Antitrust Alert: European Commission adopts new and streamlined Insurance Block Exemption
The European Commission has today adopted a new Insurance Block Exemption ("New IBER"), exempting certain categories of cooperation in the insurance sector from the prohibition against anticompetitive cooperation contained in Article 101(1) of the Treaty on the Functioning of the EU ("TFEU"). It comes into force on 1 April 2010 and renews, with certain modifications, two of the four cooperation types exempted in the current block exemption (Commission Regulation (EC) No 358/2003) ("Old IBER"), which expires on 31 March.
The adoption of the New IBER follows the Commission's two-year review of, and consultation on, the Old IBER, during which time it considered three key questions in relation to each of the four categories of agreements exempted by the Old IBER, namely:
- Whether the business risks or other issues in the insurance sector make it "special" and different to other sectors such that this leads to an enhanced need for cooperation amongst insurers.
- If so, whether this enhanced need for cooperation requires a legal instrument such as the Old IBER to protect or facilitate it.
- If so, what is the most appropriate legal instrument, i.e. is it the Old IBER, a partial renewal, an amended renewal, or guidance?
The result is the New IBER – a partial and amended renewal – which will be in force for seven years until 31 March 2017.
The New IBER renews the block exemptions for joint compilations, tables and studies (Article 2); and insurance pools, i.e. common coverage of certain types of risks (Article 5). These exemptions remain subject to conditions which are set out in Article 3 and Articles 6 to 7 respectively.
Joint Compilations, Tables and Studies
The previous exemption applied to agreements for the:
- joint establishment and distribution of calculations of the average cost of covering a specified risk in the past;
- joint establishment and distribution of mortality tables and tables showing the frequency of illness, accident and invalidity, in connection with insurance involving an element of capitalisation; and
- joint carrying out of studies on the probable impact of general circumstances external to the interested undertakings, either on the frequency or scale of future claims for a given risk or risk category or on the profitability of different types of investment and the distribution of the results of such studies.
The Commission, during its review of this exemption, found that calculation of risk is a key issue in pricing insurance products because the costs of such products are unknown at the time the price is agreed and the risk covered. Access to past statistical data in order to technically price risks is therefore crucial and is specific to the insurance sector alone. Joint cooperation in this respect may therefore be pro-competitive and justified.
However, the new exemption is subject to certain key amendments, designed to ensure pro-competitive effects, as follows:
- the term "joint calculations" is changed to "joint compilations" (which may also include some calculations);
- exchange of information is only allowed where it is necessary; and
- access to data shared is now also allowed for consumer organisations and customer organisations, unless contrary to public security.
Insurance pools – common coverage of certain types of risks
The previous exemption applied to the setting up and operation of co-(re)insurance pools for the common coverage of new risks as well as co-(re)insurance pools covering risks which are not new, subject to certain conditions, in particular to market share thresholds.
The Commission, during its review of this exemption, found that risk sharing for certain types of risks – e.g. nuclear, terrorism, and environmental – was crucial to ensure coverage of these because individual insurance companies are reluctant or unable to insure the entire risk alone. This is another differentiating aspect of the insurance sector and it triggers an enhanced need for cooperation.
However, this new exemption is also subject to certain key amendments, as follows:
- the approach to market share calculation is changed to bring it into line with other general and sector-specific competition rules so that gross premium income earned by the participating undertakings outside of the pool, as well as within it, will be taken into account; and
- the definition of "new risks" has been amended and expanded to include risks that did not previously exist and that require the development of an entirely new insurance product for coverage and, in exceptional cases, risks that have changed so materially that it is not possible to know in advance what subscription capacity is necessary to cover such a risk.
Furthermore, the Commission criticised the way the insurance sector has used the pools' block exemption in the past. Its review revealed many insurers were incorrectly using the pool exemption as a "blanket" exemption, without carrying out the required careful legal assessment of a pool's compliance with the conditions for exemption. As a result, the Commission, together with the national authorities, will closely monitor the operation of pools to ensure that blanket applications do not occur.
The Commission has also clearly stated that ad hoc co-(re)insurance agreements on the subscription market – whereby a certain part of a risk is covered by a lead insurer and the remaining part by follow insurers who are invited to cover the remainder – are not, and have never been, covered by block exemption. Any practices involving an alignment of premium between co-(re)insurers through such ad-hoc co-(re)insurance agreements may fall within the scope of Article 101(1) TFEU and will be exemptible only if the conditions for individual exemption pursuant to Article 101(3) TFEU are satisfied.
The Commission decided not to renew the block exemptions for agreements on standard policy conditions ("SPCs"); and security devices.
This is primarily because they are not specific to the insurance sector and therefore to include them could result in unjustified discrimination against other sectors not benefiting from a block exemption.
Where such agreements give rise to competition concerns they may still be eligible for exemption, but pursuant to the conditions for individual exemption under Article 101(3) TFEU alone. Guidance applicable to all sectors already exists for security devices, specifically relative to the compliance of technical standards, at Point 6 of the Commission's Horizontal Guidelines (OJ C003, 06/01/2001, pp2-30). Furthermore, the Commission is planning to address both forms of cooperation in its new Horizontal Guidelines, the current version of which is currently under review with a draft version due for publication and consultation in the first half of 2010. This will hopefully provide further guidance and certainty on such forms of cooperation for all industry sectors.
What happens to agreements exempted under the previous block exemption?
The New IBER provides that the prohibition against anticompetitive cooperation in Article 101(1) TFEU will not apply from 1 April to 30 September 2010 to agreements, already in force on 31 March 2010, which do not satisfy the conditions for exemption under the New IBER, but which satisfy the conditions for exemption under the Old IBER.
This gives insurance companies a period of six months to review those existing agreements, which they have previously judged fall within the scope of the Old IBER, in order to assess whether they satisfy the conditions for block exemption under the New IBER or individual exemption pursuant to Article 101(3) TFEU. Any agreements found not to qualify for either type of exemption must be either amended to be brought into line or terminated.
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