The insurance Block Exemption Regulation
This guide was last updated on 24th April 2008.
For some fifteen years the insurance industry in the EU has
benefited from a block exemption regulation (BER) that allows
certain practices that would otherwise be in breach of the
prohibition on anti-competitive practices.
But the current exemption will expire on 31st March 2010 and the
European Commission says it has yet to be convinced that the BER
still has a role to play.
On 17th April 2008, the Commission published a consultation
paper asking for information on how the exemption is currently
being used and its impact on insurance markets in the EU.
"We need to investigate how the insurance block exemption is
working in practice and whether there are sufficient grounds to
renew it," said Competition Commissioner Neelie Kroes, launching
the consultation. "Sector specific competition regulations are
exceptional legal instruments. If there are to be special rules for
a particular sector, I need to be convinced that they are justified
in terms of bringing real benefits to competition and to
consumers".
The exemption
Article 81(1) of the EC Treaty prohibits agreements which may
affect trade between member states and which have as their object
or effect the prevention, restriction or distortion of competition
within the single market. Under article 81(3), however, the
Commission can exempt agreements whose benefits outweigh the
restrictions of competition.
The current insurance BER, which came into force on 1st April
2003, automatically exempts certain specified types of
insurance-related agreement from Article 81 of the Treaty. These
are:
- joint calculations and studies: calculations of the average
cost of covering specified risks, mortality tables, tables showing
the frequency of accident, illness or invalidity and joint studies
into the frequency or scale of future claims for given risks;
- the joint establishment and distribution of non-binding
standard policy conditions for direct insurance, and non-binding
models on profits;
- the setting up of insurance pools for the joint coverage of new
risks for three years, and other risks subject to certain
conditions (e.g. market share thresholds); and
- the establishment, recognition and distribution of technical
specifications, rules and codes of practice on security devices not
already covered by harmonised EC standards.
The new competition regime
When the BER came into force, agreements that might fall within
Article 81 had to be notified individually to the Commission to
obtain the necessary exemption. The BER, therefore, helped to avoid
unnecessary notifications.
But since May 2004, companies have no longer been required (or
able) to notify agreements. Instead they self-assess whether the
efficiencies brought about by an agreement outweigh the restriction
of competition.
In its final business insurance sector inquiry report published
in September 2007, the European Commission asked whether, given
this new regime, the exemption continued to serve a purpose.
The consultation paper emphasises that, if the BER is not
renewed, the categories of agreement that currently fall within the
exemption would not automatically become illegal. Companies would
need to assess their agreements under Article 81, rather than under
the BER.
Pros and cons
Although the consultation is primarily an information-gathering
exercise, it also summarises comments the Commission received
during its business insurance sector inquiry and from a more recent
survey of national competition authorities.
Most industry stakeholders were in favour of retaining the
exemption on the grounds that it provides legal certainty, avoids
the additional costs of assessing individual agreements and
promotes access to the market, particularly by smaller, less
experienced insurers. Some were also concerned that, in the absence
of the BER, competition rules would be applied inconsistently
across member states.
The responses from the national competition authorities were
more mixed. For instance, although they acknowledged the benefits
brought by joint calculations and studies, they also pointed out
that the BER is often used as justification for a wide range of
information sharing which could restrict competition.
The Commission, too, asks whether the blanket exemption for
joint calculations is too broad. Might there not be other,
pro-competitive solutions to the problem caused by insurers having
unequal access to information in particular instances? And to what
extent is the uncertainty underlying the premium calculation not a
normal business risk?
The Commission has not yet reached any conclusions. But it looks
as if the insurance industry will face an uphill struggle
persuading the Commission that the BER is needed in its current
form - or at all.
The consultation closes on 17th July 2008 and the Commission
will publish its proposals in March 2009.
Contact: Alan Davis alan.davis@pinsentmasons.com
(020 7418 7026)
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