Liability Insurance

Growing Market

The liability risk is still a very under-appreciated and unknown product across large parts of the CEE region, yet as with any emerging market, because it starts from a low base it will grow more quickly as class of insurance percentage-wise, than other standard insurance classes will. There is a false sense of security or even complacency when it comes to liability exposures in the CEE region. This is still reflected in the buying habits of not only locally owned businesses but also by some foreign owned businesses, who have sometimes learned too late, and at great cost to themselves that there can be sizeable liablity claims in the CEE region. This complacency may be one of the lingering legacies of socialism, but the exposure is still there and the coverage available as well.

Many CEE companies do not see the need to buy Liability insurance but increasingly this is changing for several reasons as follows;

  1. Previous Claims Experience – CEE Insurers are more likely to pursue subrogated claims after a fire/accident, and this means that increasingly CEE insurance buyers experience is shaped by this, and following such an event they are more likely to see the need for and to buy General Third Party Liability insurance thereon
  2.  Western Company Buying pressure – CEE factories manufacture many Western European and US goods, where the western buyer demands more guarantees and this leads to a requirement for product liability insurance where the CEE factory would not usually buy it.
  3. EU Directive and Legislative pressure – the EU issues directives and rules on compliance for professions, and this leads to increased local compliance requirements for the CEE professions (especially notaries, lawyers, accountants) which in turn leads to increased Professional Indemnity insurance requirements.  The limits for Professional Indemnity insurance are continuously being raised by local CEE Supervisories leading to higher premiums.
  4. Western Investment – Western Investors, especially private Equity Funds, demand a higher level of insurance to be carried by their investment partners, and this is leading to more liability insurance being bought by CEE buyers. In particular CEE companies listing on western stock markets have to buy larger Directors and Officers (D&O) Insurance, and it is these listings that primarily drive the CEE D&O Insurance market.
  5. Environmental climate – The 2010 Alka sludge spill in Hungary highlighted how older industrial sites across the CEE region pose an environmental threat.  The EU also issues regular Directives for environmental clean-up responsibility, and there is an increasing awareness of the need to buy Environmental Liability Insurance (which is available) in CEE, though as yet it still remains very much under-sold.


Assessing risk 

Historically liability insurance is priced based on prior claims experience, the turnover and the book value of business assets. Due to the fact that there is almost no Liability claims experience in CEE, the rating of Liability Insurance in CEE is still a mysterious art, and this leads to wide swings in premium offers.

The position is complicated by the fact that in some CEE countries, especially non-EU territories, the local legislation and court system are very unused to the liability concept leading to unusual and variable judgements.  In effect every liability insurance court case in CEE is still a test case.