Vnuk – constructive solutions to minimise claims risks

I thought Alistair Kinley made a very valid point, in his earlier article of 13 August, calling for constructive solutions to the Vnuk problem. There needs to be a balance drawn between the protection of victims of accidents arising out of motor vehicles and the potential scope, post-Vnuk, of compulsory third party motor insurance (TPMI). Notably, TPMI will be required to cover use of vehicles, off-road, that may result in a contrived or potentially unworkable insurance solution.

Motorsport is an obvious example. At present, motorsport events that occur off-road are not subject to TPMI. Authorised motorsports events are licensed by the sport’s governing body through permits that extends public liability (PL) and personal accident cover for participants and event organisers. However this PL cover does not cover driver-to-driver liability. With this PL risk, post-Vnuk, potentially transferring over to a TPMI risk, not only does this give rise to some interesting liability questions, such as, how does one assess liability in a driver-to-driver collision when racing, but also fundamentally, with unquantified exposure, will there will be any appetite from motor insurers to underwrite the sport in the first instance?

The obligation to insure, in accordance with the European Motor Insurance Directive (MID), is subject to the principle that each member state may act in derogation of the MID, exempting vehicles from the scope of TPMI. However, any derogation is by type of vehicle or by legal personality. Derogation by type would be difficult as there are many varieties of vehicle involved in motorsport. Derogation by legal person is only possible in respect of vehicles belonging to that person, which would also be unworkable in the motorsport arena.

Moreover, any liability arising from a derogated vehicle would fall back on the Motor Insurers’ Bureau (MIB), potentially increasing the MIB levy. Motor insurers who have no exposure to motorsports would be carrying a liability for which they are receiving no premiums. Furthermore the MIB will seek to recover compensation payments from the driver at fault, exposing participants to potential liability. The EU, and the UK in particular, is a hub for motor sport. It would be bad for UK plc if the consequences of Vnuk led to increased costs, or alternatively, participants uninsured and exposed. One solution may be that the Government needs to consider excluding motorsport from the MID by either amending the MID or introducing a ‘motorsport directive’.

Nonetheless, the motorsport conundrum highlights a number of problems:

  • the use of vehicles off-road, that may hitherto have been covered under PL insurance, where there are generally limits of indemnity, will now be subject to unlimited liability
  • use of vehicles beyond the carriageway being uninsured, with the consequent risk of an increase in the MIB levy
  • increased claims arising from vehicles being used beyond the carriageway
  • the aggravated risk of fraud following accidents beyond the carriageway that may be difficult to investigate and validate

It is apparent, from our discussions with stakeholders and the Department for Transport (DfT), that Vnuk raises some significant questions for the insurance industry:

  • what type and use of vehicle should now fall within TPMI or be derogated; and
  • how insurance products, in particular PL policies, will need to be adapted to fit the post-Vnuk world

With the DfT in the process of finalising its Impact Assessment, certainly now is the time that insurers should be looking at their potential exposure to the increased risks post-Vnuk, to shape their responses to the forthcoming consultation.

Mike Dobson, partner

Written by Mike Dobson, partner.

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