Competition rules in the insurance sector

United Kingdom
European Commission’s new draft insurance block exemption regulation
The European Commission last week published its new draft revised block exemption regulation for agreements in the insurance sector.

The existing block exemption regulation expires next year. It was adopted in 1992 in order to deal with the commonly occurring agreements in the insurance sector that the Commission felt were capable of exemption. At the time, the Commission was swamped by over 300 notifications which had been made following the European Court’s confirmation in 1987 that the EC competition rules applied to the insurance sector.

The Commission’s new draft regulation is in many respects similar to the existing regulation. It is being made under the enabling Council Regulation of 1991 (the same regulation which enabled the adoption of the 1992 regulation) and it continues to cover the same four types of agreement as are covered by the existing regulation with, however, the following main changes:

Indicative risk premiums. The new draft regulation makes two additions to the existing conditions for exemption of joint activity in this area. First, one condition for exemption of joint calculation of indicative risk premiums which is implicit in the existing regulation has been made explicit: as regards pure premiums, statistics must be broken down into as much detail as possible, while leaving a statistically useful sample. Second, the statistics on risk premiums should be available on reasonable and non-discriminatory terms to any insurance undertaking which requests access to them.

Comment: As regards the first condition, the Commission states it is merely making explicit a condition that was implicit in the earlier regulation. But is the Commission being disingenuous? It appears to be introducing a new condition, which in addition, appears to be rather vague. It is unclear what “broken down in as much detail as possible will mean in practice. Under the second condition, the results of a study by a trade association would have to be made available to non members. The Commission indicates that fees charged for access to studies to insurance firms which have not contributed to the studies cannot be so high as to constitute a barrier to entry onto the market.

Standard policy conditions. The new draft regulation changes the existing conditions for exemption of standard insurance policy wordings (for direct insurance) eg those produced by associations of insurance undertakings or intermediaries. These will now only be exempted under the new draft block exemption if they are developed in conjunction with the joint calculation of pure premiums and joint studies related to risk premiums, and only in so far as they are both necessary and exclusively used for such calculations or studies.

Comment: This is a very important change which restricts the scope of the current exemption dramatically. Many standard wordings are in use and rely upon the present exemption without any link to risk premium calculations. The industry needs to lobby the Commission on this issue explaining why voluntary standard wordings can benefit consumers even where they are not directly linked to risk premium calculation. There are particular issues in the context of subscription markets where standard wordings play an important role.

Common coverage of certain types of risks (pools). The existing regulation subjects the exemption of pools to thresholds for the parties’ market shares. The new draft regulation increases these market shares: pools will be authorised on condition that the combined market shares of their members do not exceed 20% for co-insurance pools and 25% for co-reinsurance pools. In addition, the new draft regulation introduces a new exemption with no market share threshold for insurance pools which are newly created in order to cover a new risk, for the first three years of their existence.

Comment: These appear to be helpful changes. The Commission indicates the areas for which pools are most often created as being aviation, nuclear and environmental. It confirms that pools will generally not infringe Article 81(1) if, in the absence of the group/pool in question, none or only one of the members of the group would be able to offer the category of insurance concerned (even if other companies or pools do supply that category of insurance). However, where the subscription capacity of the group is such that it could be replaced by at least two competing groups, the group may restrict competition with the meaning of Article 81(1) depending on the level of its market power; hence the need for market share thresholds.

Joint determination of approved safety equipment. The new draft regulation introduces a new condition for exemption of agreements between insurers on approved security equipment. In order to be exempted, such agreements must explicitly recognise as equally valid: (i) any similar agreements adopted in any other Member State and (ii) any approval of a security device or installing and maintenance undertaking issued by a national association in another Member State.

Comment: It is questionable whether the Commission’s proposed change in this regard is perhaps a little premature. Is this in fact mandatory mutual recognition in a case where perhaps standards throughout the Member States (for instance, as regards the qualifications of installers and maintainers of equipment) might not yet be comparable?

The new draft regulation takes account of the Commission’s experience of applying the existing regulation over the last 9 years encapsulated in its recent report and also reflects developments in the insurance sector.

Now is a good time for businesses to consider the issues raised by the draft regulation, to review their compliance with the proposed rules which should apply from 1 April 2003 (with a transitional period to bring existing agreements into line by 30 September 2003). These changes will also be important in the context of the Competition Act 1998 as compliance with an EC block exemption provides a “parallel exemption under the 1998 Act. Agreements or practices falling outside the scope of the new block exemption may therefore infringe the prohibition in Chapter I of the 1998 Act irrespective of any effect on inter-state trade which is necessary for an infringement of EC competition law. Compliance with competition rules is of ever-increasing importance to UK businesses especially in light of the OFT’s increased use of its enforcement powers under the 1998 Act and its proposed disqualification powers for directors under the Enterprise Bill.

The Commission has published its new draft regulation in the Official Journal. To access the new draft regulation on the europa website please click here

If you would like further information on the new draft block exemption regulation, please contact Nick Paul on + 44 (0)20 7367 2806 or by email

There will be a Financial Services & Competition Law Breakfast Briefing on 17 September 2002 at which this topic will be discussed. Full details will be available soon via Law-Now.