The European Commission published the final report of its business insurance sector inquiry on 25 September 2007. The report follows the inquiry’s interim report published in January. It expresses concerns about practices in the co-insurance and reinsurance market that might lead to alignment of the terms offered to customers, although it also states that it has not formed a view on whether these practices infringe the competition rules. It also highlights the potential for conflicts of interest as a result of the role of intermediaries and possible difficulties arising from long-term contracts in Austria. Its other major area of analysis is the renewal of the insurance block exemption; the Commission remains unpersuaded by the arguments put to it so far.

The Commission’s areas for discussion do not appear to crystallise into concrete concerns meriting enforcement action and in some areas it is clear that more work is required. For the moment, at least, it appears that highprofile enforcement action is unlikely – at least on the scale that followed the energy sector inquiry.


The European Commission announced its decision to undertake an inquiry into the business insurance sector in June 2005. It cited a number of concerns as the reasons for the inquiry, including co-operation between insurers and the mechanisms for the distribution of insurance.

The Commission published its interim report in January 2007. This set out a number of areas for further study, but it was generally considered to take a relatively low-key approach – a contrast to the very high-profile enforcement action taken in the US over ‘contingent commissions’ (precipitated by the then New York attorney general, Eliot Spitzer).

Co-insurance and reinsurance

The report (and accompanying working document) comments further on the concerns expressed in the interim report about the use of ‘best terms and conditions’ clauses in what it describes as the market for joint reinsurance. These clauses allow insurers to benefit from the best terms offered to any reinsurer on the contract in question. After further study, the Commission concludes that these may breach the EC article 81(1) prohibition on anticompetitive agreements because they lead to upward price alignment and it is not yet satisfied that the exemption conditions of article 81(3) apply.

The Commission indicates that its further study has brought to its attention other practices in the co-insurance and reinsurance markets that may have a similar effect of aligning the terms offered to customers. These include, for example, the practice of the broker proposing to following insurers (ie those covering part or all of the balance of the risk not covered by the lead insurer) that they should fill the cover on the same terms and conditions as those agreed by the lead insurer. The Commission also indicates concerns about the exchange of pricing information.

The Commission remains unspecific over its concerns and recognises that these practices would need to be examined on a case-by-case basis to establish whether its competition concerns are justified. It also makes clear that ‘its observations relate only to elements of certain business practices which arise in the two step subscription procedure [for co-insurance and reinsurance]’.

The Commission ‘does not exclude’ future enforcement proceedings, but its emphasis is on reform from within – recommending that the industry ‘should engage in a critical reappraisal of such practices’.

Insurance distribution

As noted above, insurance distribution has been the subject of some controversy and some people believed that it would be an area in which the Commission might take strong enforcement action.

However, the report takes a measured approach. It notes the potential for conflicts of interest and states that these might be mitigated to some extent by disclosure of relevant information to customers. It concludes that it will look at the issue more fully in the context of its planned review of the Insurance Mediation Directive.

The report also notes the prohibition in Germany on rebating of commission to customers by intermediaries (and confusion in Italy over the policy of its brokers’ association). Both worry the Commission.

Horizontal co-operation

The third major area of discussion is co-operation between insurers under the auspices of the insurance block exemption. This permits co-operation in a number of areas, including on the preparation of studies and standard terms and the joint establishment of technical specifications and codes of practice for security devices.

The interim report found varying levels of co-operation under the block exemption across member states and requested further input from insurers.

The response from insurers seems to have been that most find co-operation useful and are in favour of renewing the block exemption (which expires in March 2010). However, the Commission points out that co-operation giving rise to efficiencies that are passed on to customers is exempted under article 81(3). It suggests that it may be more appropriate for insurers to self-assess the compatibility of specific co-operation arrangements than to use the blunt instrument of a block exemption. It questions whether renewing the block exemption is necessary.

In short, the Commission concludes that the inquiry ‘has not produced compelling reasons’ to renew the block exemption and, noting that it has to submit a report by March 2009 on the future of the block exemption, invites further engagement.

Long-term insurance contracts

The report also notes possible problems that might arise from the existence of a network of long-term insurance contracts in a given market. Following concerns raised in the interim report about Italy and Austria, it now rules out the former as a result of regulatory intervention but continues to express concerns about the latter.


The report has been published without the fireworks that attended those on the banking and energy sectors and its relatively low-key conclusions and recommendations seem to merit this approach.

It seems unlikely that widespread competition enforcement action across Europe will happen as a result of the report’s conclusions, although targeted steps cannot be ruled out. In particular, the industry is not given a clean bill of health over difficult issues such as practices in the reinsurance and co-insurance markets and the role of intermediaries. Consideration will have to be given to the concerns expressed and analysis undertaken to see what steps can be taken to allay the Commission’s fears. Moreover, the industry has some real work to do if it wishes to achieve the renewal of the insurance block exemption. In all, this report is unlikely to mark the end of the engagement between the Commission and the insurance industry.