Insurers Object to Lost Exemptions Under New EU Competition Law

On April 1, the European Commission's new Block Exemption Regulation will come into effect across the 27-member European Union, and insurance industry representatives are less than enthusiastic.

The new BER renews only two of the four categories of agreements exempted from EU competition law under the expiring BER. The two agreements that are being dropped are those on standard policy conditions and security devices. The EC said it found neither of those are "specific to the insurance sector." The commission did, however, say those types of agreements will be addressed under the EU guidelines on horizontal cooperation agreements now under review.

The two types of agreements whose exemptions are retained under the new BER are agreements related to joint compilations, tables and studies; and co-insurance and reinsurance pools.

The Brussels-based CEA, Europe's umbrella insurance trade group, said the "partial renewal" of the BER exemptions "will reduce cooperation between insurers, to the detriment of consumers."

While the EC said it will issue guidelines for the two types of agreements not carried into the new BER, CEA Director General Michaela Koller said guidelines are not legally binding. "They will therefore not ensure legal certainty and the CEA is concerned that it could lead to a significant drop in cooperation."

The CEA said insurers have concerns even with one of the two agreement types retained under the new BER. Koller said the CEA welcomes clarification of the definition of new risks for insurance pools, which now covers agricultural risks and natural disasters, for instance. The clarifications also include risks associated with new technologies and new legal provisions.

But Koller added the new market-share calculation for pools "leaves larger insurers outside the scope of the BER." What this means is smaller insurers will be unable to cooperate with larger companies "and benefit from their experience," which may create a lack of available coverage for certain risks, an less capacity in the market, she said.

The EC's new BER regulation notes a "key change" in the exemption covering pools is the approach to market share calculation, so "not only gross premium income earned within the pool by the participating undertakings, but also outside the pool will be taken into account."

According to Koller, insurers will have six months to get legal advice on the amended BER and "adapt their cooperation as necessary.

The EC's review of block exemptions for insurers raised concerns among both insurers and insurance buyers. The Federation of European Risk Management Associations last year said it didn't agree with the idea of leaving cooperation on standard policy conditions out of the new BER (BestWire, April 9, 2009).

In a policy statement last November, Ferma said it "shares the same concerns as the CEA and considers cooperation on SPCs very valuable as it helps to create transparency in the insurance market. For large commercial buyers, it reduces transaction costs, facilitates the comparison between policy conditions and provides better contract certainty."

The CEA said last year those exemptions left out of the new BER will fall to national regulators to work out, leaving the market with less clarity on their legal standing in those areas (BestWire, March 26, 2009).

In essence, the EC's new BER denies that insurers should continue to be exempt from competition rules for some activities, which the executive commission sees as not being unique to the insurance business. As such, their continuance "may result in unjustified discrimination against other sectors, which do not benefit from the BER."

The expiring BER was enacted in 2003. The new one will expire on March 31, 2017.