European Commission proposes to limit scope of insurance block exemption

On 24 March 2009, the European Commission published a report on the insurance block exemption, which entered into force on 1 April 2003 and is due to expire on 31 March 2010. The current block exemption exempts four categories of agreement commonly found in the insurance industry, provided they fit defined criteria. The Commission has proposed a dramatic reduction in the scope of the new block exemption: it considers that two of these categories (the exchange of statistical information for risk calculation and the creation of insurance pools) should continue to benefit from block exemption, but that the other two categories (standard policy conditions and security devices) should be removed from the scope of the block exemption regime.

Although the Commission describes the report as its “preliminary views”, it represents the end of an extensive consultation process with many industry stakeholders. The Commission will hold a public hearing on 2 June 2009, which will be the last stage before publication of a proposed new block exemption regulation for consultation.

The Commission’s key approach throughout this consultation process has been to determine whether a sector-specific practice in the insurance industry merits special treatment compared with other sectors. Since 1 May 2004, the EU competition rules require companies to assess for themselves whether their agreements are compliant. Block exemptions provide a “safe harbour” by defining the compliance criteria for particular categories of agreement. The Commission is known to prefer block exemptions to cover a type of agreement across all sectors rather than to be sector-specific. There has therefore been a fear in the insurance industry that the current block exemption might lapse (as has happened for instance in relation to maritime and air transport block exemptions) and there may therefore be some relief that half of the outgoing block exemption seems likely to be retained.

What is the Commission’s rationale for the proposed changes?

In brief, the Commission’s reasoning for its proposals for each of the four categories is as follows:

• Joint risk calculations are “special” – denying the industry specific protection here might discourage pro-competitive co-operation. The Commission is undecided as to whether the relevant parts of the current block exemption can be retained without amendment.
• Co-insurance (and co-reinsurance) pools are also sector-specific and critical to the sector. However, in this case, the Commission expects to amend the specific wording of the block exemption and to encourage a more detailed self-assessment when it comes to competition law compliance for pools (which it believes the industry is not currently doing enough).
• Standard policy conditions are not considered sufficiently sector-specific to merit special treatment by way of block exemption coverage. In the Commission’s view, insurance companies should be capable of assessing whether co-operation on standards is competition law compliant on the same basis as companies in other sectors. However, the Commission’s report states that it may issue guidance on this separately.
• Nor are security devices considered sufficiently sector-specific to merit special treatment. On this area, the Commission is not proposing separate guidelines.

What next for the industry?

The proposal to remove standard policy wording from the comfort zone of a block exemption is significant news and is likely to create legal uncertainty for the industry, which may soon have to verify the competition law sensitivity of each standardisation agreement. It is also important to remember that co-operation on statistical assessments and pools should be reviewed for their compliance with the specific criteria in the block exemption.

Industry stakeholders can make their views known either at the 2 June 2009 hearing or through the consultation process following publication of a draft regulation.

Please click here for the Commission’s press release. Also available are the full text of the Commission Report and a set of frequently asked questions issued by the Commission