EU: Business Insurance Competition Inquiry

The European Commission (EC) announced in 2005 that it intended to conduct an inquiry into the business insurance sector. It subsequently gathered information from the sector, primarily by way of a series of questionnaires, and it published an interim report in January 2007 and a final report in September 2007.

The final report dealt with a number of areas:

  1. It raised various questions regarding premium alignment between lead insurers and followers in coinsurance markets.
  2. It questioned whether the existing EU insurance block exemption needs to be extended when it lapses in 2010.
  3. It highlighted alleged conflicts of interest and lack of transparency in the way insurance intermediaries were typically remunerated, and suggested that its findings be followed up in the framework of the EU’s proposed review of the Insurance Intermediation Directive.
  4. It expressed concern about ‘networks of long-term contracts’ in Austria.
This article deals with the first two issues. 

Premium alignment

The EC expressed concern about the ‘widespread practice’ of premium alignment in cases where a risk is placed with multiple insurers. The EC said that it was concerned that independent commercial entities often contracted with clients at the same price on a subscription market risk and that the following market might not have the opportunity to quote different prices. The EC invited the market to evaluate the compliance of these practices with EU competition law and to reform them where appropriate. The EC also warned that it might make use of its enforcement powers, if necessary.

Over the subsequent months, Lloyd’s met the EC several times to explain the procompetitive nature of the Lloyd’s and the London Market. It received assurance from the EC that it was not calling into question the fundamental characteristics of coinsurance and that its concerns were restricted to premium alignment. The way
in which business is placed within the market and the important role that the market plays in the provision of commercial non-life insurance and reinsurance to entities worldwide were made clear to the EC.

During the course of those meetings, Lloyd’s also played a leading role in shaping the response of the CEA, the European insurance and reinsurance federation, to the subscription market issues raised in the EC’s report. The LMA also met the EC to inform it about the market’s operations and to underline its pro-competitive nature.

In response to the criticism of premium alignment, the European Federation of Insurance Intermediaries (BIPAR) developed a series of ‘High Level Principles for Placement of a Risk with Multiple Insurers’. These Principles set out a series of duties that intermediaries should undertake when placing such risks, and invited
insurers ‘to give careful independent consideration’ to placement and pricing options presented by brokers. With Lloyd’s encouragement, the CEA agreed to support the Principles. A very positive reaction was forthcoming from the EC to this market initiative. It welcomed this initiative and stated that “if practices change in accordance with these high level principles, it will remove our immediate concerns.
We are calling on Market parties to develop new and creative ways of completing placements at the most advantageous terms for clients”.

Lloyd’s sent out a Market Bulletin on 29 April 2008 (Ref: Y4153), attaching the BIPAR Principles, which reminded managing agents to ensure that they conduct insurance business at Lloyd’s in full compliance with European and UK competition law.

It is anticipated that the EC may ask Lloyd’s and other coinsurance markets in due course what progress they have made in implementing the BIPAR Principles, but it is apparent that the adoption and endorsement of these Principles by the European insurance and reinsurance industry has been significant in removing the EC’s immediate concerns. 

EU Insurance Block Exemption Regulation

The EC has issued a Consultation Paper on the EU insurance block exemption regulation to assist its preparation of a report by March 2009 for the European Parliament and Council. This report will cover the functioning of the current exemption and whether it should be extended, with or without changes, beyond its current expiry date of March 2010.


The current regulation grants an exemption under EU competition rules to certain types of insurance agreements on:

• Standard policy conditions
• Joint calculations, tables and studies
• Common coverage of certain types of risks (pools)
• Security devices/safety equipment

Model, non-binding, wordings are prepared by the LMA and other parts of the London Market, amongst others, and benefit from the current EU block exemption. Extension of the block exemption beyond March 2010 would be beneficial in that it would continue to provide legal ‘safe harbour’, where such wordings are prepared in accordance with the terms of the block exemption.

The CEA will also respond to the EC by the Consultation Paper’s deadline of 17 July and will argue vigorously for the extension of the block exemption beyond March 2010.

We will keep the market informed about further developments on these two issues.
Last updated on 27 Aug 2008