Documents considered by the Committee on 4 July 2018 Contents

4Motor Insurance Directive

Committee’s assessment

Legally and politically important

Committee’s decision

Not cleared from scrutiny; further information requested; drawn to the attention of the Transport Committee and the Treasury Committee

Document details

Proposal for a Motor Insurance Directive amending Directive 2009/103/EC

Legal base

Article 114 TFEU; ordinary legislative procedure; QMV

Department

Transport

Document Number

(39804), 9365/18 + ADDs 1–2, COM(18) 336

Summary and Committee’s conclusions

4.1Forty-eight countries in Europe and North Africa participate in the international ‘Green Card’ system, a certificate proving valid motor insurance when crossing the borders of participating countries. It also allows the victim of a motor accident caused by a visiting vehicle from another participating country to pursue their claim for compensation domestically, via the Insurers’ Bureau34 of the country where the accident occurred, without having to pursue a claim in the country where the vehicle that caused the accident is registered.35 Moreover, the claim would be settled according to the legislation of the country where the accident occurred.

4.2Within the European Economic Area, of which the UK is part by virtue of its EU membership, the Motor Insurance Directive (MID) builds on the Green Card system (see paragraphs 4.20 to 4.25 below), notably by:

4.3In May 2018, the European Commission tabled a proposal for significant amendments to the Motor Insurance Directive, which would mark the first substantial changes to the legislation since 2005. The Commission based its proposal on an evaluation of the legislation, as well as a series of judgements by the European Court of Justice about the types of vehicles and situations where the compulsory insurance requirement applies. Notably the proposal would codify the Vnuk judgement, under which even vehicles used on private land, such as tractors and motor sports vehicles, must have a valid insurance policy. By extension, each Member State’s national Insurers’ Bureau would be liable to pay compensation if such a vehicle was involved in an accident but was uninsured.

4.4The other elements of the proposal relate to the use of claims histories when purchasing insurance; protection of victims where a driver’s insurer goes insolvent; the equalisation of minimum cover levels across all EU countries; and a framework for national authorities to check the validity of the insurance of vehicles entering their territory using technology such as ANPR. We have set out the substance of the Commission proposal in some detail in “Background“ below.

4.5The Minister for Transport (Jesse Norman) submitted an Explanatory Memorandum on the proposal on 20 June 2018.

4.6The Government appears broadly supportive of the changes the Commission has proposed, with the notable exception of the codification of the Vnuk judgement. Extending the scope of the mandatory insurance requirement to vehicles used only on private land, the Minister says, raises the possibility that motorised children’s toys and ride-on lawnmowers could require insurance. The UK’s position is that vehicles not driven on public roads should not be regulated at EU-level, since they “very rarely cross into another Member State’s territory”. The Government estimates that the proposed change would cumulatively increase insurance premiums in the UK by £2 billion per year, of which almost half—£800 million—would be to account for “additional fraudulent claims on private land”. This, the Minister says, translates into an average increase in individual premiums of nearly £50 per annum. The European Commission’s impact assessment for its proposal acknowledged these estimates, but added that these “calculations [were] based on internal figures and models that the Commission was not able to verify in detail”.37 It also appears some other Member States, including France, already apply the insurance requirement to vehicles on private land.38

4.7With respect to the implications of Brexit for the UK’s participation in the systems for cooperation between national insurers’ bureaux, the Minister’s Memorandum notes that the UK is in the process of obtaining so-called ‘Section III’ status under the Green Card system. Once formally approved by the European Commission, this means that UK drivers—when entering an EEA country from the UK or another EEA Member State—will not need to prove the validity of their insurance on entry. The same already applies to non-EEA countries Serbia, Switzerland and Andorra. However, after the UK leaves the Single Market, UK residents will no longer benefit from the ‘visiting victims’ scheme, the simplified process for claiming compensation if they are the victim of a motor accident when visiting an EEA country (see paragraphs 4.59 to 4.62 below).

