Many insurers and brokers are unclear about what constitutes anti-competitive behaviour following the recent changes to the EC’s Insurance Block Exemption Regulation, according to attendees at a seminar held at Clyde & Co yesterday. The seminar – Insurance and Competition – Why take the risk? New EU regime 2010-2017 – attracted more than 40 insurers, reinsurers and brokers.
Attendees were asked what they thought would constitute anti-competitive behaviour. 55% thought that discussing invitations to quote with other insurers was anti-competitive, while 45% were not sure whether or not paying a broker extra commission in return for exclusivity or minimum quantities of business or having exclusive arrangements with a broker or underwriter would break the rules.
"Discussions about invitations to quote are a high risk area and all attendees should be concerned about this" said John Milligan, EU competition partner at Clyde & Co. "This is a complex area and in some cases, such as co-insurance, the legality of arrangements will depend on circumstances such as market share, type of risk and structure of the market.. Companies should assess the validity of their arrangements and when in doubt take advice to ensure co-operation does not go too far.”
In cases where companies are unsure, 95% felt that there is a risk of a challenge. The majority of attendees – 60% – also said that they are not confident they know what safeguards need to be in place under the new regime, while 30% said they know some. As regards the likely impact on the way they did business, while many felt the changes were broadly neutral and would not make any significant change, 65% of respondents said they had some concerns and were keeping a watching brief. Of the 25% who were putting in place mitigation process in case of inadvertent future breaches, most were using a generic competition compliance policy and taking ad hoc advice as appropriate.
“The market will need to go through a period of adjustment to the new system” says Milligan. “It would be complacent to assume that it will be business as usual, particularly due to the reduced scope of the Regulation as regards co-insurance along with the Commission's stateing it shall be taking enforcement action with regard to “alarming practices” in breach of the Block Exemption." The co-insurance of risks on subscription markets such as Lloyd's have also been stated, for the first time by the EC, to be excluded from the Block Exemption, the Commission having raised potential concerns about possible premium alignment.
“Companies will need to carry out an comprehensive assessment of the risks. Given competition authorities' sweeping powers of investigation and fines, with fines of 130 million and 120 million Euro being imposed on insurers for competition offences in Germany and Spain in the last few years, ignoring the EC's action in other sectors, possible steps to minimise exposure and rule out fines are worth taking. Companies should start thinking about practical measures they can take to understand the extent of cooperation that is allowed and manage their exposures – rather than risk waiting until they are threatened by a regulator, trading partner or customers,” added Milligan.