely’. The third concerns ‘uncertainty over insurance cover including due to ambiguous contract terms’. The FCA made clear that these areas will remain under scrutiny. Insurers will need to maintain, and in some cases increase, investment in policy wordings to ensure that they are compliant.


New Irish Judicial Guidelines and a long term decrease in damages

Following the introduction of new Judicial Guidelines, more proportionate court awards for general damages are expected in the long term. With insurance reform a top priority for the Irish Government, the Guidelines have already led to a 46% decrease in the average general damages assessed by the Personal Injuries Assessment Board (PIAB) with 71% of those awards coming under €15,000. In the short term, however, we anticipate that a significant amount of PIAB assessments will be rejected by claimants who will look to test the Guidelines in the context of litigation. At the time of writing, the acceptance of PIAB awards by claimants has already declined from 50% to 41% which signals a likely increase in litigation over the next 12-18 months. Once court judgments eventually start to underpin the Guidelines, it is anticipated the rate of pre-litigation settlement will increase, resulting in significant costs savings for insurers entering the Irish casualty and motor markets going forward.

Contributed by our Dublin office.

Australia looks to fairer returns for group members … but at what cost?

Reform in the class action space continues in Australia as the Government tries to balance the interests of funders, lawyers and group members. Recent regulatory reform now means litigation funders are required to hold an Australian Financial Services Licence and class action litigation ‘funding schemes’ are covered by the Corporations Act 2001. A significant new development is the Government’s proposal to introduce laws designed to create a guaranteed minimum return of 70% for group members. The draft also flags amendments designed to limit common fund orders, nationalise funding requirements, impose written consent requirements, and require funders to irrevocably submit to Australia’s jurisdiction. While the draft attempts to tackle many of the current issues, there’s speculation it will create new ones including incentivising plaintiff firms to seek increasingly high settlements to maintain revenue and increase ‘closed classes’, which will lead to further multiplicity issues.

Contributed by our Australian Legalign partner, Wotton + Kearney.


Clinical negligence litigation reforms are on the horizon

The Health and Social Care Select Committee is consulting on reforms to clinical negligence litigation against the NHS, with a view to reducing this annual multi-billion pound liability. Under consideration are: learning from mistakes; moving away from an adversarial “blame culture”; and simplifying the process so patients receive redress swiftly. Any reforms here will spill over into the med-mal insurance market. This consultation, together with the Ministry of Justice’s call for evidence on Dispute Resolution, and a government determined to reform the role litigation takes in society, suggest fundamental changes are on the horizon.

Increasing international healthcare will see increasing cross-border disputes

As experts in international healthcare litigation and regulation, we are seeing a marked increase in cross border disputes. Providers and their insurers should be considering the regulatory and licensing issues surrounding international telemedicine, where doctors are increasingly outsourcing or contracting out treatment to third party providers based overseas and seeking their advice on the treatment of patients virtually. Related to this, the rules governing which nation’s laws should apply to contribution claims will be clarified by the case of Roberts v Viersen, due for hearing before the Supreme Court in March 2022. We are acting in this landmark med-mal claim for Viersen, a German hospital, who face a substantial contribution claim arising from care provided to an English family.


New motoring offences will see an increase in custodial sentences

The proposed new offence of causing serious injury by careless driving has been put forward by the Government “to close a gap in the law that fails to recognise the harm caused where drivers cause serious injury by their careless driving.” This new offence could lead to a maximum of 2 years’ imprisonment for drivers who hitherto could have been dealt with by way of penalty points on their licence and a fine. The offence, which forms part of the Police, Crime, Sentencing and Courts Bill, will mean that the consequences of a driver’s momentary inattention, lapse of concentration or error in judgement will potentially be far more significant than their culpability.

The brakes will be put on automated lane keeping systems

Despite the UK Government’s appetite to find a first use case for automated driving under Part 1 of the Automated and Electric Vehicles Act 2018 in the form of automated lane keeping systems (ALKS), concerns have been voiced by industry stakeholders about the safe deployment of these technologies under the current UN-ECE Regulation 157 which does not allow for lateral movements out of lane. The Department for Transport’s Centre for Connected and Autonomous Vehicles recently announced that Thatcham Research and Zenzic are working on a proof of concept for an Automated Driving System Consumer Rating to be delivered in the Spring of 2022. We do not expect the Secretary of State for Transport to list any vehicles as automated any time soon, nor do we expect manufacturers to release ALKS vehicles for use on UK roads before late 2022 at the earliest.

Cross-border fraud will increase in the wake of new regulations in England and Scotland

The implementation of Qualified One Way Costs Shifting (QOCS) in Scotland and the Whiplash Reforms in England and Wales will drive an increase in fraud across the English / Scottish border. The combined effect of these changes gives claimant solicitors a jurisdiction in Scotland with more significant damages for routine whiplash injuries, together with an entitlement to costs – with no real adverse costs risk. Without the concept of fundamental dishonesty and with no equivalent to s57 Criminal Justice and Courts Act - 2015 despite the introduction of QOCS, this could well be seen as an invitation to bring unmeritorious claims whether they arise from genuine accidents without injury or accidents staged purely for financial gain.

Legislative change in the UK to reverse the effects of Vnuk

We may finally see legislative change in the UK to reverse the effects of the ECJ ruling in Damijan Vnuk v Zavarovalnica Triglav, which will limit the potential scope of compulsory motor insurance to the definition as contained within the Road Traffic Act 1988. While the Motor Vehicle (Compulsory Insurance) Bill, which seeks to remove Vnuk liabilities, is currently progressing in the House of Commons, as a Private Members’ Bill, this may not progress much further. Nevertheless, the UK Government pledged in February 2021 to remove from UK law the effects of the ruling and while this is unlikely to be a high priority, there may be some substantive progress by late 2022.

