Post Europe – Insurance Block Exemption Regulation

The insurance block exemption regulation has traditionally allowed European insurers to operate their usual market practices without fear of falling foul of European Union rules on competition. However, at every renewal of the exemption, the rules have been tightened. At the most recent renewal at the end of March the commission was true to form and amended were seen again.

Ahead of renewal insurers had been lobbying hard, worried that too much of a reduction or total abolition of the exemption would make market practice all but impossible.

Transparent insurance
In various reports the commission found that insurance was working well and that its practices were transparent. However, it also found that elements of insurance were "not special enough" to warrant a stand-alone exemption.

It, therefore, reduced the BER to agreements related to joint calculations, tables and studies, and agreements setting up co-insurance and re-insurance pools. The two other elements of the previous BER agreements relating to development and distribution of standard policy conditions for direct insurance, and agreements on technical specifications, rules and codes of practice concerning security devices have now been removed.

Transition help
Officially the BER came into force on April 1 but the commission has included a transition period of six months - until October 1 - to allow companies time to adapt existing co-operation arrangements to the new rules.

This six-month transition is very important, according to William Vidonja, head of single market and social affairs at the European insurance association body CEA.
He explains that insurers will now have to ensure themselves that they comply with general antitrust rules on these two elements.

Giving guidance
The commission is also consulting on some guidance which should come into play at some point next year, as part of its ongoing review of forms of co-operation and standardisation generally. Mr Vidonja says, generally speaking: "Members were extremely happy that the commission renewed on two elements - that was appreciated by the market."

However, he says it will be up to companies themselves to conduct assessments of their activities to make sure they remain in line with the new requirements and benefit from the insurance block exemption regulation.

He says: "The ball is now in the court of market players and insurers." And, as far as the elements removed from the BER are concerned, he says, there is a worry that there is a time lag between losing the exemption and the publication of any guidance and that anyway guidance may not be followed by national authorities.

Extreme vigilance
His advice is for players to take legal advice and keep a close watch on developments. Like others in the market, he predicts: "The commission will be extremely vigilant and will probably check whether market players are respecting the new rules."

Gillian Sproul, head of Mayer Brown's EU competition group in London, believes there is a concern in the market that, at some point, there will be an enquiry or investigation of someone's activities. "No business wants to be the first in the firing line, so companies across Europe are looking for guidance."

There are areas of change, she says, which have left some uncertainty and companies would welcome clarification - but not if it comes courtesy of an investigation and the consequential potential disruption.

Consumer concern
At the consumer end of the chain, there is also concern that follow-up investigations may cause disruption. The Association of Insurance and Risk Managers' technical director Paul Hopkins says there is a worry "about enforcement because of the continued scrutiny of the subscription market". Airmic members are large companies, he says, which need sophisticated insurance programmes, making the subscription market essential to provide capacity.

Marie-Gemma Dequae, Federation of European Risk Management Associations board member with responsibility for discussion on the block exemption regulation, says: "We are pleased that the BER encourages competition among insurers, for example, by requiring freedom for members of insurance pools to offer cover outside the pool if market circumstances or the risk environment changes, but it is too early to say if this amendment to the BER has affected renewals.

"On the other hand, risk managers did not oppose renewal of the clause which allows insurers freedom to exchange information and we would like them to be more open with the sector and market data to assist us in benchmarking. What we now get tends to be neither very complete nor timely.

Benchmarking benefits
She adds: "Our colleagues in the US are much better off in terms of such benchmarking information. Since the insurers have the advantage of this renewed concession in the BER, we urge them also to put it to the service of their clients."

Just a few months after the new rules were adopted - and while the transition period is underway - it is hard for anyone in the market to notice real change. As Ms Dequae points out, many insureds have yet to go through a renewal period.

Practice renewal
In London, both the International Underwriting Association and Lloyd's Market Association are confident that their processes will stand up to any scrutiny, although both groups are keen to stress that they are reviewing practices in the light of the amendments to ensure compliance.

Dave Matcham, chief executive of the IUA, says there has been a "heightened level of nervousness about commission intervention following the aviation enquiry and then the business sector enquiry".

However, he is confident that industry will work hard to make sure it remains compliant and the IUA will be reviewing to that end.

Business as usual
Meanwhile Kees van der Klugt, head of legal and compliance at the LMA, is also confident that, ultimately, it will be business as usual. Processes are also being reviewed, but Mr van der Klugt says the LMA produces model wordings that are not mandatory and he believes the commission has acknowledged that.

In all, it is too early for players to be sure of any impact of the rule changes but it is also clear that everyone in the market is spending time reviewing operations in line with the new expectations.