4.8We thank the Minister for his helpful and detailed Explanatory Memorandum on the latest proposed changes to the Motor Insurance Directive. The Government is clearly concerned that, if the new Directive takes effect while the UK is still under an obligation to apply EU law (e.g. before the scheduled end of the transitional period on 31 December 2020) the changes to the statutory scope of the insurance obligation could push up car insurance premiums significantly. The European Commission has not been receptive to the Government’s arguments about the need to narrow the scope of the Directive instead. We note that the Department for Transport consulted on the implications of the Court’s case law for the UK in late 2016, but that no further legislative or regulatory action appears to have been taken since.39

4.9The full implications of any changes to the Motor Insurance Directive for the UK, including the proposed codification of the Vnuk judgement, are not yet known. This will depend, firstly, on the outcome of the legislative negotiations between the European Parliament and the Member States. Secondly, the direct or indirect legal implications for the UK specifically will depend on the nature of its relationship with the EU when the changes to the Directive formally take effect, and neither of these variables is yet known with any certainty. In particular, we do not yet know if the new legislation might take effect before the end of the proposed post-Brexit transitional period.40

4.10The proposal also provides a timely reason to assess the broader implications of the UK’s exit from the EU for the impact of the MID on UK drivers, insurers and victims of motor accidents. The Government’s 2013 ‘Balance of Competences’ review judged the impact of the Motor Insurance Directive for the UK to be “highly beneficial”,41 but its overall effects are not easily replicated from outside the Single Market.

4.11In particular, while the Government has made good progress in securing continued access of UK drivers to the European Economic Area without the need to carry a ‘Green Card’ and undergo border controls to check for valid insurance, it is unclear whether it also wants to secure a continuation of the existing ‘visiting victims’ provisions which at the moment apply only to EEA residents. This is a reciprocal system, meaning that the mere fact of ‘retaining’ the Directive in UK law under the EU (Withdrawal) Bill will not make any practical difference in the absence of a binding agreement with the other participating countries.

4.12We note in this respect that the Motor Insurers’ Bureau has said that “if the [visiting victims] scheme cannot be maintained or replicated, victims may have no choice but to pursue their claim in a foreign country in an unfamiliar language” which would “clearly [be] a backwards step for victims and would be an unwelcome change”.42 The Bar Council has made a similar recommendation, warning that the UK leaving the ‘visiting victims’ system could lead to “£100s of millions of expenditure on treatment costs, social care and benefits”43 because UK residents would forgo seeking compensation for overseas accidents and rely on domestic public services instead.

4.13However, it is not clear if the UK would have to continue applying the Motor Insurance Directive in full in return for an international agreement with the EU to extend the ‘visiting victims’ scheme to the UK post-Brexit. The extension of the system to the EFTA-EEA states Norway, Iceland and Liechtenstein has required them to transpose the Directive into their national legislation in full, and they will be expected to do the same for any future changes to the Directive (including, if agreed, the codification of the Vnuk judgement).44

4.14In view of the potential impact of the Commission proposal, and the wider ramifications of the UK leaving the system for cross-border resolution of compensation claims created by the Motor Insurance Directive, we retain the proposed legislation under scrutiny. We also ask the Minister to write to us to clarify the following points:

4.15Given that the new Motor Insurance Directive may apply in the UK (whether during transposition or, potentially, as a part of the wider future partnership with the EU), we are drawing the Commission proposal to the attention of the Transport and Treasury Committees. We also ask the Minister to keep us informed of developments in the Member States’ deliberations on the proposal, especially with respect to the elements identified by the Government as problematic. In the meantime, we retain the proposed Directive under scrutiny.

4.16We also note that ‘Section III’ status may resolve most issues related to border controls for private vehicles travelling between the UK and the EU after Brexit (although UK drivers’ licences will also no longer be automatically recognised throughout the EU). However, the British haulage industry will face far more substantial difficulties because, as a commercial activity, they are currently covered by free movement and cabotage provisions of the Single Market which will cease to apply when the UK becomes a ‘third country’. The European Commission summarised these consequences in a Stakeholder Notice in January 2018, but they are outside the scope of this Report. We understand the Transport Committee is currently considering these issues as part of its inquiry into “Freight and Brexit”.

Full details of the documents

Proposal for a Motor Insurance Directive amending Directive 2009/103/EC: (39804), 9365/18 + ADDs 1–2, COM(18) 336.

Background

4.17Under the 2009 Motor Insurance Directive, anyone who holds a compulsory car insurance policy in a European Economic Area (EEA) country is covered to drive throughout the entire EEA.46

4.18The foundations of EU motor insurance legislation lie in the International Green Card System. The Green Card is an international certificate of third party liability insurance that makes it possible for travellers to drive across national borders within Europe without having to buy supplementary insurance for each country they visit. The system is run by a Council of national bureaux (COB), and was set up in 1949 under the auspices of the United Nations Economic Commission for Europe (UNECE). Under the system as originally established, drivers have to show their Green Card when entering a different country (therefore requiring systematic border controls on entering traffic).

