Business insurance: European Commission’s interim report

On 24 January 2007, the European Commission published its interim report in the sector investigation into business insurance. Market fragmentation has emerged as a major issue. The Commission has also raised concerns about the justifications of the scope of the current insurance sector block exemption.

The Commission will hold a public hearing on 9 February 2007 and is keen to hear from stakeholders. Comments on the interim report are welcomed with a submission deadline of 10 April 2007.

The Commission’s main findings so far concern:

• market fragmentation – markets tend to be fragmented along national lines with the potential for price reductions;
• SMEs at a disadvantage - in some Member States there appears to be less competition in insurance for SMEs than in insurance for large companies;
• long-term insurance contracts – these may reduce the scope for competition in some Member States, notably Austria, Italy, the Netherlands and Slovenia;
• current distribution structures – these can hinder competition, notably in Italy;
• best terms and conditions clauses between re-insurers and direct insurers – these impede competition as they lead to a harmonisation of terms and conditions at the most favourable level for the re-insurers, to the detriment of the direct insurer and ultimately the final customer. Similar issues arise for co-insurance;
• conflicts of interest – certain intermediaries’ dual role providing advice and services not only to their clients but also to insurers and/or receiving remuneration from insurers can compromise those intermediaries’ objectivity and have a negative effect on competition;
• lack of transparency in intermediaries’ remuneration – can reduce the potential for price competition;
• co-operation among insurers – the Commission has doubts about the justification of some such cooperation and the scope of the current insurance sector block exemption.

Now is the time to make your voice heard to the Commission. The Commission is continuing to examine some of the highlighted issues to decide what needs to be followed most closely. The final report is due to be published in September 2007. The Commission will then decide whether specific measures are necessary.