EC study “vindicates” re/insurers accused of anti-competitive practices

Insurers and reinsurers in Europe will feel vindicated by a recent report published by the European Commission (EC) and conducted by Ernst & Young that concludes that the practice of co-re/insurance agreements in the subscription market does not break competition rules.

That is the view of Becket McGrath, partner at law firm Edwards Wildman and Palmer and a specialist in competition law. “There has been something of a cloud hanging over this issue and, as such, this report is good news for insurers and reinsurers and the Lloyd’s Market. There was the sense in the industry that the EC had not understood the complexities of insurance and this proves that it is, in fact, a very competitive market. They will feel vindicated by this,” he said.

The Ernst & Young report had been commissioned in response to the Commission's 2007 Business Insurance Sector Inquiry that suggested some practices could potentially breach EU competition law. But the new report concluded that although premiums and terms and conditions are ultimately aligned on deals in the subscription market, there remains "intensive competition" in the market for the selection of the leader on a policy and, thus, the corresponding premium level.

Although this report does not necessarily represent EC policy or thinking on this issue, McGrath suggests that it represents the perfect excuse for the EC to now leave the issue alone for now.

The report also has implications for the operation of the Insurance Block Exemption Regulation (BER), the latest version of which was adopted in 2010. The EC has previously said the outcome of this Ernst & Young study will be used in its future review of the BER, which will expire in 2017. The outcome of this will be closely monitored by insurance and reinsurance pools.

Given the findings in the study, the Commission could now decide to narrow or remove the BER altogether, McGrath suggests. “But this is an ongoing debate.  On the one hand, block exemptions are arguably redundant, due to the greater scope for self-assessment since 2004,” McGrath said. “On the other hand, some insurers seem to like the existence of the BER as it gives them greater legal certainty.”