4.19If a car from one ‘Green Card’ country causes an accident while in another, the national ‘bureau’ of the country where the accident took place (which brings together all companies issuing motor insurance) handles and settles any insurance claims (the cost of which it recovers from the bureau of the country where responsible vehicle is registered). This basic system only offers protection where an accident involves a car from another ‘Green Card’ country, and held valid insurance. It does not apply when the vehicle involved in the accident is uninsured, or where the victim is visiting another ‘Green Card’ country and is involved in a car accident there.

The EU’s Motor Insurance Directive

4.20Within the EU, and by extension the wider European Economic Area, the ‘Green Card’ system has been developed much further to allow for the abolition of border controls for motor insurance and to increase protection for victims. Since 1972, five Motor Insurance Directives have sought to improve the ability of EU residents to use their cars elsewhere in the Union and to improve the protection of victims of traffic accidents.47 The first Directive requires all vehicles to be covered by a motor third party liability (MTPL) insurance policy and abolished systematic border controls to check the insurance of vehicles with plates from another EU Member States (while allowing “random checks”).48

4.21Since then, successive Directives have led to significant changes. For example, between 1983 and 2005 new EU legislation introduced minimum amounts of cover for car insurance policies, including for material damage in addition to personal injury; the establishment of national guarantee funds in each Member State to compensate victims of traffic accidents if a driver is uninsured or cannot be traced; a requirement for insurers to offer policies that are valid throughout the entire EU; the ability for drivers to request a claims history statement to use when applying for motor insurance with a new provider; and clearer conditions under which Member States could carry out border checks for insurance.49

4.22The Motor Insurance Directives also offers protection for EEA residents who are the victim of a traffic accident in any ‘Green Card’ country other than where they live (‘visiting victims’) and where the accident involves a vehicle registered in an EEA country.50 Under articles 20 to 26 of the Directive, someone who is involved in a car accident where those conditions are met can claim compensation in their home country, meaning they do not have to deal with a foreign legal system. It enables victims to return home and then pursue a claim via a local representative of the foreign insurer of the driver who caused the accident, or via the ‘Compensation Body’ (the MIB in the UK). If the accident took place in an EEA country and the vehicle is unidentified or uninsured, the victim can also get compensation from the national bureau in the EEA country where they live (which then recoups any pay-out from the bureau of the country where the vehicle was registered or of the country where the accident took place).

4.23In practice therefore, for motor accidents that take place anywhere in the European Economic Area, the victim can pursue their claim for compensation in their Member State of residence. For example, a UK tourist to France injured by a vehicle insured in Italy could seek compensation via the Italian insurers’ representative in the UK. If it has not appointed one, the victim could turn to the UK’s Motor Insurance Bureau, which would pay out any valid claims and then have this money reimbursed by its Italian counterpart. This system is seen as an important piece of consumer protection as it obviates the need (in the above example) for the UK tourist to seek compensation via the French Insurers’ Bureau, which would be necessary under the ‘Green Card’ system, or from the Italian insurer directly.51

4.24There are also three so-called ‘Section III’ States52 (Switzerland, Serbia and Andorra). These countries, while outside the European Economic Area, have agreed to pay compensation for traffic accidents caused by a car normally registered in their territory, even if the vehicle in question is not insured (referred to as ‘deemed insurance cover’), mirroring the requirements on EEA countries under the Motor Insurance Directive. As a result, vehicles from these three countries can travel freely between each other’s territories and EEA countries, without the driver needing to carry the Green Card when crossing borders: the number plates of vehicles from these countries are presumed to be the proof of insurance. Given the UK’s decision to leave the EU, the Department for Transport announced in May 2018 that the Government had provisionally secured status for the UK as a ‘Section III’ State pending formal approval by the European Commission.

4.25However, the ‘visiting victim’ provisions do not apply for residents of countries outside the European Economic Area, including the ‘Section III’ States. As such, by way of example, at present a UK resident injured by a Swiss-insured vehicle in France would have to seek compensation via the French Insurers’ Bureau, as the reimbursement scheme for visiting victims do not apply between the national bureaux of the UK and Switzerland. We have assessed the implications of Brexit for the UK’s approach to motor vehicle insurance, including for UK visitors to other European countries, in more detail in paragraphs 4.59 to 4.62 below.

Proposal to update the Motor Insurance Directive

4.26In May 2018, the European Commission published a legislative proposal to amend the Motor Insurance Directive. This proposal built on three different developments: the Commission’s own evaluation of the functioning of the 2005 Directive; the Consumer Financial Services Action Plan; and a series of judgments by the European Court of Justice (CJEU) on the scope of the Directive. All in all, the Commission proposal would affect the Directive in the following areas:

4.27The main findings or implications of these are set out below, followed by a description of the amendments the Commission has proposed to update the Directive in light thereof, alongside the Government’s position as articulated in the Explanatory Memorandum submitted by the Minister for Transport (Jesse Norman) on 20 June 2018.

