Insights

On 2 December 2021, Directive (EU) 2021/2118 (the ‘‘Motor Insurance Directive’’ or ‘‘MID’’) was published in the Official Journal of the European Union, which brought about significant amendments to the EU Motor Insurance Directive (‘‘Directive 2009/103/EC’’) aimed at, inter alia, ensuring that motor insurance legislation within the Internal Market is brought in line with present realities, helping ensure that injured parties are protected through effective arrangements for compensation and improving the rights of policyholders.

Background

While acknowledging that Directive 2009/103/EC functions well as a whole, the European Commission, in its Report on the proposal aimed at amending Directive 2009/103/EC (the ‘‘Report’’), identified four key areas where amendments were appropriate:

1. insurance checks of vehicles by Member States;
2. compensation of parties involved in an accident where the insurance undertaking involved is insolvent;
3. minimum obligatory amounts of insurance coverage; and
4. use of policyholders’ claims history statement by a new insurance undertaking.

The Report’s outcome did not fall on deaf ears and all the matters that the Report considered ripe for amending, were indeed addressed in the Motor Insurance Directive.

Definition of Vehicle

Given the ever-increasing number of electrical vehicles being introduced onto our roads, the MID has amended the definition of a vehicle, to ensure that such electrical vehicles fall within the scope of this Directive. However, even though the demand for light electric vehicles more commonly known as ‘scooters’) is surging, given that they offer commuters accessible, efficient, and environmentally friendly modes of transportation, scooters have been excluded from the definition of the vehicle under the MID. The rationale behind this exclusion is that it would be disproportionate to include the same in the scope of this Directive which would, in turn, lead to discouraging individuals from using them.

Notwithstanding this, the MID does not hinder the Member States from requiring compulsory insurance for scooters. Compulsory insurance for scooters has previously been debated in Malta and its introduction is currently being studied in Spain.

Insurance checks of vehicles by Member States

To ensure that vehicles travelling from the territory of one member state to another are insured, the MID introduces the power to carry out checks on the insurance against civil liability in respect of vehicles registered in another Member State. However, the MID does not provide for an unfettered power in this regard but holds that these checks must be non-discriminatory, necessary, and proportionate to achieve the end intended. It further holds that the checks must be carried out as part of control which is not aimed exclusively at insurance verification and should form part of a general system of checks in that Member State.  Given the possibilities that new technological developments offer, the MID requires that such checks are carried out in a manner that does not require the vehicle to stop, to not interfere with the free movement of persons.

Minimum obligatory amounts of insurance coverage

Although Directive 2009/103/EU already had in place the concept of minimum amounts of cover required in compulsory motor insurance, these amounts have now been revised. The minimum amounts that the MID requires are:

• For personal injuries: EUR 6 450 000 per accident, irrespective of the number of injured parties, or EUR 1 300 000 per injured party;
• For property damage: EUR 1 300 000 per accident, irrespective of the number of injured parties.

The above amounts are minimum amounts without prejudice to any higher limits that may be prescribed by a Member State. The MID also provides for a review mechanism of these minimum amounts, whereby a review is carried out by the European Commission every five years in line with the harmonised index of consumer prices established under Regulation (EU) 2016/792.

Use of policyholders’ claims history statement by a new insurance undertaking.

Another measure aimed at facilitating the right to freedom of movement of persons is the newly introduced measure within the MID which provides for the harmonisation of the content and format of the claims history statement. This measure will require insurance undertakings to treat a claims history statement issued in another Member State as equivalent to a statement issued in the domestic territory, which effectively means that if a policyholder moves from one member state to another, their claims history (resulting in a “no-claims bonus” or “bonus-malus” rating) must be taken account by the insurance undertaking in the receiving state.

Compensation of parties involved in an accident where the insurance undertaking involved is insolvent

By far, this is the most significant amendment that the MID brought into the fore. Article 10 introduces the requirement of an insolvency compensation fund which will be used to compensate injured parties in a timely manner, in instances where the insurance undertaking of a vehicle becomes insolvent.

Malta is no stranger to insurance guarantee schemes. Under the Protection and Compensation Fund Regulations (Subsidiary Legislation 403.13) a fund is already in place whose purpose is to make payments of any claims made in respect of risks situated in Malta, and of commitments where Malta is the country of commitment where an amount due by the insurance undertaking remains unpaid due to insolvency. The regulations prescribe the amounts payable and the protected risks or commitments under the said fund in the event of insolvency of the insurance undertaking.

Under the MID, every Member State is obliged to set up or authorise a body which will be entrusted with the task of providing compensation to injured parties resident within its territory (the ‘‘Compensation Fund’’), for damage to property or personal injuries caused by a vehicle insured by an insurance undertaking, from the moment when:

• The insurance undertaking is subject to bankruptcy proceedings; or
• The insurance undertaking is subject to winding-up proceedings as defined under the Solvency II Directive.

The method of funding of the Compensation Fund may be determined by each individual Member State as long as it is sufficient to pay the levels of compensation prescribed by the MID.  Insurance undertakings may be required by the Member State to make financial contributions towards the Compensation Fund, provided such insurance undertakings have been authorised by the Member State imposing them.

The main bone of contention that lies with the introduction of a harmonised Compensation Fund rests with Article 10(10) of MID. Article 10(10) holds that in cases where the Home Member State of the insurance undertaking that is subject to bankruptcy proceedings or winding-up is different from the Member State in which the injured party is resident(the ‘‘Different Member State’’), the Compensation Fund of the Different Member State that has compensated the injured party, shall be entitled to claim full reimbursement of the sum paid by way of compensation from the Home Member State where the insurance undertaking was licensed.  This poses serious difficulties and concerns on the level of funds that would be required in order to be sufficient to meet any potential claims.

Should an insurance undertaking licensed in Malta face bankruptcy or winding-up proceedings, the Maltese Compensation Fund will have to compensate any other European fund for compensation granted to persons resident in their Member State for any personal injury or property damage caused by a vehicle insured by that insurance undertaking. This is also subject to a time limit of not more than six months. Given the current level of funding established under the Protection and Compensation Fund Regulations one can reasonably expect that amendments will shortly be introduced aimed at significantly increasing the amount of financial contributions required from insurance undertakings that write motor insurance business in an effort to bolster the amount of funding in the Maltese Compensation Fund.

This article was co-authored by Tanya Causon.

Also, this article was featured in the March 2022 issue of Ganado Advocates’ Insurance newsletter.