First published: mEMo [1st November 2007]

In September, the European Commission published its final report on competition in business insurance. One of the key battlegrounds has been the retention of the block exemption for some forms of co-operation between insurers. Essentially, the block exemption permits certain types of co-operation without there being a breach of the EU's competition laws, including the joint establishment and distribution of calculations and studies, standard policy conditions and technical specifications, rules and codes of practice on security devices, and also joint coverage of risks.

The block exemption will expire on 31 March 2010 and the European Commission is considering whether it should be renewed. In its interim report, the Commission highlighted some concerns about the differences between the ways in which member states utilise the block exemption. In the Commission's view this raised doubts about its justification.

The Comité Européen des Assurances (CEA) has lobbied quite vociferously on behalf of the insurance industry arguing that the block exemption fosters competition and leads to the opening up of markets and that sharing data is particularly important for SMEs who would otherwise not possess sufficiently reliable data. In the CEA's view, the use of standard terms helps to create transparency in the market by developing comparability of products, saves overhead costs and provides legal certainty for customers. Further, insurance pools help insurers gain necessary experience of risks with which they are unfamiliar.

Notwithstanding the CEA's efforts, the Commission's final report indicates that they have failed to find compelling reasons to extend the block exemption beyond its expiry date. It is quite notable, however, that the report devotes only three pages to this issue, despite its obvious importance to the insurance industry. The Commission seems to hold the view that the block exemption is not required due to the application of Article 81(3) of the EC Treaty. Article 81(3) provides that anti-competition rules are not applied to agreements or practices which contribute to improving the production or distribution of goods or promoting technical or economic progress while allowing consumers a fair share of the resulting benefit, provided that they do not either (a) impose on the parties to the agreement restrictions which are not indispensable to the attainment of those objectives or (b) afford the parties the possibility of eliminating competition in respect of a substantial part of the products in question.

Under the old system for applying Article 81(3), any undertakings which believed that their agreement fell within Article 81(3) had to notify the agreement to the Commission which might take years to revert with a decision. Under the new system which has been in place since 2004, there is no process of making an application to the Commission. Instead, companies must take specialist advice to determine for themselves whether their agreement falls within Article 81(3) or not. If, in their opinion, their agreement does fall within Article 81(3), then they may enter into the agreement but do so at their own risk. If their decision is challenged at any time, the burden of proof will be on the parties wishing to claim the exemption to demonstrate that it does fulfil the test in Article 81(3).

The Commission believes that the new system for applying Article 81(3) means that the status quo can be preserved without the need for the block exemption. That ignores the fact, however, as highlighted by the CEA, that the block exemption provides insurers with legal certainty, without which some forms of co-operation might cease to exist as a precautionary measure. Further, the amount of self-assessment that would be required to ensure compliance with competition law would increase dramatically with substantial additional cost – ultimately to be borne by policyholders.

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