THE EU CONSULTATION ON THE INSURANCE BLOCK EXEMPTION * * * * * * * ** Web-based seminar, Brussels,...

THE EU CONSULTATION ON THE INSURANCE BLOCK EXEMPTION

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Web-based seminar, Brussels, 18 June 2008

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2209395

WELCOME

• Where do we come from?

• Objectives of this seminar

PANEL OF SPEAKERS

• Eithne McCarthy, Project Leader, DG COMP. Ms. McCarthy is an Irish citizen and dual qualified as a lawyer in both the Republic of Ireland and the UK. She has specialised, for the past nine years in EC and UK competition law and worked across a wide range of sectors. Prior to joining the Legal Division of the Office of Fair Trading in London in 2003, she spent four years as an associate at an international law firm. She joined DG Competition in October last year where she specialises in financial services and is involved in several other cases in addition to her work on the Review of the Insurance Block Exemption Regulation. She holds degrees in economics and law and speaks several European languages.

• Dieter Pscheidl, VVO. Mr Pscheidl holds degrees in Insurance Law and Economics at Vienna University of Economics and Business Administration. Since 2004, he is Legal and International Affairs Manager and Representative to the European Union of the Austrian Insurance Association (VVO). Prior to that, Mr. Pscheidl held various positions at Allianz, AVUS Group, UNIQA and Generali in Austria and France. Since 2005, he is a lecturer on international insurance markets at Vienna University of Economics and Business Administration.

• Philippe Bourguignon, Assurpol. Mr Bourguignon joined AGF in 1977 where he held various positions in the Commercial Lines Insurance Business. He started in the Engineering Insurance sector, then joined the Liability Division which he headed in 1985. He took over the Direction of the “P&C Large Accounts AGF business" Unit in 1996. He is also member of several working groups in the F.F.S.A. (French Insurance Federation), and has been Vice-Chairman of the C.E.A. Liability Committee. He is currently Chairman of Assurpol.

MODERATORS

Philip Woolfson, Partner, Steptoe & Johnson, [email protected] Tel: +32 (0)2 626 0519Mobile: +32 (0)475 68 12 16Avenue Louise 240, Box 5, B-1050 Brussels

Guy Soussan, Partner, Steptoe & Johnson, [email protected] Tel: +32 (0)2 626 0559Mobile: + 32 (0)477 29 51 13Avenue Louise 240, Box 5, B-1050 Brussels

Yves Botteman, Senior associate, Steptoe & Johnson, [email protected] Tel: +32 (0)2 626 0528Mobile: +32 (0)476 98 04 05Avenue Louise 240, Box 5, B-1050 Brussels

Background materials on the inquiry, and biographies of the moderators, are available online at www.steptoe.com

• Introduction and background on the consultation

• Cooperation on premiums and standard terms

• Treatment of insurance pools

• Legal certainty and the necessity of a Block Exemption

THIS AFTERNOON’S AGENDA

• Value of the Insurance BER

– Objective was to facilitate the Commission’s task in view of the large number of individual notifications being received by the Commission prior to modernisation (Regulation 1/2003) which abolished that system

– This reason no longer exists since self-assessment is required

– Commissioner said:

"We need to investigate how the insurance block exemption is working in practice and whether there are sufficient grounds to renew it. Sector specific competition regulations are exceptional legal instruments. If there are to be special rules for a particular sector, I need to be convinced that they are justified in terms of bringing real benefits to competition and to consumers."

THE CONSULTATION VIEWED BY THE EUROPEAN COMMISSION

• Consultation

– Implementing Regulation (1534/91) requires the Commission to report to Parliament and Council by March 2009

– BER will expire automatically on 31 March 2010

– Commission will conclude on basis of evidence gathered during this Consultation

– Conclusion not yet reached but special rules need to be justified


• To renew or not to renew– Replies to sector inquiry failed to make a distinction between

necessity of the forms of cooperation covered by the BER and the necessity of the BER itself

– Is the legal instrument necessary?

– Is the insurance sector different from other sectors in that it requires special rules?

