Out-Law Guide 3 min. read

The insurance Block Exemption Regulation

This guide was last updated on 24th April 2008. For some fifteen years the insurance industry in the EU has benefited from a block exemption regulation (BER) that allows certain practices that woul...

This guide was last updated on 24th April 2008.

For some fifteen years the insurance industry in the EU has benefited from a block exemption regulation (BER) that allows certain practices that would otherwise be in breach of the prohibition on anti-competitive practices.

But the current exemption will expire on 31st March 2010 and the European Commission says it has yet to be convinced that the BER still has a role to play.

On 17th April 2008, the Commission published a consultation paper asking for information on how the exemption is currently being used and its impact on insurance markets in the EU.

"We need to investigate how the insurance block exemption is working in practice and whether there are sufficient grounds to renew it," said Competition Commissioner Neelie Kroes, launching the consultation. "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 exemption

Article 81(1) of the EC Treaty prohibits agreements which may affect trade between member states and which have as their object or effect the prevention, restriction or distortion of competition within the single market. Under article 81(3), however, the Commission can exempt agreements whose benefits outweigh the restrictions of competition.

The current insurance BER, which came into force on 1st April 2003, automatically exempts certain specified types of insurance-related agreement from Article 81 of the Treaty. These are:

  • joint calculations and studies: calculations of the average cost of covering specified risks, mortality tables, tables showing the frequency of accident, illness or invalidity and joint studies into the frequency or scale of future claims for given risks;
  • the joint establishment and distribution of non-binding standard policy conditions for direct insurance, and non-binding models on profits;
  • the setting up of insurance pools for the joint coverage of new risks for three years, and other risks subject to certain conditions (e.g. market share thresholds); and
  • the establishment, recognition and distribution of technical specifications, rules and codes of practice on security devices not already covered by harmonised EC standards.

The new competition regime

When the BER came into force, agreements that might fall within Article 81 had to be notified individually to the Commission to obtain the necessary exemption. The BER, therefore, helped to avoid unnecessary notifications.

But since May 2004, companies have no longer been required (or able) to notify agreements. Instead they self-assess whether the efficiencies brought about by an agreement outweigh the restriction of competition. 

In its final business insurance sector inquiry report published in September 2007, the European Commission asked whether, given this new regime, the exemption continued to serve a purpose.

The consultation paper emphasises that, if the BER is not renewed, the categories of agreement that currently fall within the exemption would not automatically become illegal. Companies would need to assess their agreements under Article 81, rather than under the BER. 

Pros and cons

Although the consultation is primarily an information-gathering exercise, it also summarises comments the Commission received during its business insurance sector inquiry and from a more recent survey of national competition authorities.

Most industry stakeholders were in favour of retaining the exemption on the grounds that it provides legal certainty, avoids the additional costs of assessing individual agreements and promotes access to the market, particularly by smaller, less experienced insurers. Some were also concerned that, in the absence of the BER, competition rules would be applied inconsistently across member states.

The responses from the national competition authorities were more mixed. For instance, although they acknowledged the benefits brought by joint calculations and studies, they also pointed out that the BER is often used as justification for a wide range of information sharing which could restrict competition. 

The Commission, too, asks whether the blanket exemption for joint calculations is too broad. Might there not be other, pro-competitive solutions to the problem caused by insurers having unequal access to information in particular instances? And to what extent is the uncertainty underlying the premium calculation not a normal business risk?

The Commission has not yet reached any conclusions. But it looks as if the insurance industry will face an uphill struggle persuading the Commission that the BER is needed in its current form - or at all.

The consultation closes on 17th July 2008 and the Commission will publish its proposals in March 2009.

Contact: Alan Davis [email protected] (020 7418 7026)


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