New legislation for electric scooters in Ireland

The legalising of e-scooters in Ireland will create new underwriting opportunity. Currently under Irish law, the use of electric scooters is not specifically regulated and by default is covered under the Road Traffic Act 1961. In an attempt to formally legalise their use, the Irish Government is set to enact new legislation in the form of the Road Traffic (Miscellaneous Provisions) Bill. The Bill would create a new vehicle category called Powered Personal Transporters (PPTs) that would not need a driving licence, tax or insurance. It is expected that a significant number of e-scooter service providers will start to operate rental services in major towns and cities. This will create an opportunity for insurers who can underwrite schemes for e-scooter sharing platforms and provide personal accident products without the requirement to have regard to road traffic legislation and regulations. In the UK, e-scooter trials are already in operation as part of the Government’s strategy to tackle both the future and green mobility agendas, with legislation expected to follow an analysis of the data collected. It remains to be seen if the UK Government will follow Ireland’s lead in legislating to legalise private e-scooters akin to electrically assisted pedal cycles (e-bikes), without mandating the provision of insurance against third party liabilities, nor the use of helmets.

Contributed by our Dublin office.


Commercial supply exposed to consumer claims in Australia

Increasing numbers of commercial supply transactions are likely to be subject to consumer guarantees under the Australian Consumer Law (ACL), following the July 2021 increase to the threshold for the value of goods from Au$40,000 to Au$100,000. We expect this will increase the volume and value of product liability claims brought under the ACL.

Contributed by our Australian Legalign partner, Wotton + Kearney.


Accountants: Compulsory professional indemnity insurance for tax advisers still on the agenda

HMRC continues to explore ways to crack down on risky tax advice, which can leave the taxpayer with unplanned liabilities and the treasury’s coffers diminished. HMRC’s 2021 consultation explored defining tax advice and requiring tax advisers to hold professional indemnity insurance (PII). Currently, 70% of tax advisers already hold PII cover, often as a result of their professional body member requirements. The remaining 30% are unregulated and uninsured. Both the ICAEW and the Law Society are supportive of exploring mandatory PII as a means of bolstering consumer protection and standards of tax advice. Other professional bodies, such as BIBA, are concerned that mandatory PII will establish the insurance market as quasi-regulators and would prefer legislation to be the driver of change. In the short term, parliament is unlikely to have the time to address this but that will not stop HMRC seeking to keep it on the agenda longer term. In the meantime, insurers should expect an increase in PII interest from tax advisers and those who are professionally qualified and regulated.

Accountants: FRC will increase its investigations of the Big Six and challenger accountancy firms

The Financial Reporting Council (FRC) continues a well-publicised drive to raise auditing standards through engagement and enforcement. The Audit Enforcement Procedure, in place since June 2016, lowers the threshold for investigations from misconduct to mere breaches of relevant requirements (i.e. breaches of auditing standards). We have witnessed over the past 12 months sanctions imposed for poor audit work where there were no losses to shareholders, no financial misstatements, no going concern issues left unreported. There will come a point when regulatory expectations are matched by changes in audit work to reflect the changes in regulatory requirements, but in the meantime the beefed up FRC enforcement division will continue to open investigations and impose fines and sanctions. Insurers should continue to expect an increase in the number of notified regulatory claims and should note that challenger firms, lacking the experience and resourcing of the Big Six, may need to lean heavily on external advisors.

Pensions: The Pensions Scheme Act 2021 will bring increasing scrutiny and accountability and a daunting to do list

Pensions schemes and their advisers have a long to do list when addressing the myriad issues that the biggest piece of legislation affecting them in years has created. We predict that this is going to be the focus for the next 12 months as ensuring compliance is in everyone’s interests. The Pensions Scheme Act 2021 requires trustees to limit the risks of climate change and support the green strategy adopted by government; to develop a plan for their own eventual demise; to prepare for providing information to the Dashboard (where we will be able to see all our information in one place); and to comply with new transfer rules. In addition, The Pensions Regulator will undoubtedly be looking to exercise its new powers to protect schemes from corporate transactions that could put a scheme at risk.


The Northern Ireland Protocol will cause a rise in the costs of property damage claims

As a consequence of Brexit and the implementation of the Northern Ireland Protocol, the costs of property damage claims in Northern Ireland will rise due to increased import tariffs and failure/delay of supply of essential repair materials. Anecdotal evidence from the trades suggests that the cost of materials, including timber and steel, is already increasing by up to 40%. We could also see a rise in alternative accommodation costs following delays in repair completion timeframes. The net effect of these increased costs will lead to larger pay-outs on property damage claims brought by home and business owners which may lead to some insurers opting to pull out of the Northern Irish market, leading, in turn, to a sharp rise in premiums for policyholders.

Contributed by our Belfast office.

Environmental liability remains a critical risk in Australia

Analysis of recent case law shows environmental prosecutions are increasing in Australia, particularly in the mining and waste industries. We are also seeing some companies, particularly prior offenders and companies on the watch lists of environmental groups, being investigated based on lower thresholds. As managing pollution remains a focus for governments at all levels, we also expect to see the legislative and regulatory framework evolve to address this serious issue. A recent example of this was the Industrial Chemicals Environmental Management (Register) Act 2021, which was passed on 18 March 2021. With regulatory activity on the rise, having appropriate environmental liability coverage in place remains a critical risk management strategy for many businesses.

Contributed by our Australian Legalign partner, Wotton + Kearney.

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