Putting a premium on certainty?
Insurance Block Exemption unlikely to be renewed by European Commission
Since 1992 certain arrangements between insurers that might otherwise restrict competition in the internal market have been declared to fall within an industry-wide exemption that enables limited cooperation to take place. This arrangement looks likely to come to an end shortly.
What has happened and what are the next steps?
Two years into its three year long consultation process, on March 17, 2016, the European Commission has announced that its ‘preliminary view’ is not to replace the Insurance Block Exemption Regulation (IBER) when the current iteration expires on March 31, 2017.1
A stakeholder meeting will take place in Brussels on April 26, 2016 to discuss the reaction to this preliminary conclusion and two further studies have been commissioned (one into asset switching between different insurance products, of relevance to defining the appropriate market for pools, and the other looking into the impact on competition of forms of co(re)-insurance other than pools). A final decision on whether to renew the IBER is expected in early 2017.
What is the IBER?
The IBER currently provides comfort to insurers that certain types of cooperation between insurance companies will not be regarded as anti-competitive (and so result in an infringement of Article 101 of the Treaty on the Functioning of the European Union). The IBER covers both joint compilations, tables and studies,2 and co(re)insurance pools.3 Parties to such agreements do not need to further self-assess whether the agreement meets the general criteria for exemption from the prohibition on anti-competitive agreements.4
Why has the Commission reached its preliminary conclusion?
There are very few sector-specific block exemptions still in force (aside from insurance, only maritime liner shipping and motor vehicle distribution benefit from such an exemption). The Commission’s view is that there should be very good sector-specific reasons to justify keeping such block exemptions. Its preference is to provide guidance to an industry (which is more flexible and more easily amended). In its report, the Commission has accepted that the two types of cooperation covered by the IBER ‘appear to be specific to the insurance sector’. However, it doubts that these types of agreement merit the rigid safe harbour afforded by the IBER. The Commission considers that joint compilations, tables and studies are a manifestation of pro-competitive information exchange, which one might observe in a large number of industries. As such, they are covered by the Commission’s Horizontal Guidelines5, and in particular its chapter on information exchange. The principles in the Guidelines mirror those of the IBER, and therefore, the Commission doubts that removing the IBER would have any deleterious effect on legal certainty.
The position in respect of co(re) insurance pools is a little more complicated. The Commission considers that there are very few of them, that there is uncertainty amongst insurers over exactly what the IBER is supposed to cover, that there are many other forms of co-operation that have emerged in recent years (e.g. broker-led co(re)-insurance or line slips) and, most importantly, that there are doubts whether some traditional pools necessarily merit an exemption from the competition rules at all (particularly if the same benefits can be achieved less restrictively through other forms of co-operation). Taken together, the Commission considers these factors suggest that pools should no longer benefit from automatic exemption under the IBER.
Where does this leave the insurance industry?
The proposal not to renew the IBER will remove the final two areas of co-operation within the industry from the automatic exemption bestowed by such block exemptions. However, the practical impact of this will, it seems, differ significantly between the two areas.
In respect of joint compilations, tables and studies, what is acceptable now should be acceptable in the future. In that respect, the impact of the removal of the IBER should be similar to the impact (or lack thereof) on agreements for standard (non-binding) policy conditions when this aspect of the IBER was not renewed in 2010. It was clear that, although no longer included in the IBER, in substance, any agreement on policy conditions that merited exemption under the old IBER would be considered compatible with competition law going forwards. The same should apply to joint studies now. In addition, the Commission has suggested that it might issue revised Guidelines to assist insurance companies in self-assessing the legality of information exchange going forwards.
The position regarding pools (and other forms of co(re)-insurance) is less clear and the Commission’s position introduces a little more uncertainty into what might be considered acceptable co-operation and what might not. There are hints that the Commission no longer considers (some?) pools (even where the members of the pool meet the market share thresholds set out in the IBER) to be worthy of exemption from the prohibition on anticompetitive agreements. Coupled with the study currently being undertaken into other forms of co(re)-insurance and the effects of these forms of cooperation on competition, there is still some work for the Commission to do in clarifying its approach to a significant aspect of the insurance industry. This is particularly the case given concerns that have been raised in past studies regarding, for example, broker-led pools. It may be that there is a greater need for guidelines on this issue than on the issue of information exchange in the future.
Report From The Commission To The European Parliament And The Council On the functioning of Commission Regulation (EU) No 267/2010 on the application of Article 101(3) of the Treaty on the functioning of the European Union to certain categories of agreements, decisions and concerted practices in the insurance sector, published March 17, 2016.
The IBER covers compilations (calculation of the average cost of covering a specified risk in the past); studies (which assess the probable impact of general circumstances external to the interested undertakings, either on the frequency or scale of future claims for a given risk or risk category or on the profitability of different types of investment); and tables (mortality tables and frequency tables relating to of illness, accident and invalidity),
Coinsurance pools are defined as groups set up by insurance undertakings either directly or through brokers or authorised agents, with the exception of ad-hoc co-insurance agreements on the subscription market, whereby a certain part of a given risk is covered by a lead insurer and the remaining part of the risk is covered by follow insurers who are invited to cover that remainder, which: (a) agree to underwrite, in the name and for the account of all the participants, the insurance of a specified risk category; or (b) entrust the underwriting and management of the insurance of a specified risk category, in their name and on their behalf, to one of the insurance undertakings, to a common broker or to a common body set up for this purpose. Co(re)insurance pools is similarly defined.
These criteria are set out in Article 101(3) of the Treaty on the Functioning of the European Union and require that the agreement:
contributes to promoting technical or economic progress or to improving the production or distribution of goods
allows customers a fair share of the resulting benefit;
contains no more restrictions of competition than are strictly necessary
does not eliminate competition in a substantial part of the relevant market.
Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements.