An end to collaboration?

The block exemption regulations covering insurers across the European Union ends on 31 March next year. Julie Nazerali highlights what this could mean for the profession.

For the past 15 years or so, the insurance industry within the European Union has benefited from a block exemption regulation that has allowed insurers to work together over certain practices that would otherwise breach competition rules. This exemption has allowed collaboration in such areas as:

- Sharing information to calculate average costs of covering specific risks through joint calculations, tables and studies.

- Insurance pools to allow coverage of new risks to be shared.

- Standardisation of certain non-binding policy conditions.

- Joint agreement of requirements for security devices and safety equipment.

The regulation has provided the industry with a clear framework within which to trade and develop business plans for future activities and reduced administration when seeking internal or external legal advice.

This may all be about to change. The current exemption will expire on 31 March 2010 and the European Commission says that it has yet to be convinced of IBER's still having a role to play, despite lobbying by the insurance sector. The profession has been concerned that, if the IBER is discontinued, it will mean higher costs and premiums and a greater risk of insurers failing and markets closing.

In a preliminary report published at the end of March 2009, the European Commission suggested that the block exemption should continue for agreements over shared statistical information and insurance pools but not for standard policy conditions and security devices. It argues that the latter two areas are not specific to the insurance sector and should probably be subject to guidelines; the profession's view is that guidelines would not provide sufficient legal certainty.

Brokers could be hampered by the European Commission's decision regarding standard policy conditions. It is very likely that, without a block exemption for agreement on standard policy conditions, brokers' costs will rise as a result of the extra effort and time required to agree wordings for policies.

Moreover, if the IBER is not renewed, costs will be driven up for the industry as insurers and brokers seek to prove that previously exempt practices are not anti-competitive. The penalties for non-compliance can include a 10% deduction from worldwide group turnover, loss of directorships and prison terms.

The European Commission will now hold a public hearing on 2 June to discuss the report with stakeholders and it will then decide which, if any, parts of the IBER that it will renew.

Measures more specific to brokers, such as the disclosure of relevant information by brokers on remuneration received from insurers, could also change later this year, through the revision of the Insurance Mediation Directive; amendments to this will not, however, take place before 1 November. The European Commission has already made clear that the revision will differentiate between life and non-life insurers.

- Julie Nazerali, partner and head of EU practice, Beachcroft.