The European Commission has adopted a new Regulation providing for a block exemption of certain types of agreements in the insurance sector from the EU’s general prohibition on practices restrictive of competition (referred to in this Alert as the BER). In force since 1 April, the new BER replaces the previous insurance block exemption, Regulation 358/2003/EC, which expired on 31 March 2010.
While the previous Regulation provided for a block exemption for four categories of agreements from the ban on anti-competitive agreements in Article 101 TFEU (ex-Art. 81 EC), the new BER only continues to exempt two forms of cooperation specific to the insurance sector, namely agreements relating to joint compilations, tables and studies, and co-(re)insurance pools, but not agreements on standard policy conditions and agreements on security devices. In consideration of the fact that the previous, as well as the newly-adopted BER, deal with some important business practices, the recent legal developments are of exceptional importance for insurance companies, associations, brokers and customers active in the European market.
In practice, the new BER will raise many new and sensitive questions. Stakeholders, like insurers, reinsurers and brokers, will have to deal with a regulatory environment where the European Commission and national competition authorities have already announced that they will intensify their monitoring of the insurance sector and will not hesitate to act whenever they observe anti-competitive behavior in the market.
In light of these facts, we hope that the following Q&A will provide an introduction to the new BER, and some answers to some of the initial questions it raises.
Why is the BER important for the insurance business?
The insurance business is characterized by an exceptional amount of cooperation between insurers, distributors (like brokers and agents) and other stakeholders, including claims adjusters or reinsurers. Such cooperation may have anti-competitive effects, especially in case of co-operation between direct competitors, and therefore may fall within the prohibition on anti-competitive agreements in European and national competition law. If this is the case, such agreements are prohibited by law and may lead to significant fines.
Against this background, the BER may grant a safe harbor and legal certainty on the permissibility of certain forms of cooperation. For all forms of cooperation that are not covered by the BER, companies are required to self-assess whether and under which conditions the cooperation is per-mitted by law.
Which Exemptions Are Renewed?
The Commission renewed two exemptions from the ban on anti-competitive behavior, namely: (i) joint compilations, tables and studies; and (ii) common coverage of certain types of risks (pools). The Commission considers that cooperation in these areas is specific to the insurance industry and may — under certain limited circumstances — cause positive effects for consumers, thus justifying a block exemption.
Joint Compilations, Tables and Studies
Subject to certain conditions, the previous BER exempted agreements relating to joint calculations, tables and studies of statistical data. The new BER continues to exempt this category of agreements in principle, while bringing some adjustments.
The new Regulation exempts agreements with respect to the "joint compilation" and distribution of information necessary for (i) the calculation of the average cost of covering a specified risk in the past and (ii) the construction of mortality tables, and tables showing the frequency of illness, accident and invalidity in connection with insurance involving an element of capitalization. It also exempts (subject to certain conditions) the joint carrying out of studies on 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 the distribution of the results of such studies.
Whereas the previous BER only required that the results of the above mentioned compilations, tables and studies were made available to potential new entrants to the industry, the new BER extends this requirement to "consumer or customer organizations" (except where non-disclosure is justified on grounds of public security). Furthermore, access to such information by third parties and to potential new entrants will have to be granted on "reasonable, affordable and non-discriminatory terms". This new provision is somewhat burdensome for the insurers and their associations, because the relevant data may contain crucial business secrets. Another reason to be critical of this provision, is that it is exclusively inspired by customer protection ideas and in no way by competition law aspects. Furthermore, the BER does not define what "reasonable, affordable and non-discriminatory terms" should mean in practice. Therefore, it is up to insurers and their associations to find workable solutions that comply with their interests as well as with antitrust rules.
The new BER also clarifies that compilations, tables and studies must not contain any indication of parties’ commercial premium levels. Other conditions are, inter alia, that data does not identify the insurance undertakings concerned or any insured party and includes a statement that they are non-binding, for example, as a basis for their pricing or general underwriting decisions.
In light of all these burdensome provisions, insurance companies should carefully assess whether they want to aim for a block exemption under the new Regulation and thus accept the "straitjacket-effect" of the BER. In specific cases, for example where insurers do not want to grant access to statistics or studies, it may be advisable to assess whether an agreement relating to joint compilations, tables or studies of statistical data causes no anti-competitive effects (which might very well be the case) or falls within the exemption rule of Article 101 (3) TFEU. In such a case, BER-compliance would not be required.
