Pérez-Llorca | Insurance Legal Update – Spain Q1 2024

We start 2024 with some positive notes and expectations that we want to share with you. We are optimistic that the macro data for 2023 will finally show that there has been a rebound in the weight of the insurance sector in Spain’s Gross Domestic Product (GDP). As is well known, insurance activity represents approximately 5% of our country’s GDP, which is no cause for satisfaction, as it is two percentage points below the European average, and well behind the percentages of neighbouring economies, such as  France and Italy. In this respect, the public authorities must be aware that promotion is a key part of government action, and in Spain the conditions and requirements are  sometimes not in place for insurance to flourish and grow in importance in our domestic economy. In the absence of such support, the business fabric of insurers, distributors  of all kinds and, in general, all those involved in the industry, is simply on the defensive and not in a position to generate the wealth that our sector should generate.

The sector continues to respond exceptionally well to disasters such as the terrible fire in Valencia on 22 February 2024. Insurance was at the forefront of the business and social response to a devastating loss, proving once again that it plays a key and indispensable role in today’s Spain. The world of insurance acts as the saving grace in very painful situations, and even as the part of the financial sector that keeps its promises and redistributes wealth and the risk of misfortune socially. The response is deserving of praise and will undoubtedly set the trend for future misfortunes.

Returning to the need to encourage growth in the insurance industry, it is true that the governance actions that can be identified at the beginning of the year are merely a continuation of familiar supervisory trends. The sector will face a new challenge in the form of the Draft Law regulating customer services, which, although it excludes small companies from the scope of its mandates, and is supplementary to the obligations of the insurance sector’s own regulations, raises questions in its initial approach that will require reflection. For example, how do the concepts of “incident” or “complaint or claim” fit in with the uses and practices of our sector? It is easy to see that the current  system of remote claims handling will need to be reviewed in the light of the future regulation, since at the moment the automatic scripts and also the human scripts
do not always result in human or supervisory assistance, respectively.

It is also worth noting that on 19 March 2024, the Council of Ministers gave the green light to the Draft Law creating the Financial Customer Protection Authority. This Draft Law substantially conserves the characteristics of the Draft Law that was defeated in the last legislature, from which three major challenges for the sector emerge: the binding nature of the decisions adopted by the Authority, the threshold of this binding nature (amounts of less than 50,000 euros), and the fact that the judicial appeal procedure for these decisions is the contentious-administrative one. According to UNESPA’s 2022 report on property incidents in Spain, the vast majority of claims that now go to court can be settled in administrative courts. This leads to two conclusions: firstly, that if the resources allocated to the Authority are not very substantial from the outset, there may be significant delays and bottlenecks; secondly, that the sector must react and provide itself with the means to respond to claims that are far superior to those currently dealt with, where the customer’s complaint is sometimes dealt with without the depth of data and arguments that an adequate defence of the insurer’s interests would deserve.

Finally, we would like to point out that on 13 March 2024 the EU Artificial Intelligence Act, the draft of which was announced in December, was approved. The aim is to harmonise legislation establishing principles and criteria that lay the foundations for safe and responsible artificial intelligence in the European Economic Area. There is no
doubt that these technological advances will bring profound changes to the insurance sector, including improvements in risk identification and underwriting, automation of administrative tasks and claims management, and we will be following their development and transposition in Spain closely.

You can read the full report here.

For more information, please contact:
> Joaquín Ruiz Echauri, Partner – Insurance and Reinsurance, PÉREZ-LLORCA
> Rafael Fernández, Partner – Insurance and Reinsurance, PÉREZ-LLORCA

Compliments of Pérez-Llorca – a Premium member of the EACCNY.