Out-Law News 3 min. read

Limited competition exemption confirmed for EU insurers


The European Commission has adopted a new regulation partially renewing the automatic exemption from EU competition rules that applies to certain types of agreement between competing insurers.

Article 101 of the Treaty on the Functioning of the European Union (Article 81 under the old EC Treaty) prohibits agreements which may affect trade between member states and which prevent, restrict or distort competition. Individual agreements may be exempt, however, if it can be shown that the benefits they bring outweigh the restriction on competition.

In addition, the Commission has the power to grant sector-specific block exemptions which automatically exempt certain types of agreement, provided specified conditions are met.

The previous insurance block exemption applied to four categories of insurance-related agreement: agreements for the exchange of statistical information for the calculation of risk; agreements establishing non-binding standard policy conditions for direct insurance; the setting up of insurance pools for the joint coverage of certain risks; and agreements relating to specifications for security devices.

Following a review of the way the exemption operated, however, the Commission decided that it should be renewed (with some amendments) for the exchange of information and for insurance pools, but not for standard policy conditions or specifications for security devices. The new block exemption comes into force on 1st April and will apply until 31st March 2017.

Announcing the adoption of the new regulation on 24th March, Joaquín Almunia, Commission Vice-President in charge of Competition Policy, said: "The block exemption continues to be justified for pools and certain types of information exchange necessary for the industry to be able to carry out its business. This is in the interest of consumers and of the economy as a whole."

However, Almunia also warned: "The Commission together with the national competition authorities will see to it that the industry does not use the exemption as a blanket protection and will enforce competition rules where and whenever necessary".

Information

Under the new regulation, the information exemption will only apply where information sharing is necessary to achieve the objectives of improving the knowledge of risks, making it easier for new insurers to enter the market and ultimately benefiting consumers. 

Access to the data should be made available on reasonable, affordable and non-discriminatory terms to insurers, new entrants into the market and to customer and consumer groups. The regulation, however, allows access to be denied to customer and consumer organisations on public security grounds. Two examples given are information relating to security systems of nuclear plants and information about weaknesses of flood defence systems.

Pools

The previous pools exemption applied to the joint coverage of new risks for three years and to other risks subject to certain conditions, such as market share thresholds.

The new exemption retains the three-year period for "new" risks, but now defines them as risks which did not previously exist and which require the development of an entirely new insurance product, or, in exceptional cases, "risks the nature of which have, on the basis of an objective analysis, changed so materially that it is not possible to know in advance what subscription capacity is necessary in order to cover such a risk".

For risks which are not new, the exemption will apply to pools (now called "groups") on condition that the combined market share held by the participating insurers inside and outside the pool does not exceed 25% of any relevant market in the case of co-reinsurance and 20% in the case of co-insurance.  

This is a significant change from the previous exemption, which only considered market shares within the pool. The amendment brings the insurance block exemption into line with the Commission's approach to market shares in block exemptions for other sectors.

Excluded

The Commission concluded that the two other categories of agreement (non-binding standard policy conditions and specifications for security devices) were not sufficiently specific to the insurance sector to warrant automatic exemption and so they have been excluded from the new regulation. The Commission intends to address both types of agreement in its review of EU guidelines on horizontal cooperation.

For these and any other agreements that fall outside the new block exemption, insurers will need to carry out a self-assessment to decide whether the benefits brought about by the agreement outweigh any restriction of competition.

Review

Alan Davis, competition law expert at Pinsent Masons LLP, the law firm behind OUT-LAW, urged insurers to review as soon as possible any arrangements they have in place with competitors, especially pools.

"The new block exemption comes into force on 1st April 2010 but there is a six-month transitional period. This means that, by 1st October 2010, insurers will need to have made sure that their existing arrangements comply with the new rules," said Davis. "The risk of investigation by national and EU competition authorities appears high."

"The Commission seems determined to ensure that the block exemption is relied on by insurers only if all the conditions are satisfied. Those conditions are now tighter and insurers will need to put more work into self-assessing whether their agreements comply with competition law if they no longer benefit from the block exemption," Davis warned.

"We've seen from other sectors, such as such as energy and pharmaceuticals, that an EU sector-wide enquiry, followed by a tightening up of the rules, tends to lead to more enforcement actions against non-compliant arrangements - including dawn raids on individual companies," he said.

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