Common Coverage of Certain Types of Risks (Pools)
The previous BER exempted the setting up and operation of co-(re)insurance pools for the common coverage of new risks as well as co-(re)insurance pools covering risks that are not new, subject to certain conditions, in particular to market share thresholds.
Pools for purely new risks (a very rare case that has to be assessed carefully) will be granted block exemption for their first three years, regardless of market shares. Pools for existing risks or pools for new risks that have existed for more than three years may still benefit from the BER on condition that the participating undertakings do not exceed certain market share thresholds. The threshold has stayed the same, at 20 percent in the case of co-insurance pools and 25 percent in the case of co-reinsurance pools.
However, the Commission has made a change to the approach to market share calculation in order to bring it in line with other general and sector-specific competition rules. Under the previous BER, the Commission, in calculating the market share threshold, took into account only the market share of the pool itself. The new BER will also take into account the market share of the participating undertakings with another pool in the relevant market or outside any pool in the relevant market. As a result, market share thresholds will be reached much quicker.
It is noteworthy that in the new BER, the Commission clarifies that certain co-insurance or co-reinsurance pools do not give rise to any restriction of competition under Article 101 (1) TFEU, are thus not prohibited by it, and therefore do not fall under the new BER. These types of pools are pools which provide insurance or reinsurance for risks for which the par-ticipating undertakings might only offer insufficient coverage in the absence of the pool, for example by reason of a lack of appropriate capacities. However, a careful self-assessment should be performed in order to establish whether this exception might be fulfilled. The same self-assessment should be performed in cases where the conditions of the BER are not met (e.g. in terms of market share).
Which Exemptions Are Not Renewed?
The new Regulation does not cover two classes of agreements that were exempted by the previous BER, namely:
- Agreements relating to the joint establishment and distribution of non-binding standard policy conditions (SPCs) for direct insurance
- Agreements on technical specifications, rules or codes of practice regarding se-curity devices
Non-renewal of the BER in relation to these two types of cooperation does not, however, mean that such cooperation will inevitably infringe Article 101 TFEU. The Commission has removed these agreements from the scope of the new BER primarily because they are allegedly not specific to the insurance sector and therefore their inclusion in a BER may result in unjustified discrimination against other sectors which do not benefit from a BER. In the future, it will therefore be up to the undertakings concerned to self-assess whether an exemption under Article 101 (3) TFEU will be available to them.
Will There Be a Transitional Period for the Self-Assessment Whether Existing Agreements Comply With the New BER or General Antitrust Provisions?
Yes. Although the new BER came into force on 1 April, it allows insurance undertakings to self-assess whether existing agreements comply with the new BER or general provisions such as Article 101 (3) TFEU until 30 September 2010. During this transitional period, the benefits of the old BER will still apply to any agreement not meeting the criteria of the new BER.
Is There Any Increased Risk That Competition Authorities Will Become Active After the Transition Period Expires?
The European Commission announced that it will be necessary for undertakings to carefully assess their cooperation on joint compilations, tables and studies and pools under the conditions established by the BER, in order to avoid blanket application of the BER without a real self-assessment by the undertakings involved. Informally, the Commission as well as national competition authorities announced that they will keep an eye on the development as regards cooperation in the sector and carefully monitor whether compliance measures will be handled seriously by the stakeholders.
It is not unlikely that the competition authorities will further investigate, in particular, co-insurance schemes and in addition any fields of cooperation, e.g. standard policy conditions and joint compilations, tables and studies, if they receive any complaint.
What Should Stakeholders Llike Insurers, Reinsurers and Brokers do?
Stakeholders that are engaged in cooperation agreements or that take part in association work generally should ensure that their behavior is in line with antitrust law. Many sensitive business practices in the insurance sector are not covered by the BER in any event and, therefore, effective compliance measures are and always have been essential to support business in a safe manner. However, the new BER requires companies to self-assess whether any modifications to existing (and newly planned) co-operation agreements in the field of joint compilations, tables and studies and pools are needed. It is essential to realize that even if specific agreements are not covered by the BER, they may not be prohibited because they either have no anti-competitive effect or they are exempted by general exemption rules. Whether this is the case should be assessed in each single case by the participating undertakings.