The European Commission has today adopted a new Insurance Block Exemption ("New
IBER"), exempting certain categories of cooperation in the
insurance sector from the prohibition against anticompetitive
cooperation contained in Article 101(1) of the Treaty on the
Functioning of the EU ("TFEU"). It comes into force on 1
April 2010 and renews, with certain modifications, two of the four
cooperation types exempted in the current block exemption
(Commission Regulation (EC) No 358/2003) ("Old IBER"),
which expires on 31 March.
The adoption of the New IBER follows the Commission's two-year
review of, and consultation on, the Old IBER, during which time it
considered three key questions in relation to each of the four
categories of agreements exempted by the Old IBER, namely:
- Whether the business risks or other issues in the insurance sector make it "special" and different to other sectors such that this leads to an enhanced need for cooperation amongst insurers.
- If so, whether this enhanced need for cooperation requires a legal instrument such as the Old IBER to protect or facilitate it.
- If so, what is the most appropriate legal instrument, i.e. is it the Old IBER, a partial renewal, an amended renewal, or guidance?
The result is the New IBER – a partial and amended
renewal – which will be in force for seven years until 31
March 2017.
Renewed exemptions
The New IBER renews the block exemptions for joint compilations,
tables and studies (Article 2); and insurance pools, i.e. common
coverage of certain types of risks (Article 5). These exemptions
remain subject to conditions which are set out in Article 3 and
Articles 6 to 7 respectively.
Joint Compilations, Tables and
Studies
The previous exemption applied to agreements for the:
- joint establishment and distribution of calculations of the average cost of covering a specified risk in the past;
- joint establishment and distribution of mortality tables and tables showing the frequency of illness, accident and invalidity, in connection with insurance involving an element of capitalisation; and
- 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.
The Commission, during its review of this exemption, found that
calculation of risk is a key issue in pricing insurance products
because the costs of such products are unknown at the time the
price is agreed and the risk covered. Access to past statistical
data in order to technically price risks is therefore crucial and
is specific to the insurance sector alone. Joint cooperation in
this respect may therefore be pro-competitive and justified.
However, the new exemption is subject to certain key amendments,
designed to ensure pro-competitive effects, as follows:
- the term "joint calculations" is changed to "joint compilations" (which may also include some calculations);
- exchange of information is only allowed where it is necessary; and
- access to data shared is now also allowed for consumer organisations and customer organisations, unless contrary to public security.
Insurance pools – common coverage of certain
types of risks
The previous exemption applied to 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 which are not new, subject
to certain conditions, in particular to market share
thresholds.
The Commission, during its review of this exemption, found that
risk sharing for certain types of risks – e.g. nuclear,
terrorism, and environmental – was crucial to ensure
coverage of these because individual insurance companies are
reluctant or unable to insure the entire risk alone. This is
another differentiating aspect of the insurance sector and it
triggers an enhanced need for cooperation.
However, this new exemption is also subject to certain key
amendments, as follows:
- the approach to market share calculation is changed to bring it into line with other general and sector-specific competition rules so that gross premium income earned by the participating undertakings outside of the pool, as well as within it, will be taken into account; and
- the definition of "new risks" has been amended and expanded to include risks that did not previously exist and that require the development of an entirely new insurance product for coverage and, in exceptional cases, risks that have changed so materially that it is not possible to know in advance what subscription capacity is necessary to cover such a risk.
Furthermore, the Commission criticised the way the insurance sector
has used the pools' block exemption in the past. Its review
revealed many insurers were incorrectly using the pool exemption as
a "blanket" exemption, without carrying out the required
careful legal assessment of a pool's compliance with the
conditions for exemption. As a result, the Commission, together
with the national authorities, will closely monitor the operation
of pools to ensure that blanket applications do not occur.
The Commission has also clearly stated that ad hoc co-(re)insurance
agreements on the subscription market – whereby a certain
part of a risk is covered by a lead insurer and the remaining part
by follow insurers who are invited to cover the remainder
– are not, and have never been, covered by block
exemption. Any practices involving an alignment of premium between
co-(re)insurers through such ad-hoc co-(re)insurance agreements may
fall within the scope of Article 101(1) TFEU and will be exemptible
only if the conditions for individual exemption pursuant to Article
101(3) TFEU are satisfied.
Non-renewed exemptions
The Commission decided not to renew the block exemptions for
agreements on standard policy conditions ("SPCs"); and
security devices.
This is primarily because they are not specific to the insurance
sector and therefore to include them could result in unjustified
discrimination against other sectors not benefiting from a block
exemption.
Where such agreements give rise to competition concerns they may
still be eligible for exemption, but pursuant to the conditions for
individual exemption under Article 101(3) TFEU alone. Guidance
applicable to all sectors already exists for security devices,
specifically relative to the compliance of technical standards, at
Point 6 of the Commission's Horizontal Guidelines (OJ C003,
06/01/2001, pp2-30). Furthermore, the Commission is planning to
address both forms of cooperation in its new Horizontal Guidelines,
the current version of which is currently under review with a draft
version due for publication and consultation in the first half of
2010. This will hopefully provide further guidance and certainty on
such forms of cooperation for all industry sectors.
What happens to agreements exempted under the previous
block exemption?
The New IBER provides that the prohibition against anticompetitive
cooperation in Article 101(1) TFEU will not apply from 1 April to
30 September 2010 to agreements, already in force on 31 March 2010,
which do not satisfy the conditions for exemption under the New
IBER, but which satisfy the conditions for exemption under the Old
IBER.
This gives insurance companies a period of six months to review
those existing agreements, which they have previously judged fall
within the scope of the Old IBER, in order to assess whether they
satisfy the conditions for block exemption under the New IBER or
individual exemption pursuant to Article 101(3) TFEU. Any
agreements found not to qualify for either type of exemption must
be either amended to be brought into line or terminated.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.