Court of Justice interpretation of the Motor Insurance Directive

4.28One of the most controversial aspects of the Motor Insurance Directive is its scope, following a number of judgments of the Court of Justice of the European Union about which vehicles are subject to the mandatory insurance requirement under article 3 of the Directive. The implications of the Court’s caselaw in this area are set out in some detail in the European Commission’s impact assessment.53

4.29In particular, the 2014 Vnuk judgement54 clarified the scope of the insurance obligation for drivers as covering “any activities consistent with the ‘normal function’ of a vehicle, regardless of the location where the vehicle is used”. This judgement made headlines in the UK at the time, because the Court’s interpretation extended the need for motor insurance to vehicles used only on private property, as well as vehicles not primarily designed for use in traffic like tractors or motor sport vehicles.55 The Court subsequently clarified further that “normal function of a vehicle” refers to use its for transport, not any other use the vehicle may have such as ploughing or powering pumps (the Rodrigues de Andrade judgement),56 but confirmed that the characteristics of the terrain (i.e. public or private land) where an accident occurs are irrelevant to whether the Directive applies (the Torreiro judgement).57

4.30As a result of this case law, the compulsory insurance of motor vehicles under the Directive applies to accidents involving a vehicle “regardless of the characteristics of the property or terrain on which the accident occurred”, as long as the vehicle was being used as a mode of transport at the time. By extension, if an uninsured vehicle within those parameters is involved in an accident on private land, the national guarantee fund—the Motor Insurers’ Bureau in the UK—would have to meet any subsequent claim for compensation. As the MIB is funded by companies that issue motor insurance, any increased calls on the Bureau could have the effect of pushing up their contributions and, as a result, drivers’ insurance premiums. The Department for Transport consulted on the implications of the Court’s judgements for the UK in late 2016, but does not appear to have determined what action needed to be taken to ensure compliance with Vnuk.58

4.31At EU-level, a number of Member States—including the UK—have asked the Commission to amend the MID to ensure it applies only to vehicles when used on publicly accessible land (and thereby obviating the Court’s interpretation of the Directive as currently written). The Government estimated that accepting the Court’s interpretation would result in additional premium costs for the UK totalling £1.83 billion (although this was based on the UK’s unlimited cover for personal injury, not the minimum amounts of cover required by the Directive).59 The Government also sought a specific exemption from the Directive for vehicles used in motor sports, because the “normal function”—as defined by the Court—would also apply to cars or bikes competing in a race and therefore make them subject to the insurance requirement. The Association of British Insurers (ABI) had estimated that including such vehicles in the scope of the Motor Insurers’ Bureau would “lead to [an] increase of premiums of 10 per cent”.60

4.32However, the European Commission’s proposed amendments to the Motor Insurance Directive comprehensively reject the UK’s preferred approach with respect to both the overall scope and the exemption for motor sport vehicles. Instead, the Commission has proposed to codify the Court’s jurisprudence by inserting a new definition of “use of a vehicle”.61 This would have the effect of making the extension of the Directive to vehicles used on private land a statutory requirement. The Commission’s reasoning for rejecting the UK proposal is that narrowing the scope of the Directive to accidents on publicly accessible land only would be a “lower level of protection of victims” and therefore go against its objective “to ensure a high level of protection for victims of motor vehicle accidents”. It says restricting the insurance obligation as proposed by the Government means “there would not be compulsory insurance requirements where accidents occur on private driveways, holiday resorts, secured areas of airports, roads on golf courses, any clubs’ private terrains, or farms”.

4.33The Commission also did not accept the UK’s argument that the broader scope of the insurance obligation would necessarily lead to increases in premiums, noting the figures used by the UK Government to calculate the costs were not shared with the Commission (and it was therefore “not able to verify [them] in detail”). It also adds in its Impact Assessment that premiums in countries where the insurance requirement already applies to private land are not among the EU’s highest, and similarly that in Finland—where the insurance requirement already applies to motor sports—has not caused any problems.

