Revised block exemption for insurance sector

Two forms of cooperation specific to the insurance sector will continue to be exempted from the application of the stringent EU competition rules, according to a new block exemption law adopted recently by the European Commission. This new block exemption has replaced a previous insurance block exemption, the validity of which expired on March 31.

Any type of coordinated conduct or practice between undertakings which is restrictive of competition is deemed to be illegal in terms of competition law and opens the door wide open for the imposition of hefty fines. Block exemptions provide a safe haven for certain sectors. Undertakings which comply with the rules laid down in these exemptions can operate safely with the knowledge that their conduct will be exempted from the application of the competition rules.

In line with its predecessor, the new insurance block exemption exempts two practices which are common in the insurance industry, namely, joint compilations, tables and studies and co(re)insurance pools. The European Commission is of the opinion that certain information exchange between insurers is justified in order to allow for an accurate assessment of risks.

Large amounts of data are required in order for insurers to assess the costs of covering risks. Access to the data is also crucial in order to facilitate the entry of new or foreign market players. However, while exempting this type of information exchange, the new block exemption introduces a new right of access to the results of the information exchange for customers and consumer organisations, unless there are public security reasons. It also clarifies that exchange of information is only allowed where it is necessary.

The new block exemption also exempts, subject to certain strict conditions, pools, that is, the common coverage of risks by insurance companies when such pools either cover "new" risks or risks which though not new, fall below certain market share thresholds. The Commission has deemed risk sharing for certain types of risks such as nuclear, terrorism and environmental risks, for which individual insurance companies are reluctant or unable to insure the entire risk alone, to be crucial in order to ensure that all risks can be covered by insurance companies.

The new block exemption has widened the definition of "new risks" so as to cover 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.

Neither agreements on standard policy conditions nor agreements on security devices, previously covered by a block exemption, have now been regarded by the European Commission to be specific to the insurance sector. They have, therefore, been excluded from the purview of the new block exemption.

It is up to insurance companies to assess whether any other type of practice or agreement which is not covered by the block exemption could be deemed to be anticompetitive and hence illegal. However, to date and at least until March 2017 when this new block exemption expires, the European Commission has deemed the insurance sector to be "special" enough in terms of business risks so as to warrant a law which exempts from the application of the competition rules certain types of cooperation between insurers.

This means that insurance companies can engage into the two very common agreements envisaged in the block exemption, comforted by the fact that provided that they comply with the conditions therein, no fines for illegal anti-competitive conduct would be forthcoming.

Dr Vella Cardona is a practising lawyer and a freelance consultant in EU, intellectual property, consumer protection and competition law. She is also a visiting lecturer at the University of Malta.

mariosa@vellacardona.com