EC consults on future of Insurance Block Exemption Regulation

It appears that the EC is less inclined to tinker with the regulation ahead of its latest renewal, after removing two of the four IBER categories exempt from normal European competition rules back in 2010. The Commission has, however, raised concerns that some insurers are misusing the rules. As a result leading lawyers have urged industry bodies such as Ferma, Insurance Europe and other stakeholders to reiterate their support for the IBER to try and ensure that this important regulation is renewed. One lawyer has even suggested that the EC may consider an extension of the definition of insurance pools under the IBER to include ad-hoc subscription markets such as Lloyd’s. It is thought that this could deliver more options for insurance buyers.hideThe IBER exempts insurers from EU competition rules for certain practices. It permits cooperation between insurers on data compilation to help them calculate the cost of covering risks more effectively. But perhaps more importantly for insurance buyers the regulation allows pooling of subscription capacity via co-insurance or co-reinsurance pools, provided certain conditions are met. This facilitates the coverage of risks that would otherwise not be insurable. In August the EC launched a consultation on the future of the IBER ahead of a seven-year mandatory review of the regulation in which the authorities will decide whether the sector-specific antitrust regime is justified. The Commission said it is interested to hear about market developments and views on whether the regulation should be renewed, partially renewed or not renewed at all. The consultation sets out detailed questions on the operation of the insurance market and seeks justification for the retention of the IBER. It asks whether the IBER has enabled insurers to price risks more accurately, enter markets where they would not otherwise have been active and whether there would be changes in insurers’ conduct, for example through co-(re)insurance, if the IBER were to expire. Submissions by interested parties must be made by 4 November, 2014. Based on this feedback the EC will submit a report to the European Parliament and Council by the end of March 2016. Ferma and Insurance Europe both confirmed to Commercial Risk Europe that they will consult with members before submitting their responses to the EC. The two federations were therefore unable to comment on the latest ren-ewal. But they have both previously backed the IBER. The UK insurance buyers’ association Airmic is also yet to formally respond to the consultation. But it has also been fully supportive of the regulation in all previous consultations. “Our members need the collective capacity of the market in order to meet their needs. This requires the market to cooperate fully on wordings in order to be able to offer effective layers of cover within single contracts involving multiple insurers,” said Airmic’s chief executive John Hurrell. “There is no evidence that current practice has inhibited competition in any way. Indeed, the market is probably as competitive as it has ever been,” he told Commercial Risk Europe. Mr Hurrell stressed, however, that the role of brokers is critical to the continued effective operation of the insurance market and to maintain the current competitive environment by accessing secure capacity wherever it may be available. John Milligan, Partner at Clyde & Co who specialises in EU law and related aspects of international trade, explained why many believe the IBER is good for both buyers and insurers. “It [IBER] creates efficiencies, reduces costs and increases availability and capacity of insurance…It would be wrong to say that won’t take place anymore if the exemption goes but there would be less legal certainty for insurers, greater compliance costs and greater delays before agreements could be put in place. Non-renewal could lead to greater or undue caution about entering into certain arrangements because of the uncertainty. So we would not view non-renewal as positive,” he said. Mr Milligan is optimistic about the renewal of the IBER. He pointed out that the EC has not publicly spoken against the regulation as it did prior to its previous renewal. “Before the 2010 renewal of the IBER the Commission stated its intention to withdraw the block exemption. It has not done that on this occasion and hasn’t set out its stall in any way. Much is going to depend on the responses to the consultation. But the Commission certainly appears to be open for it to continue. Barring any unforeseen events my money would be on the exemption being retained. I wouldn’t have thought it will be reduced,” he said. Fellow legal expert Yves Botteman, Partner at the Brussels office of Steptoe and Johnson, pointed out, however, that over the years the EC has been sceptical of industry-specific exemptions. “This was already palpable in the context of the renewal in 2010,” he said. “Not surprisingly, this latest consultation is aimed at assessing how the absence of the IBER is likely to impact cooperation among (re)insurers. The option for the EC is therefore to let the IBER lapse and bring the insurance sector entirely under the umbrella of the general cross-sectoral rules governing cooperation among competing companies.” The lawyers noted that the EC is worried that insurers do not always check that the block exemption applies to a particular business practice and tend to use the regulation ‘carte blanche’. “The EC has not been convinced that insurers always check whether the block exemption applies to a particular co-insurance. It did say a couple of years ago that insurers seem to assume that there is a blanket exemption of all co-insurance without actually checking whether the conditions are met,” said Mr Milligan. Mr Botteman pointed out that a key question for the EC when it comes to industry-specific exemption is whether and how industry participants make use of the rules. “The exemption/safe-harbour is often wrongly interpreted by its beneficiaries as a blanket licence to operate. In fact, a safe-harbour does not mean that companies do not have to assess compliance with the safe-harbour. The exemption is merely a tool to facilitate the self-assessment but it does not mean that companies can avoid conducting an antitrust audit of their business practices. This is a common misunderstanding that the Commission is keen to address,” he added. The IBER does not cover ad hoc subscription coverage, whereby brokers typically build programmes for higher risk and specialty programmes among panels of insurers and reinsurers, most classically carried out at Lloyd’s of London, but also common across Europe. Clients that seek a bespoke solution often prefer these arrangements and Ferma has previously voiced its support for such practices. Insurance buyers will therefore be interested to hear that Mr Milligan believes the EC appears open to redefining the type of co-insurance that would fall under the IBER to include such market practices. He explained that the EC consultation asks if an amendment is required regarding the definition of ‘insurance pools’. “This is an area where clarity would indeed be desirable in several respects, including application of the IBER to ad hoc subscription arrangements such as Lloyd’s and other markets within the EU,” said Mr Milligan. Although conceding that his comments are speculatory, he added: “It appears the EC is potentially open to a redefinition of co-insurance that would maybe widen to include things like subscription markets that are not currently covered under the IBER…It may be that they are considering bringing these within the block exemption which would be quite interesting for insurers and consumers.”

EC consults on future of Insurance Block Exemption Regulation

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