4.34In his Explanatory Memorandum, the Minister reiterates the Government’s opposition to the Court’s interpretation of the Directive and, consequently, the Commission’s proposal to codify it as statute:

“The Government believes that it should be for individual Member States to set laws for insuring the use of vehicles on private land as these vehicles were rarely cross into another Member State’s territory. […] Examples of types of vehicle potentially in scope of the Directive’s Article 1 definition include e-bikes, ride-on lawnmowers and motorised children’s toys. Many of these will never be in close proximity of members of the public and/or travel at low speeds and therefore pose minimal risk of causing an accident or injury.”

4.35Accordingly, the Minister says the Government will explore the possibility of instead limiting the statutory scope of the insurance requirement to vehicles used on publicly-accessible land during the legislative negotiations. The extent to which it has support among other Member States for such a change is unclear.

Insolvency of the responsible insurer or lack of a reasoned reply to an insurance claim

4.36The second amendment to the Motor Insurance Directive put forward by the Commission concerns the provision of compensation to victims where the driver’s insurer has gone insolvent.

4.37At present, the Directive requires each Member State to establish a compensation body (the Motor Insurance Bureau in the UK) to compensate victims of accidents caused by uninsured or unidentified vehicles. However, at present these bodies do not have to meet costs arising from claims where the driver has insurance, but their insurer has gone insolvent. This means that, if the law of the country where the driver is insured does not provide for any specific protection scheme in such an eventuality, victims of accidents caused by a vehicle insured with an insolvent insurer may be left without compensation.62

4.38The Commission has now proposed a requirement for each EU country to appoint a body with the task of providing compensation for material damage or personal injuries caused by a vehicle insured by an insolvent insurer.63 In such circumstances, the national guarantee fund of the country where the victim lives would provide compensation, but claim this back from their counterpart in the Member State where the insolvent insurer was established. The same would apply where a claimant has not received a reasoned reply from the liable party’s insurer within three months of submitting an insurance claim. The procedural obligations of the compensation bodies would be defined by the Commission through Delegated Acts.

4.39The Minister’s Explanatory Memorandum explains that, in the UK, the Financial Services Compensation Scheme (FSCS) already covers the full cost of third party motor insurance claims where the liable party’s UK-based insurer is insolvent. It adds that “the Commission proposal should create certainty for claimants and speed up the time taken to determine and pay agreed claims”, and the reimbursement of the costs by the Member State of the insurer “creates a useful incentive for [Member States] to put in place robust prudential regulation safeguards to avoid insurers in their jurisdiction from becoming insolvent”. The Government is, however, considering whether the procedural obligations should be laid down in Implementing rather than Delegating Acts (the latter being subject to a veto by the European Parliament whereas the former are not).

Claims history

4.40The third element of the Commission proposal to amend the Directive relates to drivers’ ability to request, and use, a claims history when purchasing a new insurance policy.

4.41Since the 2005 iteration of the Directive, drivers have the right to request from their insurer a claims history statement for the past five years. In theory, this would assist drivers in securing an insurance policy (especially if they move to another Member State). However, there is no legal requirement for insurers to take the claims histories issued under the Directive into account when calculating premiums, and the Commission’s evaluation found that they are often ignored or have their authenticity questioned.

4.42To facilitate the use of the claims history statement, the Commission proposes to create a harmonised template which would be used throughout the EU (thereby making it easier to verify their authenticity). It has also suggested requiring all Member States to ensure, in law, that insurers cannot increase premiums for drivers based on their nationality or their previous Member State of residence. To facilitate compliance, insurers would be under an obligation to publish their policies with respect to use of claims histories issued under the Directive when calculating premiums.

4.43The Government does not oppose the thrust of this element of the proposal, but the Minister has expressed a number of concerns that would need to be addressed in the legislative process. Notably, the Directive should allow for current UK practice where an insurance policy is driver-specific (whereas in most other EU countries it is vehicle-specific), and the Minister questions whether publication of insurers’ policy with respect to use of claims histories would actually assist Member States in determining whether the non-discrimination obligation was being observed in practice. The Government is also considering whether it is appropriate for the format of the claims history to be determined through an Implementing Act, as proposed by the Commission.

Ensuring the validity of insurance of foreign vehicles

4.44The fourth area of focus in the Commission proposal is tackling uninsured driving. According to the Association of European Vehicle and Driver Registration Authorities (EREG), the cost of accidents caused by uninsured vehicles to the national guarantee funds across the EU in 2011 alone was €870 million (£766 million). While the Motor Insurance Directive contains a general requirement for Member States to take “all appropriate measures” to ensure that vehicles in their territory are covered by insurance, it prohibits systematic checks of insurance of vehicles bearing plates from another country (including those where the vehicle does not need to be stopped). The reasoning behind this was that systematic checks, especially at borders, would hinder the free movement of vehicles within the Single Market.