– Areas of specific interest:• Whether the BER is being used, where and why

• Whether the BER gives rise to any anti-competitive effects which harm consumers

• Whether non-renewal of the BER would lead to a heavier burden on supervisory authorities


PREMIUMS AND STANDARD TERMS: THE ISSUE AT STAKE

• Information exchange mostly in the context of national insurer associations

• Value of information exchange for the insurance industry

• Removal of BER could discourage market access and expansion of small insurers and reduce dissemination of non-binding standard policies

PREMIUMS AND STANDARD TERMS: VIEWS OF THE AUSTRIAN INSURANCE ASSOCIATION

• VVO hosts cooperation mainly in the fields of exchange of risk data and standard policy conditions

• Cooperation is vital to the market:

– Austria’s EU accession 1995: negative market scenarios for SMEs;

– Austrian insurance market 2008: Austrian and third country SMEs cover 30% of the market, some even increased their market share in 1995-2007 by up to 27%;

– The case of renewing/reforming the BER is strongly linked to the preference for a higher number of market players.

PREMIUMS AND STANDARD TERMS: VIEWS OF THE AUSTRIAN INSURANCE ASSOCIATION

• BER requires an update, especially in the field of exchange of risk data

• Impact of non renewal on cooperation: Reluctance of insurers to cooperate because of precaution, cutting market infrastructure for SME falling into the general regime

PREMIUMS AND STANDARD TERMS: VIEWS OF DGCOMP

Information Exchange on pure premiums

• BER exempts (subject to conditions):

– agreements which relate to the joint calculation of the average cost of risk cover for a specified risk (pure premiums), (Article 1)

– provided that the calculations:

• do not identify insurance undertakings or parties• are on the basis of historical data• are non-binding• are made available on reasonable and non-discriminatory terms


• Collaboration on calculation of average cost of a specified risk in the past makes possible the improvement of knowledge and facilitates rating of risks by companies which in turn:

– facilitates market entry

– benefits consumers

• Agreements not allowed specified in Article 4


• Agreements related to the joint calculation of pure premiums/average cost of covering a specified risk in the past:– Nuovo Cegam decision (1984)

– Complaint against ANIA and Italy (2007)

• Agreements on commercial premiums:– The German Fire Insurance case (1987)

– Ex-officio procedure against The Italian Association of Insurers (ANIA) (1997)


• A closer look at example question:

– Q3 – issue is how was entry affected, if at all by co-operation on pure premiums. What are the facts? Commission will do the analysis of facts from across EU

• Improvements?


Information Exchange on Standard Policy Conditions for

Direct Insurance

• BER exempts (subject to conditions):

– joint establishment of standard policy conditions (SPCs) for direct insurance subject to certain conditions (Article 1)

– All SPCs must be non-binding and accessible (Article 5)

– “Black clauses" in Article 6


• Standard policy conditions (SPCs) can produce benefits:– Efficiency gains for insurers

– Facilitate market entry by small or inexperienced insurers

– Help insurers to meet legal obligations

– Can be used by consumer organisations as a benchmark to compare insurance policies offered by different insurers

• However they must not lead to:– The standardisation of products or

– The creation of a significant imbalance between the rights and obligations arising from the contract


• Non-binding character:– The Concordato Incendio Decision (1990)

• Greater transparency and customer involvement: – The Aviation investigation (aviation war and terrorism insurance)

(2005)


• A closer look at example questions:

– Q4 e.g. areas of interest: what role as an insurer do you have in terms of agreeing SPCs now? How would that be affected without the BER? Substantiate

– Q5 what variety of insurance policies is available now. In case of non-renewal why and how would that be affected. Substantiate (e.g. examples from past, surveys, reports etc)

• Evidence is a matter for stakeholders – what is your experience?

• Improvements?

INSURANCE POOLS: THE ISSUE AT STAKE

• Pools : A market reality

• Need for BER

• Is there scope for improvement?

• Is there enough experience with pools?

INSURANCE POOLS: VIEWS OF DGCOMP

• BER (subject to conditions):

– exempts the setting up and operation of insurance pools (groups of insurance undertakings or groups of insurance undertakings and reinsurance undertaking) for the common coverage of new risks for three years from the date of creation (with no market share restriction)

– may exempt co-insurance or reinsurance pools that have been in existence for three years or that were not created in order to cover new risk, and provide common coverage of a specific category of risks subject to certain conditions, in particular market share thresholds


• For new risks (which did not exist before):

– It is not possible to know what subscription capacity is necessary to cover the risk nor whether two or more such groups could co-exist to provide this type of insurance

– Therefore new risks are exempt for a limited period (3 yrs)

– 3yrs was considered an adequate period for the constitution of sufficient historical information on claims to assess the necessity of one single pool


