The European Commission (Commission) has published a study conducted by Ernst & Young on potential competition issues relating to the operation of co(re)insurance pools and ad hoc co(re)insurance agreements on the subscription market. The study was performed in the context of the Commission’s ongoing monitoring of the operation of the Insurance Block Exemption Regulation (BER), the latest version of which was adopted in 2010 (please see our previous blog here); the Commission’s Business Insurance Sector Inquiry (BISI), which was completed in 2007; and the issue in 2008 by the European Federation of Insurance Intermediaries (BIPAR) of its high-level principles for placement of risks with multiple insurers.
In the BISI report, the Commission noted that there were a number of practices which it believed potentially breached EU competition law. One of the focuses of the Commission was the degree of cooperation between insurers, in particular the use of mechanisms which provided for the upward alignment of premiums and terms and conditions between participants, which occurred where a two-step procedure involving lead and following underwriters was used. The Commission’s view was that, where there were agreements between insurers to align premiums, this could give rise to a breach of competition law. Following publication of the BISI report, BIPAR developed five high-level principles for placing risk with multiple insurers, one of which bars the upward alignment on premiums.
Reporting on the London subscription market, Ernst & Young states that no agreements or concerted practices between undertakings to align premiums had been identified. The study also notes that, while premiums continue typically to align with the premium of the leader, there is in fact “intensive competition” in the market for the selection of the leader and hence for the corresponding initial determination of premiums.
The Commission has stated that this study will be used in its future review of the BER, which will expire in 2017. Given the findings in the study, the Commission could decide to narrow or remove the BER altogether, although it is too early to predict the Commission’s approach with certainty.
The Ernst & Young study, which has 645 pages of general analysis and country reports, can be accessed here.