4.45However, given advances in automatic number plate recognition (ANPR), the Commission now proposes that Member States should be allowed to carry out such insurance verification controls on foreign vehicles entering their territory “if the checks form part of a general system of checks (…), are not discriminatory, do not require stopping the vehicle and are necessary and proportionate to achieve the end pursued”. Any transfers of personal data to verify the validity of insurance on a vehicle from another EU country would have to be in line with the General Data Protection Regulation.

4.46The Government supports this element of the proposal, as the Minister notes that it would “allow, but not require, the UK to use ANPR […] checks to detect uninsured vehicles entering the UK, as the policy already do for UK-registered vehicles being driven on UK roads”.

Minimum amounts of insurance cover

4.47Article 9 of the current Motor Insurance Directive established minimum obligatory amounts of cover up to which compensation must be provided under a motor third party liability policy issued within the EU.64 These are subject to five-yearly adjustments to account for inflation (meaning they are currently set at €1.22 million (£1.07 million) per victim for personal injury, and the same overall limit for any claim relating to property damage). The UK has set limits well above these minimum limits, requiring unlimited cover in motor insurance policies for cases of personal injury, and a £1.26 million minimum cover for property damage.

4.48However, due to transitional arrangements agreed in 2005 (when the minimum cover was introduced), 13 Member States can still apply lower minimum amounts than the floors laid down in the Directive. While the transitional period itself expired in 2012, the reference dates for the five-yearly adjustment are different for those countries that benefitted from the transition (meaning they are having to increase their minimum cover amounts at a different rate than the other Member States).

4.49The Commission now proposes to eliminate this discrepancy by effectively uprating the minimum cover in those Member States where lower amounts can still be applied to the same level as applies in the other Member States:

4.50Given the UK’s higher limits, this change would have no appreciable domestic impact.66

Our assessment

4.51The Motor Insurance Directive is of great importance to many Britons as it underpins their obligations as drivers, as well as to insurers which must comply with the requirements of the Directive when issuing policies and handling claims for compensation involving motor accidents in both the UK and elsewhere in Europe where either the responsible or injured party is a UK resident. It also provides an important safety net for British victims of traffic accidents, both in the UK and when visiting other countries in the European Economic Area, where the most far-reaching consumer protections apply.

4.52While the Government appears broadly supportive of the Commission proposals with respect to insurer insolvency, claims history, ANPR checks and minimum cover, the Minister has expressed some serious concerns about the Commission proposal to codify the European Court of Justice case law on the scope of the Directive to include vehicles used only on private land. This, he says, raises the absurd and presumably unintended possibility that motorised children’s toys and ride-on lawnmowers could require motor insurance.

4.53The Minister also argues that vehicles used only on private land, including agricultural and motor sports vehicles, would in any event rarely cross national borders. As such, the Government believes that any regulation of their insurance requirements should be left to individual Member States. While this is undoubtedly true for most vehicles in England, Wales and Scotland, the situation near intra-EU borders—including between Northern Ireland and Ireland67—may well be different.68

4.54It is unclear how many other Member States share the UK’s reservations about the codification of the Vnuk judgement, and consequently whether a blocking minority exists within the Council to force removal of that proposed amendment to the Directive. We note that both Germany and Ireland, but not the UK, intervened in the Vnuk case to argue that the insurance obligation “relates only to situations involving road use”. As the new legislation requires a Qualified Majority Vote (QMV) in the Council, the UK currently has substantial influence over the legislative process. However, in light of its decision to leave the EU, it will cease to do so when the UK loses its voting rights at the end of the two-year Article 50 period on 29 March 2019. Nevertheless, under the terms of the proposed post-Brexit transitional arrangement, the UK would continue to apply EU law—including new legislation—as if it were still a Member State.

4.55The consequences of any codification of the Vnuk judgement for UK insurers and drivers are therefore still unclear, because the precise impact of any changes to the Motor Insurance Directive under domestic law depend on three factors:

4.56The Committee will keep any developments in the legislative progress under review to inform its assessment of the implications of the proposed Motor Insurance Directive for the UK.

Implications of Brexit

4.57The UK’s decision to leave the EU will also have other ramifications for drivers, insurers and injured parties which currently have rights and/or obligations derived from the Motor Insurance Directive. Most importantly, the UK’s departure from the Single Market means that, by default, the UK would revert to being part only of the basic ‘Green Card’ system. That means UK drivers would have to prove they hold valid insurance when entering any other participating country, including Ireland and France.

