On April 1, 2010, a new Insurance Block Exemption Regulation (IBER) came into force in the European Union. It was published on March 24, 2010, together with an explanatory communication,1 and replaces Regulation 358/2003/EC, which expired on March 31, 2010.
The revised IBER will significantly restrict the types of cooperation among insurers and reinsurers that are automatically exempt from competition law. Two forms of cooperation exempted in the previous regulation are no longer exempted in IBER:
- Joint establishment and distribution of non-binding standard policy conditions for direct insurance
- Joint establishment, recognition and distribution of technical specifications of security devices.
The rationale is that these are not insurance-specific and, therefore, their inclusion in IBER is unnecessary. However, the European Commission (Commission) plans to address both of these types of agreements in new guidelines on horizontal cooperation agreements, currently under review.
IBER will remain in force until March 31, 2017. Insurers will have a six-month grace period until October 1, 2010, to assess whether existing arrangements qualify under IBER.
IBER will continue to exempt the other two types of cooperation arrangements exempted in the previous regulation on the basis that they are specific to the insurance sector:
- Establishment and distribution of joint calculations, tables and studies
- Establishment and operation of co-insurance and reinsurance pools.
However, the scope and scale of these two exemptions have been reduced.
Joint Calculations, Tables and Studies: Key Changes
Calculation of risk is a key issue in pricing all insurance products, and access to statistical data is crucial. The Commission considers that cooperation in this area is pro-competitive and specific to the insurance sector.
Type of Information That Can Be Exchanged Cut Back
Previously, companies could jointly establish and distribute average cost calculations. Now, however, they can cooperate only up to an earlier point, i.e., jointly compiling and distributing information necessary to make those calculations. Similarly, although insurance firms formerly could jointly exchange and distribute mortality and other life tables, IBER allows only the joint compilation and distribution of information necessary for the construction of mortality and other life tables.
Conditions Applicable to the Compilations, Tables or Study Results Are Amended and Expanded
The conditions on which insurers and reinsurers can benefit from this exemption have been amended and expanded. The materials must be made available on affordable, reasonable and nondiscriminatory terms to any reinsurance company and, unless nondisclosure is justified on grounds of public security, to any interested third party, such as a consumer organisation, requesting a copy. The materials must not contain any indication of the level of commercial premiums.
Insurance and Reinsurance Pools: Key Changes
Subject to certain conditions, IBER covers agreements between two or more insurance companies with respect to the setup and operation of co-insurance and/or reinsurance pools for common coverage of a specific category of risk. The Commission considers that risk-sharing for certain types of risk, where individual companies are commercially reluctant or unable to insure the entire risk alone, is key to ensuring that these risks are covered.
Types of Covered Co-Insurance and Co-Reinsurance Pools
The Commission has previously expressed concerns that co-(re)insurance on the subscription market usually involves premium alignment, which may restrict competition. Consequently, IBER will not apply to ad hoc co-insurance or co-reinsurance arrangements on the subscription market, where a certain part of a given risk is covered by a lead insurer and the remainder is covered by follow insurers.
Method of Calculating Market Share
A pool falls within the exemption only if the market share of the parties does not exceed 20 percent (co-insurance) or 25 percent (co-reinsurance) in any relevant market. In calculating market share, pool members now need to calculate their gross premium income earned on the relevant market not only within, but also outside the pool. In practice this will mean that some pools that were previously exempted will no longer fall within IBER and will need to be assessed in accordance with the general exemptions conditions of Article 101(3) of the Treaty.
Increased Market Share Thresholds
IBER sees a 3 percent rise in the flexibility percentage for market share thresholds below which the exemption will apply. Pools with market shares (calculated according to the new rules set out above) that exceed the 20 percent or 25 percent threshold by a maximum of 5 percent will continue to benefit from exemption for two years. Where their market share exceeds the relevant thresholds by more than 5 percent, the grace period is one year.
Wider Definition of New Risks
Pools covering new risks benefit from more lenient treatment. The definition of new risks now covers a risk whose nature has changed so materially that it is not possible to know in advance what subscription capacity is necessary in order to cover that risk. This reflects the concern expressed to the Commission during its consultation on the draft that the uncertainty surrounding the previous definition of new risks meant that parties might be reluctant to cooperate on these types of risks.
The Commission indicated that it had become aware, during the review process, that many insurers relied on the previous exemption for pools to provide blanket protection, without assessing whether the particular arrangements complied with IBER. The Commission has now made it clear that, together with national competition authorities, it will monitor the insurance industry, and pools in particular, to ensure that they correctly assess whether their agreements meet the exemption conditions. The Commission has also indicated that it will not shy away from taking enforcement action when necessary to ensure that companies comply with IBER.
The revised IBER comes at a time when the US House of Representatives has passed the Health Insurance Industry Fair Competition Act, which would amend the 1945 McCarran-Ferguson Act by repealing the blanket exemption for health and medical malpractice insurance issuers from federal antitrust laws. If this Act is passed by the Senate,2 alongside the enforcement of the much-restricted new IBER in the European Union, there will be increasing pressure on insurance and reinsurance companies in both the European Union and the United States to assess the extent to which their current agreements and practices comply with competition law.
1. Commission Regulation of March 24, 2010, on the application of Article 101(3) of the Treaty to certain categories of agreements, decisions and concerted practices in the insurance sector; Explanatory Communication from the Commission on the application of Article 101(3) of the Treaty to certain categories of agreements, decisions and concerted practices in the insurance sector
2. The Bill is currently before the Senate and had its Second Reading on March 1, 2010.