The inquiry covers almost every insurance product including property and casualty insurance and reinsurance and insurance and reinsurance intermediation activities.

Hundreds of companies and intermediaries offering business insurance (simply and somewhat generously defined as “the provision of insurance products and services to businesses”) in Europe are about to receive a European Commission Questionnaire as part of the Commission's inquiry into the state of competition in the European Union’s (EU) financial services sector. The inquiry was launched in June last year as a result of concerns that European customers are not benefiting from an integrated and competitive financial market.

Who is affected? The inquiry covers almost every insurance product including property and casualty insurance and reinsurance and insurance and reinsurance intermediation activities. The Commission will also investigate a range of potential issues including the joint setting of standard policy conditions, the extent of cooperation within insurer’s associations, coinsurance arrangements between insurers and agreements between insurers and intermediaries.

They will also look at potential barriers to establishing in EU countries other than the home market and to providing services cross-border including lack of access to risk data and distribution channels.

This inquiry will involve all types of insurance undertakings including insurance intermediaries, that is: brokers and also it seems those recently regulated under the insurance mediation directive. It will also include insurance entities limited by shares and mutuals as well as reinsurers. They will also extend this to insurance clients – purchasers of the services as well as Member States authorities and Trade Bodies.

The net of products and those affected by this investigation is vast.

The Questionnaire will likely take the form of a ‘request for information’ as opposed to a decision ‘requiring’ information. As such, companies who receive the Questionnaire would not be legally obliged to respond. However, as a matter of policy, it may be advisable to co-operate and in the event that a company decides not to respond, they should be aware that the Commission can return with a decision which then imposes a legal obligation to respond. This type of inquiry is intended to assess the state of competition in the sector and to flush out potentially anticompetitive conduct. Responses to these Questionnaires can be used by the Commission as a basis for subsequent individual investigations against companies suspected of such conduct. The Commission's request for information is likely to be lengthy and include questions on commercially sensitive issues such as pricing policy, profitability margins and agreements with other insurance companies. Companies need to carefully consider their responses. They should also be aware that the Commission can impose fines for providing incorrect or misleading information.

As demonstrated in the recent parallel inquiry into the energy sector, these sectoral investigations are a ‘warning shot’ to companies to assess their compliance with competition rules and take action to remedy any breaches in advance of individual investigations by the Commission or national authorities.

At this point, the Commission has highlighted a number of concerns. It considers that cross border supply for certain types of business insurance may be limited by a variety of market entry conditions. The Commission has declared that distortions of competition in business insurance may arise from the way in which players in the insurance industry closely co-operate with one another. The Commission believes that, in certain areas of business insurance, insurers’ associations and committees tend to set jointly standard policy conditions that offer insurance customers, the larger ones included, limited scope for negotiation. Further, the Commission suspects that excessive cooperation might be taking place within the context of coinsurance arrangements between insurers. Finally, the Commission comments that vertical agreements involving insurers, reinsurers and/or intermediaries are common in insurance markets and it considers that the methods of remuneration of insurance intermediaries and distribution networks may limit the incentives to compete. Based on these concerns, the Commission has announced that it will be looking into:

● conditions for entry (e.g. access to risk data, access to statistics, access to distribution channels, existing regulation, market structure),
● vertical agreements between brokers or other insurance and reinsurance intermediaries and insurers,
● the role of insurers’ associations, co-insurance arrangements and other horizontal agreements, involving insurance and reinsurance market participants,
● the scope of pool agreements,
● agreements on and use of standard policy clauses, and the sharing of risk-relevant data (access to data bases).

Since the inquiry into the business insurance sector was first launched in June 2005, the Commission has sent a first set of questionnaires to insurance associations in the EU 25. These questionnaires were sent on August 16, 2005. The deadline for replies was September 16, 2005. The return rate for responses to these questionnaires was 100% and the amount of data submitted by the associations varies, and in some cases the Commission has requested further clarification. According to the Commission, the replies received provide it “for the first time with a broad overview of the extent to which the possibilities of cooperation exempted from the application of Article 81(1) of the Treaty by Regulation (EC) No 358/2003 of February 27, 2003 ('Insurance Block Exemption Regulation') are utilized by the insurance associations.” The Commission has stated that this information may lead to the identification of issues or areas of cooperation that could benefit from additional clarification or to the future amendment of the scope of the Insurance Block Exemption Regulation. On October 27, 2005, the Commission sent a second set of questionnaires to gather information from insurance intermediaries’ associations in 22 of the 25 Member States of the EU. A third set of questionnaires was also sent on October 27, 2005 to risk management associations in 10 of the 25 EU Member States. The requests to individual insurance companies and intermediaries are expected to be issued in the next weeks, if not days.

This Special item appeared in issue 108 of JTW News - September 2006

Author: Catriona Hatton | Jennifer Donohue | John Pheasant | Héctor Armengod - Hogan & Hartson