4.58To avoid this, as we noted above, the Government has worked to secure ‘Section III’ status for the UK. While this still requires formal approval by the European Commission, this means the UK drivers will join their counterparts Switzerland, Serbia and Andorra in being able to cross national borders within the European Economic Area without having to have their insurance checked. We have asked the Minister to clarify when the Government expects formal Commission approval of the UK’s ‘Section III’ status, and whether this would be ready to take effect on 30 March 2019 if the UK exits the EU without a deal (and the UK automatically loses its status as a participating country under the Motor Insurance Directive).

4.59In any event, the ‘Section III’ status will not keep in place the protections for UK victims of a motor accident when it occurs overseas in an EEA Member State. In legal terms, the ‘visiting victim’ provisions of the MID apply only to:

4.60As the Government has ruled out the UK staying in the European Economic Area and the Single Market, neither of those scenarios could apply to UK residents who are injured while travelling in an EEA country.69 The Motor Insurers’ Bureau has said:

“This [‘visiting victims’] scheme is European born and will almost certainly face Brexit ramifications. (…) If the scheme cannot be maintained or replicated, victims may have no choice but to pursue their claim in a foreign country in an unfamiliar language. This is clearly a backwards step for victims and would be an unwelcome change.

Whilst the UK may decide to keep national law compliant with the EU Directive in this respect, the obstacle is the fact that all other Member States will have to agree, as the scheme is based on reciprocal agreements and provisions in national laws. Without the EU Motor Insurance Directives, there is nothing binding the UK to the other countries and as such it will be necessary to explore ways to coming to agreements about the provision of local representatives for insurers and also assistance for victims and reimbursement arrangements.”

4.61The Bar Council has warned that an end to the ‘visiting victims’ protection for UK residents involved in accidents overseas could end up as a significant cost to the public purse, because victims would be less likely to pursue an insurance claim (as this would involve dealing with a foreign insurer through the systems and courts of a foreign country) and therefore require more assistance from publicly-funded services in the UK as a result.

4.62It is unclear from the Minister’s Explanatory Memorandum if the Government intends to negotiate an arrangement effectively extending the ‘visiting victim’ and other consumer provisions of the MID to the UK by means of an international agreement with the EU; and if so what the implications of that would be in terms of continued adherence to the terms of the Directive. In particular, because there is no precedent for such an agreement (even with the ‘Section III’ states) it is unclear to us if any such international agreement would require the UK to respect the Vnuk judgement and any resulting codification of its case law into the Directive (if accepted by a qualified majority of the remaining Member States, see paragraphs 4.28 to 4.35 above).

4.63Given that the new Directive may apply in the UK (whether during transposition or, potentially, as a part of the wider future partnership with the EU), we have asked the Minister to keep us informed of developments in the Member States’ deliberations on the proposal, especially with respect to the elements identified by the Government as problematic.

Previous Committee Reports

None, as this is a new legislative proposal.

The European Scrutiny Committee last considered the 2005 amendment to the Motor Insurance Directive on 5 November 2003. See Thirty-Sixth Report HC 63–xxxvi (2002–03), chapter 12 (5 November 2003).


34 The Insurers’ Bureau is a consortium of all domestic insurers which issue motor insurance.

35 For example, a vehicle from Ukraine causing an accident in Poland would allow the victim in Poland to lodge their claim for compensation from the driver’s Ukrainian insurer with the Polish Insurers’ Bureau, who would then liaise with its Ukrainian counterpart.

36 Switzerland, Serbia and Andorra—the so-called ‘Section III’ states—have made a similar commitment, and as such vehicles from those countries can be driven freely throughout EEA without needing to show a ‘Green Card’ at the border.

37 Commission Impact Assessment SWD(2018) 247, p. 156.

38 According to Insurance Europe, in 2016 average premiums in France were €184 (£162) per year, significantly lower than some other EU countries such as Italy (€403; £354); the Czech Republic (€388; £341) and Belgium (€308; £271). The figures publishes do not include the UK, making further comparisons difficult.

40 During the transitional arrangement, scheduled to last until 31 December 2020, the UK would remain obliged to apply EU legislation—including new EU law. The legal framework for the transition is dependent on wider agreement with the EU on the substance of the Withdrawal Agreement.

44 See EEA Joint Committee Decision 117/2011 of 21 October 2011.

45 The Minister’s Explanatory Memorandum explains that the proposal on the scope of the MID would require changes to at least seven UK legal instruments, including the Road Traffic Act 1988.

46 The current Motor Insurance Directive was incorporated into the EEA Agreement by means of Joint Committee Decision 117/2011.

