The European Commission's New Insurance Block Exemption Regulation
April 15, 2010
On 1 April 2010, the European Commission’s new Insurance Block Exemption Regulation No. 267 of 2010 (“new IBER”) came into force, and will remain valid until 31 March 2017. Under the new IBER, specific types of agreements commonly used within the insurance industry are exempted from normal competition rules on the basis that cooperation in these areas increases efficiency and benefits consumers. This article explains the major changes from the previous block exemption regulation and explores what these changes mean in practice.
The New IBER
Following its Business Insurance Sector Inquiry which was initiated back in 2005, the Commission received a considerable number of comments on the previous Block Exemption Regulation (“2003 Regulation”) with most respondents arguing strongly in favour of its renewal ahead of its 31 March 2010 expiry date. However, the Commission found that in practice the interpretation of the 2003 Regulation varied significantly between EU Member States, and as a result considered whether an insurance-specific block exemption was still justified.
In April 2008, the Commission launched a public consultation on the functioning of the 2003 Regulation and analysis of what the expected effects would be on the market if it was to be removed. In October 2009, the Commission subsequently published a proposed replacement draft insurance block exemption regulation for public consultation (“the consultation draft regulation”), which renewed only two of the four previous categories of exempted insurance-related agreements. The new IBER, which was ultimately adopted on 24 March 2010, continued this narrowed application and only renewed the exemptions for (i) joint compilations, tables and studies and (ii) the setting up of insurance pools, as contained in the 2003 Regulation, each with some amendment.
Standard policy conditions and security devices
As had already been anticipated from the consultation draft regulation, agreements on standard policy conditions (“SPCs”) and agreements in relation to technical standards for security devices no longer benefit from exemption under the new IBER. The Commission took the view that neither was considered specific to the insurance industry, and as a result both were excluded from the ambit of the new IBER. However, this does not automatically render these categories of agreement illegal. Instead, undertakings will now have to self-assess their compliance with reference to Article 101. Reference to the Commission’s non-industry specific guidelines on horizontal cooperation already provides guidance on the compliance of technical standards with Article 101 of the Treaty, which is relevant to security device agreements. The guidelines are currently under review and will be further expanded to address SPCs for all sectors. The Commission intends to publish a draft in the first half of 2010.
Joint compilations, tables and studies
The Commission has acknowledged that the calculation of risk is an issue specific to the insurance sector and that access to past statistical data is vital for pricing insurance. In order to facilitate and safeguard cooperation in this area, the new IBER renews the exemption for agreements related to the joint compilation of tables and studies of statistical data. However, the information that may be exchanged has been limited to that which is strictly necessary to allow an accurate calculation of risk. Consequently, insurers are still prohibited from exchanging data regarding the level of commercial premiums, and all shared data must be anonymous. The new IBER also sets out the condition that compilations, tables and studies must be made available to customer and consumer organizations pursuant to a ‘duly justified’ request, which is only excepted on grounds of public security.
Agreements which set up co-insurance and co-reinsurance pools also continue to benefit from exemption, provided that they cover ‘new risks’ or fall below certain market share thresholds where the risks are not ‘new’. The Commission recognized that risk sharing is crucial to ensure coverage of certain types of risk where undertakings are unwilling to insure the entire risk themselves. The new IBER establishes a broader definition of ‘new risks.’ This aims to help foster cooperation between insurers for products such as agricultural risks and natural disasters, the nature of which are fundamentally changing as a result of climate change, and risks arising from new technologies and new legal provisions.
While such ‘new risk’ pools benefit from a three year exemption irrespective of the market shares of the insurers involved under the new IBER, pools covering risks which are not new are now subject to a revised market share calculation. Gross premium income earned outside the pool will now be taken into account alongside income earned from within the pool. This is a material change which is likely to cause initial difficulties for insurers self-assessing the applicability of the new IBER. Insurance markets vary considerably between countries and insurers must carefully define the relevant product and geographical market in order to assess compliance with the new thresholds. It is therefore more likely that larger insurers will now fall outside the scope of the exemption and, consequently, smaller companies will have materially less opportunities to cooperate with and benefit from the experience of larger insurers.
The road ahead
DG Competition has very publicly indicated that insurers are set to face more intense scrutiny in the wake of the Business Insurance Sector Inquiry and in the application of the new IBER. Newly appointed Competition Commissioner, Joaquin Almunia, has vowed to maintain a tighter oversight over the correct application and use of the exemption by insurance undertakings. This position follows in the footsteps of his predecessor, Neelie Kroes, who had described ‘alarming practices’ involving insurers relying on the 2003 Regulation as a blanket exemption, without undertaking the required self-assessment as to its legal application. Insurers must make sure that their information sharing and pooling agreements are properly eligible for exemption under the conditions of the new IBER, to avoid enforcement action by the regulator in the case of an inadvertent infringement of Article 101.
The Commission has granted insurers a six month grace-period during which they must determine whether their existing agreements fall within the new IBER safe harbour. Insurance undertakings must therefore conduct an internal review of their existing arrangements to ascertain whether they fall within the new IBER before the Commission’s 30 September 2010 deadline.
When undertaking a self-assessment in relation to Article 101 for the now non-exempted SPC and security device categories (and other arrangements which do not fall within the new IBER), insurers are able to look to the Commission’s general guidelines on horizontal agreements which apply to all industries. These guidelines already address technical standards, relevant to security device agreements. The guidelines are currently also under review and the Commission plans to specifically address SPCs, since they no longer benefit from the insurance-specific exemption. Timing issues have unfortunately resulted in it being unlikely that the final version of the revised guidelines will enter into force by 30 September 2010, which may present problems for undertakings wishing to assess current SPC agreements.
It will nevertheless be interesting to see how the European insurance industry develops over the forthcoming term of the new IBER (and whether it will ultimately be renewed), how the Commission will follow through with its threats of stricter supervision, and how the industry will adapt to these changes.
 Commission Regulation (EU) No. 358 of 2003
 Commission’s Guidelines on the applicability of Article 81 of the EC Treaty to horizontal cooperation agreements
 Previously defined as 'joint calculations', the new IBER widens the definition of this exemption to include 'joint compilations, tables, and studies' (which may also include some calculations)
 ‘New risks’ is now further defined to include ‘risks the nature of which has…changed so materially that it is not possible to know in advance what subscription capacity is necessary in order to cover such a risk’, Article 1(6)(b) Commission Regulation (EU) No. 267 of 2010