Current Competition issues in the insurance sector


Compliance is king

All entities active in insurance markets are subject to the competition rules, which prohibit anti-competitive agreements and abuse of market power. Strict rules govern the use of information on products, premiums and claims, trading partnerships and other commercial arrangements and participation in trade associations. Block exemptions provide special rules for certain types of agreement (for example supply chain or “vertical” agreements) and for certain specialised activities (including in the insurance industry). Insurance businesses are expected to demonstrate understanding and compliance with the rules.

New insurance block exemption

The new insurance block exemption regulation (IBER) came into force on 1 April 2010. The Commission published its Report on the functioning of the previous IBER on 24 March 2009 and consulted widely on a replacement. As a result of its findings the Commission has renewed the exemption for two of the four categories of agreement covered by the previous IBER, namely: (i) joint compilations, tables and studies; and (ii) co-(re)insurance pools, subject to some amendments.

The IBER will no longer apply to agreements on non-binding standard policy conditions and agreements on minimum specifications for security devices. The Commission has, however, addressed both of these activities in its draft EU Guidelines on horizontal co-operation agreements, which are under consultation until 26 June 2010.

What is the status of subscription business?

The Commission has stated that ad-hoc co-insurance arrangements on the subscription market were never covered by the IBER and remain outside its scope. This is not to say that this practice is illegal.

It remains permissible in the context of a coinsurance arrangement to agree with a broker/client to act as lead underwriter or as part of a following market, and to agree to cover part of a risk on the same contract conditions and premium as the lead, provided that the agreement results from an independent choice. It should be accepted at all times that following insurers are free to quote a different premium should they so wish. The guidelines produced by BIPAR (the European Federation of Insurance Intermediaries) remain relevant here. In April 2008 BIPAR produced some “high level principles” to provide a framework for multiple insurance placement options. These attempt to address the premium alignment problem and have, broadly speaking, been endorsed by the Commission.

How will insurance pools be assessed?

The Commission has renewed the exemption for co-insurance and co-reinsurance pools, but there are some significant changes.

Insurance and reinsurance companies must ensure that all their agreements are compliant with the new rules, although there is a six month grace period built into the new IBER which gives insurance companies up to and including 30 September 2010 to bring their existing agreements in line with the regime.

Irrespective of market share, agreements which cover new risks are exempted for a 3 year period. This covers not only risks that are "new" in the sense that they did not exist before and require the development of an entirely new product, but also risks the nature of which have changed so materially that it is no longer possible to know in advance what subscription capacity is necessary to cover such a risk.

Pools covering existing risks remain subject to a market share threshold. However, whereas previously the market share thresholds were applied on the turnover of the pool, the Commission will now take into account the income earned on the same relevant market outside the pool. This raises some complex questions of market definition.

In its sectoral review the Commission found that many insurers had been incorrectly using the pools exemption as a "blanket exemption" without assessing whether all the conditions for exemption were met. Since the Commission intends to monitor the operation of pools closely, we may well see enforcement actions brought against insurance and reinsurance companies who fail to bring their activities in line with the new rules.

What does this mean for standard policy conditions?

The new IBER no longer provides a special exemption for agreements on standard policy conditions. These are now dealt with more generally in the Commission's guidelines on horizontal co-operation agreements. Whilst the Commission recognizes that too much standardisation could lead to a lack of non-price competition, it is likely that in most cases non-binding standard policy conditions will be permissible. Again the key will be independence of decision making.

How CMS Cameron McKenna can support you

Our insurance and competition teams work closely together to cover the range of corporate, commercial, regulatory and claims issues faced by the industry. Our CMS network provides an integrated cross-border service. We pride ourselves on helping you achieve pragmatic and cost effective solutions.

CMS offers:

  • bespoke competition and compliance training to both your business and in-house legal and compliance teams
  • an audit of your existing agreements to ensure that they are in line with the new IBER and the competition rules in general
  • assistance in the setting up of new facilities and agreements to ensure compliance with the rules
  • updates on competition and regulatory issues in the insurance sector through our Law-Now email alert service and on our RegZone website.