We consider the implications for insurers of the possible removal of the competition safe harbour

The insurance sector in the EU currently benefits from special treatment under the competition law rules, enjoying a safe harbour for common forms of pooling and joint underwriting arrangements and actuarial data exchange. However, this safe harbour protection under the European Commission’s Insurance Block Exemption Regulation (IBER) has been the subject of consultation during the autumn of 2014, and its fate beyond March 2017 (when it is due to expire) lies in the balance.

The current IBER protects pooling arrangements for new classes of risk, which would otherwise not be insurable, irrespective of the market shares of the parties involved. It also protects jointly underwritten business for existing risks where the parties involved have combined market shares (typically judged on a risk category basis) below 20% in the case of co-insurance, and below 25% in the case of co-reinsurance, and provided that the parties remain free to underwrite business outside the pool. By falling within the safe harbour, the risk of regulatory sanction and unenforceability on competition grounds associated with an agreement is effectively eliminated. 

Industry-specific competition block exemptions have fallen out of favour with law makers over recent years - leading, for example, to the abolition of EC safe harbours for motor vehicle retailing and liner shipping. Those sectors that have not yet lost their specific protections have generally seen a narrowing in scope of those safe harbours as part of a general move away from formalistic rules (and the legal certainty that entails) to an effects-based regime which requires self-assessment (with reference to the Commission’s high level Guidelines and case precedent) by parties of potentially anti-competitive arrangements. Indeed, the current IBER is itself considerably narrower in scope than its predecessor, which expired in 2010. The previous IBER extended to agreements on standard policy conditions and security devices, but the Commission’s view when contemplating its renewal was that such agreements are not unique to the insurance sector, and that their continued exemption under the IBER would therefore constitute unjustified discrimination against those other sectors which do not benefit from an industry-specific block exemption.  

BLP and other respondents have argued for the retention of the safe harbour for the insurance sector, whether in whole or in part, given the greater degree of legal certainty it provides. We believe that this is particularly important in the context of increased competition enforcement in financial services generally, and in the UK in particular by virtue of a newly empowered Competition and Markets Authority, an activist Financial Conduct Authority with heightened competition enforcement duties and powers, and an explosion in parties privately enforcing competition law through the courts. BLP has also urged the Commission to update the definitions of exempt arrangements set out in the current IBER, to align them with the type of sophisticated broker-led schemes and facilities which have become a common feature of the insurance landscape over the years since the IBER was last revised. In short, this is an area destined for further scrutiny and change over the year ahead.