FERMA gives mixed reception to partial block exemption regulation

But, the Federation stressed the continued need for ad hoc co-insurance and reinsurance coverage for industrial risks that is typically built by brokers in the subscription market and could be under threat.

The new BER only includes two of four categories that were previously exempted from normal competition rules.

It allows cooperation between insurers on rules for joint compilations, tables and studies with some important changes.

The Commission explained that key changes to the exemption for information exchange introduce a new right of access to the results of information exchange for customer and consumer organisations, except for public security reasons, and clarify the scope of the exchange of information covered by the BER.

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The new BER also allows co(re)insurance pools, with some amendments.

It exempts pools that cover either ‘new’ risks or those that fall below certain market share thresholds if they cover risks that are not ‘new’. The E.C. said that this would help ensure that all risks can be covered by insurance companies.

Specifically the new BER introduces a change so that income earned outside the pool is added to gross premium income earned within the pool by participants.

The definition of ‘new risks’ has also been broadened to cover risks that have changed so materially that it would not be possible to know in advance what subscription capacity would be needed to cover the risks.

Agreements on standard policy conditions (SPCs) and on security devices are not deemed to be specific to the insurance sector and therefore co-operation is no longer allowed.

When it introduced the new BER at the end of March, however, the Commission did state that it plans to address both of these types of agreements under the E.U. Guidelines on horizontal cooperation agreements that are currently under review.

FERMA has worked with its political advisor Guy Soussan (pictured), partner with Brussels law firm Steptoe & Johnson, over the last two years to try to protect insurance buyers’ interests. The Federation said that it is ‘pleased’ with the ‘balanced approach’ that the Commission has adopted on insurer cooperation over compilations, tables and studies and likes the access given to buyers.

“In particular, under the new exemption, risk management associations may now seek, under reasonable conditions, access to actuarial data generated by insurers. FERMA looks forward to collaborating actively with insurer associations in order to give meaningful effect to data access,” it stated.

On pools, FERMA said that it believes that the new conditions and revised market share thresholds will trigger ‘fresh examination’ of existing pooling arrangements.

It added that it expects that the revised conditions for the common coverage of certain risks will benefit corporate insurance buyers.

The Federation stressed the important benefits that SPCs bring in terms of transparency and reduced transaction costs to risk managers. FERMA said that it therefore ‘strongly supports’ the Commission’s commitment to providing guiding principles on horizontal cooperation.

“It is hoped that, compared to the rules for exemption that were previously in place, no substantive changes will be introduced that would have the effect of hindering or reducing the incentives for efficient and beneficial cooperation,” stated the insurance buyers’ representative group.

One area left somewhat in the air is the matter of 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. The Commission’s statement suggested that this would be dealt with on a case-by-case basis.

As the representative body of the largest European buyers that typically need such coverage, FERMA was keen to stress the importance of such ad hoc subscription reinsurance or insurance coverage for industrial risks.

“FERMA continues to believe that the practice of ad hoc co-(re)insurance arrangements on the subscription of industrial risks, as part of the basic functioning of the insurance market in Europe, has been working properly and proved its benefits. This practice should be permitted and allowed to continue as it brings cognizable efficiencies under Article 81.3 of the EC Treaty,” stated the Federation statement.

The Comité Européen des Assurances (CEA), the European insurance and reinsurance federation, said that it was worried that the partial renewal of the BER will reduce cooperation between insurers and therefore not be good news for insurance buyers soon after the Commission made the announcement earlier this month.

The CEA also said that it is worried that the less specific nature of the new BER could lead to legal problems. “In contrast to the BER, the guidelines that will be issued for standard policy conditions (SPCs) and for security devices are not legally binding”, said Michaela Koller, CEA Director General. “They will therefore not ensure legal certainty and the CEA is concerned that it could lead to a significant drop in cooperation.”