The insurance industry currently benefits from the Insurance Block Exemption Regulation (Regulation 267/2010) (IBER), which is due to expire on 31 March 2017. IBER exempts from the competition rules, subject to certain conditions, agreements between (re)insurers to exchange information in the form of joint compilations, tables and studies, and the common coverage of certain types of risk via co-(re)insurance pools.
On 17 March, the European Commission (Commission) released a report stating that it is minded not to renew IBER. This will bring the insurance industry back into the general competition enforcement environment, which has changed greatly since the early 90s, when the insurance industry first benefited from a block exemption.
Why the change?
Block exemptions interpret and apply Article 101 of the Treaty on the Functioning of the European Union, which prohibits anti-competitive agreements. Under Article 101(3), certain forms of otherwise unlawful cooperation are permitted, because they are essential to achieve certain benefits, provided consumers enjoy a "fair share" of those benefits. IBER provides a safe haven by conclusively stating that certain agreements are permissible under Article 101(3).
Without IBER, insurers and reinsurers would be less certain that their cooperation does not infringe Article 101. They would need to analyse their arrangements on a case-by-case basis without the benefit of industry-specific exemption and guidance.
The Commission has conducted extensive research into the insurance sector over the past few years, conducting a sector inquiry into business insurance and a study on co-(re)insurance before its latest report.
The report's conclusion that IBER should be dropped appears to have been influenced by negative consumer feedback. The Commission concluded that consumers were not receiving a fair share of the resulting benefits from the cooperation exempted by IBER, as required for Article 101(3) to apply. The Commission also noted that not all insurance pools functioned in the same way, so a blanket exemption might not be appropriate for the industry. It also argued that the industry had in many ways moved on, with broker-led co-(re)insurance and line-slips creating viable alternatives to IBER-exempted co-(re)insurance pools.
IBER currently provides a safe haven for joint compilations, tables and studies which involve the exchange of potentially competitively sensitive information between competing (re)insurers. IBER also exempts the common coverage of risk via co-(re)insurance pools. Both safe havens are now likely to be removed.
What effect will this have?
Unfortunately, the report implies that, but for IBER, certain exempted arrangements in the insurance industry may break competition law and, once IBER expires, the Commission could act against them. Insurers and reinsurers will need to assess individually the arrangements previously exempted by IBER to ensure they are still compliant and, if not, how they must be changed.
Fortunately, guidance and case law on the exchange of information between competitors and its effects on competition have expanded in recent years. For example, the Commission's most recent edition of its Horizontal Guidelines (which apply to any form of cooperation between competitors) tackles information exchange for the first time and the Dole v. Commission case addressed the exchange of information which was only indirectly connected to pricing. Individual assessment both before and after IBER's expiry is therefore both possible and advisable.
Regarding co-(re)insurance pooling, the Commission's report noted that insurance is not the only sector in which undertakings tend to cooperate on specific large projects to spread the costs and risks involved. Large construction projects, the Commission observed, involved such cooperation but did not benefit from a specific block exemption, instead relying on the Horizontal Guidelines' sections on joint selling.
The move not to renew IBER is part of the Commission's long-term strategy of phasing out or reducing industry-specific exemptions from competition law. For example, the motor vehicle block exemption was recently trimmed down significantly, to cover only spare parts. IBER itself is narrower than the 2003 Regulation it replaced (exemptions for common standard terms and conditions and agreements establishing common standards for required security devices and safety equipment were not included in IBER).
The Commission's ideal for competition law is non-sector-specific, meaning that the same principles apply, regardless of the industry. Abolishing IBER moves competition law closer to this goal.