Published in HFW's Insurance/Reinsurance Bulletin, April 2010.
The European Commission ("Commission") adopted the new block exemption regulation (BER) for the insurance sector on 24 March 2010. The BER entered into force on 1 April 2010 and expires on 31 March 2017.
On the day after publication, leading players in the industry gathered at HFW's office for a seminar on the BER. Eithne McCarthy, the Commission's project leader, presented the key developments in the new BER.
The Commission's essential aim is to prevent agreements between insurance undertakings which are detrimental to competition in the insurance market. However, there is an exemption potentially available for agreements which have countervailing economic benefits. The BER codifies the exemption criteria for certain forms of agreements between insurance undertakings. However agreements can meet those criteria without using the BER.
Two exemptions have been renewed in the new BER: Joint Compilations, Tables and Studies and Co(re)-insurance pools. The Commission decided that there was no longer any justification to renew the exemption for standard policy conditions and models, and security devices. These will now be incorporated into the general standardisation chapter of the Commission's Horizontal Guidelines, a revised version of which is currently under consultation.
Other key amendments include limiting exchange of information only where it is "necessary" regarding Joint Compilations, Tables and Studies, and broadening the definition of "new risks" regarding pools. Market share calculations for pools other than "new risks" must include participants' shares outside as well as within the pool: the limits remain as 20% for co-insurance and 25% for co-reinsurance.
The new BER clarifies that subscription underwriting is excluded from the pools exemption, and the Commission continues to have concerns on practices involving alignment of premiums, especially upward alignment. If BIPAR high level principles are applied, the Commission is relaxed.
The Commission intends to monitor closely, particularly pools, so that there are no "blanket" applications of the BER or the exemption criteria, without due legal analysis.
To avoid competition problems, insurance undertakings should be careful in their dealings with competitors, including in industry associations, and on external and internal communications.
The insurance sector has been granted a six-month transition period until 30 September 2010 to adjust to the new BER. The period should be used to review existing arrangements to ensure compliance with competition rules. Training for staff would also be prudent.
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