Continental European Legislative and Judicial Trends: Renewal of the EU Insurance Block Exemption Regulation
In 1992, the European Commission (Commission) adopted the first Block Exemption Regulation (EEC) No. 3932/92 applicable to the insurance sector. The Regulation exempted particular forms of cooperation in the insurance industry from the prohibition of restrictive practices regarding competition under Article 101, Treaty on the Functioning of the European Union (TFEU) (ex Article 81, EC). The Regulation expired in 2003 and was replaced by the current Regulation (EC) No. 358/2003 after the Commission conducted a thorough consultation process with the insurance industry, the public and consumer organizations.
Regulation (EC) No. 358/2003, which expired on March 31, 2010, granted an exemption from the application of competition rules concerning four types of agreements that were considered specific to the insurance sector. The exclusion included joint calculations, tables and studies, standard policy conditions, security devices and the common coverage of certain types of risks by means of co-insurance or co-reinsurance pools. Concerning the latter type of cooperation, a distinction was made between pooling arrangements covering exclusively “new risks” and other pools dealing with risks aside from “new risks.” Co-insurance or co-reinsurance groups dealing exclusively with “new risks” were exempted for only a three year period after the particular group had been established. Co-insurance or co-reinsurance groups not covering a “new risk” or existing for more than three years could not exceed certain thresholds in the relevant markets in order to benefit from the suspension of competition rules. For co-reinsurance groups, the threshold was set at 25 percent, while in the case of co-insurance groups, a threshold of 20 percent applied.
The provisions of the implementing Regulation (EEC) No. 1534/91 oblige the Commission to review the functioning of the Block Exemption not later than six years after its entry into force. The Commission began to consult national authorities on competition in 2007 and the public in 2008. As a result of the consultation process, the Commission tabled a report on the Block Exemption to the European Parliament and the Council of the European Union, which reflected the preliminary views of the Commission on a renewal of the Block Exemption Regulation in the insurance sector. Basically, the document recommended that the exemption from antitrust rules should be maintained for agreements referring to joint calculations, tables and studies and the common coverage of certain types of risks. Still, the report pointed out that forms of cooperation in the area of standard policy conditions and security devices should not be covered by a new Block Exemption. These views were included in the Draft Block Exemption Regulation, which led to the new Block Exemption Regulation, to be discussed below.
The Current Block Exemption Regulation
The major change in the new Block Exemption Regulation (EU) No. 267/2010 of March 24, 2010 lies in the deletion of the exemption for agreements on standard policy conditions and security devices. These forms of cooperation are no longer considered specific to the insurance sector. As a consequence, only joint calculations, tables and studies, as well as co-insurance or co-reinsurance groups, fall under the proposed Block Exemption. Even though exemptions are sustained for these types of agreements, several amendments are introduced.
A formal change was made to the area relating to joint calculations, tables and studies, where the term “joint calculations” has been replaced by “joint compilations.” Apart from the condition that joint compilations, tables and studies must be made available to any insurance company, even if the company is not active in the geographical or product market to which the data refer, Article 3 (2) (e) of the Draft Regulation adds a further disclosure requirement. In accordance with this provision, compilations, tables and studies shall be made available to consumer organizations or customer organizations, unless non-disclosure is justified on grounds of public security.
In the context of the exemption referring to common coverage of certain types of risks, two reforms proposed by the Commission are significant. First, the definition applicable to “new risks” has been expanded. Under the new regulation, new risks include “in exceptional cases, risks the nature of which has, on the basis of an objective analysis, changed so materially that it is not possible to know in advance what subscription capacity is necessary in order to cover such a risk.” Another major reform concerns the calculation of market share thresholds for pools not covering “new risks.” The former Block Exemption identified the market share thresholds in relation to the insurance products “underwritten within the grouping arrangement by the participating undertakings or on their behalf.” The new Regulation defines it as the market share held by a participating undertaking inside and outside any pool on the relevant market. The proposed provision, therefore, takes into account the combined market share of the participating companies in and outside any pool, thereby limiting the scope of the Regulation.
Response from the Insurance Industry on the New Regulation
During the public consultation phase that occurred from October to November of
2009, the insurance industry had the opportunity to respond to the Commission’s
envisaged alteration of the Block Exemption Regulation. The European insurance
industry has generally demanded that the Block Exemption Regulation be renewed
completely. The industry has articulated its support for an exemption concerning
standard policy conditions and security devices. In addition, the industry has been
critical of most of the modifications to the retained exemptions that have been introduced. Correspondingly, the obligation to disclose to any interested third party the framework of joint compilations, tables and studies, has aroused the concern of the industry. The industry warns that such a requirement would likely reduce this form of cooperation to the detriment of the whole sector. As a consequence, the provision’s scope was reduced to consumer and customer organizations. Another issue facing disapproval among insurance industry associations is the new calculation of market share thresholds of co-insurance or co-reinsurance groups covering risks other than “new risks.” Due to the narrowed scope of this exemption, medium-sized or large insurers would not be able to participate in pooling arrangements, as argued by the insurance industry. It remains to be seen what changes the new Block Exemption Regulation will bring to the insurance sector in practice.
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