• Risks which are not new:– And involve a restriction of competition, can (in certain limited circumstances)

involve benefits to justify an exemption under Article 81(3) even if they could be replaced by two or more competing insurance companies

– For example they may allow:

• their members to gain the necessary experience of the sector of insurance involved

• cost savings

• reduction of premiums through joint reinsurance on advantageous terms

– However, any exemption for such groups/pools is not justified if the group benefits from a significant level of market power (25% for co-reinsurance pools and 20% for co-insurance pools)

• Since the restriction would otherwise outweigh any advantages


Cases• Pools de minimis:

– The Aviation Pool cases (1998)

• No restriction of competition:– The P&I Clubs decision (1999)

• The co-insurance and co-reinsurance procedure: – The Business Insurance Sector Inquiry (2007): co-insurance

referred to in the final report on the Sector Inquiry - which might come under art. 81(1) - is ad-hoc co-insurance and is not block-exempted by the BER as it is not set-up ex ante to cover a specific category of risk


• A closer look at example questions: – Again looking for experience, and evidence to substantiate

– E.g. Q4 where you consider pools could be defined more fully please indicate the problem (what experience you have to show the problem) and why you consider your suggestion would be improvement

– Q6 – evidence may indicate how the BER affects competition between Member States

• Evidence is a matter for stakeholders • Improvements?

VIEWS AND EXPERIENCE OF ASSURPOL

Questions to Mr. Philippe Bourguignon

LEGAL CERTAINTY: THE NEED FOR SAFE HARBOURS

• Striking the balance between two potentially conflicting policy objectives:

– Legislative simplification; and

– Legal certainty

• What non-renewal of BER would mean in practice:

– For practitioners;

– For insurers;

– For national competition authorities.

LEGAL CERTAINTY: VIEWS OF DGCOMP

• Original objective was to facilitate the Commission’s task in view of the large number of individual notifications being received by the Commission prior to modernisation (Regulation 1/2003) which abolished that system

• Self-assessment for most sectors under Regulation 1/2003

• Other sectors for which BER was not renewed e.g. IATA (airline tarriff conferences)

• Commission to determine whether the business risks or other issues make it different such that it justifies special rules (BER)

• Effect of non-renewal

– One of the key aspects of the BER was that it was limited to:“those agreements for which is can be assumed with sufficient certainty that they satisfy the conditions of Article 81(3)” (Recital 9)

– Although that was situation in 2003, Commission will consider exemptions under the BER now and how things may have changed

– In principle we expect that non-renewal would have little, if any effect on the antitrust status of the forms of co-operation it covers

– In principle we expect that the review will confirm our substantive analysis of the kinds of agreements dealt with in the BER

– However we cannot rule out the possibility that the review will show that a certain type of agreement should not be exempted or not exempted under the same conditions as are set out in the BER



• Legal assessment required now under BER – assessment without BER still required under Article 81 (1) and (3)

– Article 81(1) and (3)

– 81(3) Guidelines (2004)

– De Minimis Notice (1997)

– Current BER (in particular conditions and black clauses) subject to results of review

– Cases

• If not renewed, Communication will give reasons for non-renewal

• Consistent application would be supported by the European Competition Network

LEGAL CERTAINTY: VIEWS AND EXPERIENCE OF THE INDUSTRY

Views of Mr. Dieter Pscheidl and

Mr. Philippe Bourguignon

• Replies to Consultation

– Where possible, substantiate replies with evidence

– Commission will weigh evidence

– More weight attached to comments supported by evidence (e.g. internal business documents, independent data etc.)

– Respondents may reply to some or all questions, provide any other comments

• Replies should be provided in writing, preferably by email (alternatively by letter) to

[email protected]

E-mail subject: Review of Insurance BER - COMP/D1 HT 1221

CONCLUDING REMARKS

mailto:[email protected]

mailto:[email protected]

CONCLUDING REMARKS

• Deadline for responses 17 July 2008

• Following receipt of replies, Commission will analyse and produce report for Parliament

– If renewal, new BER will be published in advance of expiry of current BER, Commission will consult on draft

– If non-renewal, Commission will publish Communication to that effect in 2009

• Consultation Paper on the BER available at:

http://ec.europa.eu/comm/competition/sectors/financial_services/insurance.html



Steptoe & Johnson LLP240 avenue Louise

Brusselstel.: + 32 (0)2 626 0500

www.steptoe.com

This presentation reflects only the views of its authors. It may, in particular, not be taken to represent any view, express or implied, on the part of the European Commission.

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