“Therein the patient must minister to himself” (Macbeth, Act 5, Scene 3)

With only seven days to go before the expiry on 1 April 2010 of the previous insurance block exemption, the European Commission adopted a new exemption, albeit in very much reduced form.

The new insurance block exemption (IBE) follows an extended review over the past two years during which (at various instances) the Commission indicated that it might not renew the exemption. In particular, the Commission consulted on whether there was a need for a special regime for the insurance sector or whether the self-assessment regime applicable to other sectors should apply in future. It also consulted on whether a block exemption was the correct instrument or whether the same result could be achieved through other methods such as appropriate guidance.

On the face of it, the changes look significant as the Commission has dropped two out of four previously exempted categories. Renewed are the exemptions for (1) joint compilations, tables and studies, and (2) insurance pools. However, agreements on standard policy conditions and on security devices no longer benefit from an automatic exemption.

Abandoned exemptions

Even though the Commission has decided that two categories of agreements are no longer covered by the IBE, this is not to say that such agreements will in future breach article 101 or that they are not exemptible.

The reason for not renewing the exemption is that the considerations for exempting the provisions are not specific to the insurance sector. The Commission indicated that the existing horizontal co-operation guidelines – and specifically the sections on technical standards – can be used to analyse the exemptability (or not) of agreements relating to security devices. Moreover, the Commission indicated that it will cover both categories specifically in its current review of the horizontal co-operation guidelines.

While, on the face of it, this could be seen as reducing legal certainty, the issues are not significantly different or more complicated than in other sectors. However, it will mean that companies will have to test rigorously whether their past approach still works.

Retained exemptions

Renewed are the exemptions for (1) joint compilations, tables and studies, and (2) insurance pools.

Information exchanges and joint information gathering

In its review, the Commission found that calculation of risk is a key issue in pricing insurance products because the costs of such products are unknown at the time the price is agreed and the risk covered. Access to past statistical data in order to price risks is therefore crucial and is specific to the insurance sector. 

Exchanges of information that facilitate the pricing of risks are therefore exempted, provided that they are necessary to calculate the historic average cost of specified risk, or establish mortality tables or tables showing frequency of illness, accident and invalidity.

The exemption is also subject to a number of conditions requiring (in particular) that the information exchanged must not allow for the identification of an individual insurance company or insured; that the compilation, table or study must expressly state that it is non-binding; and that, crucially, it does not contain any indication of commercial premiums. Finally, such information must be made available on RAND terms to any insurance company (including new entrants), as well as consumer organisations requesting them.

Insurance pools

The Commission sees the merit in exempting the setting up and operation of certain co-insurance pools, principally because for certain types of risks (such as nuclear, terrorist, and environmental) individual insurance companies are reluctant or unable to provide cover for the entire risk alone.

The scope of the exemption has been narrowed by providing that the market share threshold of 20% for co-insurance and 25% for co-reinsurance now applies not just to the pool in question but also to business which members conduct in the same relevant market outside that pool.

The Commission has also expanded the availability of the exemption to risks which are not new but which have changed so materially that it is not possible to know in advance the subscription capacity necessary to cover the risk.

Not everything is perfect, however. In the accompanying guidance notes, the Commission expressly criticises the way it believes the insurance sector has used the IBE in the past by using the pool exemption as a “blanket” exemption, without carrying out the required careful legal assessment of a pool’s compliance with the conditions for exemption.

The Commission also took the opportunity to confirm that ad hoc agreements on the subscription market are not, and have never been, covered by the IBE. This covers agreements whereby a certain part of a risk is covered by a lead insurer and the remaining part by fellow insurers who are invited to cover the remainder. Such agreements will therefore require careful individual assessment to establish whether the conditions for exemptions are met.

Importantly, the Commission indicated that it will monitor the operation of pools closely. Enhanced regulatory activity on the part of either the Commission or the national competition authorities can therefore be expected.

Transitional arrangements

For all agreements entered into after 1 April 2010, the IBE will apply in its entirety. For pre-existing agreements, the application of the IBE will be deferred until 30 September 2010, provided they satisfy the conditions for exemption under the old block exemption. In other words, there is a six-month window to review and, where necessary, amend pre-existing agreements.