CZECH REPUBLIC Trends and Developments Contributed by: Eva Nováková, Michaela Šmotková, Martin Sztefek and Kateřina Chizzola Bardonová, JŠK, advokátní kancelář, s.r.o.
Climate-related risks have become a systemic chal- lenge. The floods in September 2024 floods ranked among the three most severe in modern Czech his- tory (with economic losses roughly CZK70 billion and insured losses around CZK20 billion), exposed wide- spread underinsurance and are prompting a reassess- ment of sums insured, clearer catastrophe clauses and more transparent disclosure to avoid misrepre- sentation disputes. At the same time, digital resilience has moved beyond process automation. The implementation of DORA imposes hard-law ICT risk management duties. Insur- ers must ensure that their outsourcing agreements include audit rights, incident notification timelines, and exit strategies aligned with DORA. The frequency and severity of cyber risk are accelerat- ing, increasingly shaped by AI-enabled attacks. This is pushing insurers toward data-driven underwriting and tighter pre-bind security assessments, while the legal focus is shifting to coverage triggers, insured’s compliance with minimum security standards and the allocation of liability among insurers, policyhold- ers and technology vendors. These issues demand precise contractual language and co-operation duties during incident response. Parametric solutions are emerging as an addition to traditional indemnity cover, initially in agriculture (drought or frost risks) and potentially for flood and storm risks. However, they raise specific legal and conduct-of-business questions, as triggers must be clearly defined, basis risk must be explained in sim- ple terms, and sales processes must align with con- sumer protection expectations. Insurers must ensure that customers understand that payouts depend on predefined indices rather than actual loss suffered.
Evidence of clear, prominent disclosure will be criti- cal to defend against misselling claims. On the back end, reinsurance programmes should mirror paramet- ric triggers to avoid recovery gaps. In parallel, the adoption of AI in underwriting and claims processes is expected to increase efficiency but also introduces governance and explainability duties as the EU AI Act comes into effect. Insurers that deploy high-impact models will need robust documentation, fairness testing and human oversight capable of withstanding supervisory or judicial review. Litigation remains another source of pressure. Unit- linked life insurance continues to generate disputes, especially over fee transparency and unfair terms. With the Supreme Court guidance on the interplay between unfair terms and limitation periods expect- ed in 2026, developments could significantly reshape case law and influence settlement practices. Investor- driven models that purchase claims are under judicial scrutiny, and their viability depends on these upcom- ing decisions. Looking ahead, the Insurance Recovery and Reso- lution Directive (IRRD) will urge boards to formalise recovery plans, resolution playbooks and funding strategies. Meanwhile, the EU’s distance marketing rules will tighten remote sales governance through layered disclosures and UX safeguards to prevent misleading design patterns. Overall, the Czech insurance market participants face a dual challenge: protecting margins amid rising cli- mate- and cyber-driven loss costs, while investing in digital, cyber, and capital resilience within a modern- ised European regulatory framework.
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