In October 2009 the European Commission published its draft Block Exemption Regulation (IBER) for the insurance sector and launched a public consultation on its proposals. Mark Tricker considers the potential impact of the proposed new block exemption for the European (re)insurance market.
The current IBER, which is due to expire in March 2010, exempts a number of agreements from the application of normal competition rules where certain conditions are met. Currently, agreements in the following areas are covered by the IBER: i) joint calculation and studies of risk; ii) co and re-insurance pools; iii) standard non-binding policy conditions; and iv) security devices.
As expected, the Commission has decided to renew only two of the four categories of agreements currently exempted - joint calculations, tables and studies of risk and co and re-insurance pools, both subject to certain amendments which narrow the scope of the exemption still further. If, as is almost inevitable, the content of the draft IBER remains unchanged, when the new rules come into force next year, the insurance industry will be exposed to the application of normal competition rules as never before.
Exemption for joint compilations, tables and studies
The Commission has recognised the value of allowing collaboration between insurance undertakings to compile information allowing the calculation of the average cost of covering a specific risk and to have joint studies assessing the likely impact of an extraneous event on the frequency or scale of claims. However, the draft IBER also makes clear that the exchange of information for the purposes of joint calculations, tables and studies is only exempted to the extent that it is absolutely necessary to achieve these aims - companies should provide no more than the minimum necessary to allow the calculations and studies to be undertaken and the data should be aggregated and anonymised when published.
In addition, it has made clear that:
- there should be no exchange of information (or agreement) on premium levels;
- companies should be free to price below the level of the average cost of a risk should they choose to do so; and
- there must be no obligation on companies to use the compilations (they should be free to conduct their own research, should they choose to do so).
Finally, the provisions in the current IBER which require calculations and studies to be made available to all insurance companies on request have been extended, so that all interested third parties such as consumer organisations, large customers and academics can now also have access to such information, unless non-disclosure can be justified on the grounds of public security.
Exemption for co and re-insurance pools
For co and re-insurance pools, the Commission has retained the exemption for pools that cover “new risks” and for other pools provided that the participants in the pools meet certain market share thresholds. However, the scope of the exemption has been narrowed.
In relation to “new risks”, the Commission has made clear that the risk must be genuinely “new” in order for the pool (regardless of the market share of the participants) to qualify for a three year exemption. Only risks that did not exist before or, exceptionally, risks whose nature has changed so materially (on the basis of an objective analysis) that it is no longer possible for individual companies to assess the risk are included.
In relation to the market share thresholds that apply to pools covering existing risks, under the current IBER, thresholds are applied based on the turnover of the pool. Under the draft IBER, the turnover of all participating companies (whether that turnover is achieved inside or outside the pool) on the relevant market must now be calculated to determine whether the exemption applies. This is a much stricter test than under the current IBER and is intended to bring the insurance sector into line with the Commission’s practice in other areas of competition law. Larger insurance companies, in particular, will now need to give much greater consideration to whether their participation in a pool will be compatible with competition rules.
In its report on the functioning of the IBER published in March 2009, the Commission found that agreements on standard non-binding policy conditions and those on security devices were not unique to the insurance sector and took the view that sector-specific legislation was no longer required. Unsurprisingly then, neither type of agreement is covered by the draft IBER. This does not automatically imply that such agreements are unlawful. However, absent any changes to the draft IBER, once the current legislation expires, companies which are party to such agreements will have to assess for themselves on a case-by-case basis whether they comply with the normal competition rules.
Interested parties were invited to submit their comments on the draft IBER, and specifically the detailed changes outlined above, by 30 November 2009. It is anticipated that the consultation will only result in minor changes to the wording of the draft and the final version will come into force on 1 April 2010.