On March 24 2009, the European Commission (Commission) presented its preliminary Report on whether to renew the current Insurance Block Exemption (IBER), which is due to expire in March 2010. Subject to certain conditions being met, the IBER currently exempts a number of agreements commonly found in the insurance sector from the application of normal EC competition law rules, on the basis that co-operation between companies in these areas will increase efficiencies in the sector and will ultimately benefit consumers. The exempted agreements are those covering i) Joint calculations and studies of risk, ii) Co and re-insurance pools , iii) Standard non-binding policy conditions and iv) Security devices.
The Commission's preliminary view is that the first two types of agreements should continue to benefit from the IBER. For the other categories of agreements, the Commission's findings indicate that, as neither type of agreement is peculiar to the insurance sector, there is no need for them to benefit from the IBER.
Last year, the Commission carried out a public consultation on the functioning of the IBER, which formed the basis for the current review. The Consultation sought the views of industry stakeholders as to whether specific characteristics of the insurance sector justified the need for enhanced co-operation among companies, beyond what would normally be permitted under EC competition rules. The review is also considering whether the need for closer co-operation among companies requires the protection currently afforded by the IBER or whether this could be achieved through other means. Together with its preliminary Report, the Commission has also published its internal working document which sets out in detail its findings from the Consultation.
Findings of the preliminary Report
In relation to Joint calculations of risk, the Commission recognises that access to statistical data is crucial to the pricing of risk and is particularly beneficial for small and medium sized firms. If the IBER ceased to apply, the Report's findings indicate that this type of co-operation among firms may diminish, a situation which the Commission wishes to avoid. The Report leaves open the possibility of amending the current exemption for this type of agreement.
For co and re-insurance pools, the Commission agrees with the insurance industry that risk sharing for certain types of risk, such as nuclear, terrorism or environmental risks, is crucial. However, the Report makes it clear that if the exemption for this type of agreement is to be renewed, it will significantly re-draft the conditions under which it may be granted. The Commission has indicated that, in future, it is likely to take a much stricter approach to insurance pools.
The Commission found that agreements on technical specifications for security devices were not unique to the insurance sector. It found that there has been a significant degree of harmonisation in this field across the EU, thus limiting the scope for possible agreements of this type under the IBER. Significantly, the Commission found that practices in the insurance industry in relation to the setting or reviewing of standards may have resulted in certain manufacturers being excluded from the market.
As for standard policy conditions (SPCs), while agreeing that these may have positive effects for competition in the insurance industry, the Commission took the view that SPCs were a feature other sectors, including the banking industry, and as a result, sector-specific legislation such as the IBER, is no longer necessary. The Commission also noted that a number of national regulators, including the UK's FSA, have been active in relation to SPCs for some time now.
No decision has yet been taken by the Commission on the future of the IBER. A public event will take place in Brussels on 2 June 2009 at which the Commission will hear the views of stakeholders on its Report and working document. A final decision from the Commission is expected sometime after this. If there are to be changes to the IBER, a formal consultation will follow on the new legislation before the end of the year.