47 See Council Directive 72/166/EEC; Council Directive 84/5/EEC; Council Directive 90/232/EEC; Directive 2000/26/EC; and Directive 2005/14/EC.

48 The drafting of the Directive had caused divergent interpretations across Member States. Some performed random checks on all vehicles entering from another Member State (irrespective of whether they had licence plates issued by another Member State or a ‘third country’), whereas others applied them only to cars with ‘third country’ licence plates.

49 The Directive does not regulate issues of civil liability and the calculation of compensation awards, or optional (comprehensive) cover for physical injury of the driver, material damage to vehicles or vehicle theft. Those matters are decided by individual EU countries. See for more information this factsheet issued by the UK Bar Council.

50 These first three Directives built on the system of “green cards”, which had been introduced to facilitate the settlement of claims in accidents caused by a motorist in a Member State other than that in which the vehicle is normally based. This system ensures the payment of compensation to victims of accidents caused by visiting vehicles through a private-sector network of Green Card Bureaux set up by the insurers and established in all the Member States. However, an important gap still remained: because the original aim was to eliminate border controls on insurance, the “green card” system did not make any provision for victims of road traffic accidents when visiting another country (a so-called ‘visiting victim’). This gap was filled by the fourth Motor Insurance Directive, which also provides for a mechanism for settling claims in respect of such accidents.

51 The Motor Insurance Directive’s ‘visiting victim’ provisions also apply if the accident took place in a non-EEA ‘Green Card’ country like Switzerland, but only if both the victim and the vehicle involved were registered to different EEA countries.

52 This refers to Section III of the Council of Bureaux’ internal regulations.

53 Commission document SWD(2018) 247, p. 110.

54 Judgement in case C-162/13, Vnuk. The Vnuk judgment concerned an accident involving a tractor on a farm in Slovenia. Specifically, Mr Vnuk, an employee of the farm was knocked off a ladder by a trailer attached to a tractor that was reversing across the farmyard.

55 The definition of a ‘motor vehicle’ under the Directive is already wide, covering “any motor vehicle intended for travel on land and propelled by mechanical power, but not running on rails”.

56 Judgement in case C-514/16, Rodrigues de Andrade.

57 Judgement in case C-334/16, Torreiro.

59 Commission document SWD(2018) 247, p. 62.

60 See Commission Impact Assessment SWD(2018) 247, p. 63.

61 This definition, drawn from the three Court judgements, would read: “Use of a vehicle” means “any use of such vehicle, intended normally to serve as a means of transport, that is consistent with the normal function of that vehicle, irrespective of the vehicle’s characteristics and irrespective of the terrain on which the motor vehicle is used and of whether it is stationary or in motion”.

62 The Commission has recorded eight cases of insolvency of motor vehicle insurers in the EEA between 1998 and 2007, resulting in approximately 11,500 claims against policyholders of those insurers after their insolvency for a total value of is approximately €180 million. However, it explains that this is “certainly an underestimation of the total problem, as for 3 out of [the] 8 insolvencies information on claims is not available”.

63 The body would also have to provide compensation if the insurer, even though not insolvent, has not provided a victim with a response to their claim within three months.

64 The substance of this Article differs between the English and French language versions of the Directive. It sets the minimum amount for personal injuries at 1 million EUR per victim and 5 million EUR per claim in its English version. In the French version, the provision refers either to a “victim” or an “accident” (‘sinistre’). It could be argued that the English version refers in both cases to the same thing, because the terms “victim” and “claim” could be interpreted as being related to a single person, rather than to the whole of the accident. As a consequence, there might be different levels of protection for victims of motor accidents depending on where they occur.

65 Currency exchange rate €1 = £0.87680 Or £1 = €1.14051 as at 31 May 2018.

66 The Commission impact assessment shows the biggest changes in minimum cover (and therefore, potentially, for insurance premiums) would occur in Member States in Southern and Eastern Europe.

67 The Minister’s Explanatory Memorandum explicitly notes that the Government “will continue to have discussions on future motor insurance arrangements on the island of Ireland”.

68 Consistent application of the ‘visiting victims’ scheme also relies on a uniform EU-wide understanding across all Member States of which vehicles are covered by the mandatory insurance requirement and, by extension, the backstop protection of national compensation bodies if someone is injured by an uninsured (or unidentified) vehicle.

69 EEA residents involved in a motor accident in the UK caused (if caused by an EEA-registered vehicle) would have recourse to pursue a claim domestically, but not if the vehicle was UK-registered.




Published: 10 July 2018