Change is on its way for the Insurance sector

30 June 2016

Author: Dorit McCann
Practice Area: EU and Competition

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Dorit McCann, Partner at Carson McDowell discusses the changes to take place in the Insurance sector in 2017:

The European Commission has recently released a report proposing not to renew the Insurance Block Exemption (IBER) when it expires on 31 March 2017.

The IBER provides an exemption from Article 101(1) of the Treaty on the Functioning of the European Union which prohibits anti-competitive arrangements for two categories of cooperative activities between insurers:

(i)  information sharing for the preparation of joint compilations, tables and studies; and

(ii)  the establishment and functioning of co-insurance or co-reinsurance pools.

Information Sharing

The IBER currently provides an exemption for insurers exchanging information in the form of joint compilations, tables and studies which enables them to collate more reliable statistics and develop a better understanding of the insured risks. This understanding allows insurers to rate risks more reliably and, as a result, to reduce mark-ups and ultimately the prices paid by consumers. However, this type of information sharing can also lead to anti-competitive conduct such as price collusion between competitors. The IBER therefore sets certain conditions which insurers must meet in order to benefit from the exemption. These condition state, for example, that premium information should not be shared and that any information shared must be displayed in an aggregate form.

The Commission believes that the guidelines on horizontal cooperation agreements (Horizontal Guidelines), adopted after the entry into force of the IBER, enable the sharing of the same type of information permitted under the IBER. The Commission therefore believes that the IBER can be discontinued as there is already equivalent guidance in place.

Pools

The IBER also currently provides an exemption for the formation and operation of co-insurance and co-reinsurance pools (i.e. combinations of multiple insurers in which a single underwriter binds and sets the premiums, terms and conditions of coverage for all participants). These pools are used to cover certain large unconventional risks relating to, for example, terrorism, nuclear power production and environmental protection, as the size and spread of risk can render them more difficult or even impossible to insure individually.

The Commission has stated that there are a limited number of companies which actually benefit from the exemption. Furthermore, the Commission believes that the continued development of various types of co-(re)insurance, such as broker-led line-slips (i.e. agreements under which underwriters authorise a third party to accept risk on their behalf), offer the ability to cover large, unconventional risks with less chance of a threat to competition than an insurance or reinsurance pool.

Comment

If the Commission maintains its preliminary views, the IBER will expire at the end of March 2017. This means that the insurance industry will no longer enjoy any special exemption from EU competition law.

We would therefore advise any insurers who have (or are about to) entered into information sharing and/or pooling arrangements to review their agreements in advance of the possible expiry of the IBER to ensure that all agreements in place are in line with EU competition rules. 

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