Regulatory scrutiny of the business insurance industry has spread across the Atlantic to the European Union. In addition to the investigation opened in the United States by the National Association of Insurance Commissioners (see our Client Bulletin of March 2005 at http://www.sidley.com/db30/cgi-bin/pubs/2005%20March%20- Newsletter.pdf), companies in the business insurance industry must now also contend with a "sector inquiry" launched by the European Commission’s Directorate-General for Competition.
The initial focus of the Commission’s inquiry is on competition in the property and casualty insurance and reinsurance industries and the inter-relationships between reinsureds and reinsurers. The Commission is also interested in the involvement of insurance industry trade associations which are responsible for setting key standard policy conditions. Critically, the Commission does not rule out widening the scope of its inquiry to look at other areas of the business insurance and reinsurance industries.
The Commission’s powers allow it to request detailed information from companies within the sector under investigation. If the companies involved do not respond accurately (or at all), the Commission may make a more formal demand for the information, under a threat of fines or mandatory inspections of companies’ EU offices.
The opening of a sector inquiry may herald the beginning of a lengthy period of regulatory scrutiny. Although the Commission’s initial requests have been couched in general terms and suggest no fixed or negative views concerning the operation of the business insurance sector, the Commission’s analysis of the responses it receives can be very significant in informing future policymaking and law enforcement investigations.
The Commission’s inquiry can be expected to conclude with a public report which may contain recommendations for new Commission policy initiatives or legislative proposals (for example regarding the sector’s regulatory framework). Less formally, a critical report could simply push scrutiny of insurance companies higher up the Commission’s enforcement agenda.
The objective of this sector-wide inquiry is not to conduct an in-depth examination of any particular company or group with a view to imposing a decision, fine or structural remedy. However, there is little doubt that the Commission would open proceedings against any individual companies suspected of violating EC competition laws.
At the time of this writing, the Commission has just completed the first stage of its information gathering process, which consisted of sending questionnaires to the insurance industry trade associations in each of the European Union’s 25 Member States. It is next planning to send questionnaires to the companies themselves. It is presently scheduled to publish its preliminary findings in early 2006. For the reasons already discussed, the recipients of any such request should consider their responses very carefully.
This article has been prepared by Sidley Austin Brown & Wood LLP for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act upon this without seeking professional counsel.