Competition Law: New Exemption Decree Applicable in Insurance Sector
Competition Law Framework
In principle, arrangements between undertakings that restrict
competition are not allowed under the ban on cartels included in
Article 101(1) of the Treaty on the Functioning of the European
Union (the "TFEU") and the Dutch equivalent, Section 6 of the
Competition Act. However, if the conditions mentioned in the third
paragraph of the above articles are met, the undertakings may rely
on an exemption. In brief, the following cumulative conditions
apply: (i) the agreements must contribute to certain improvements;
(ii) consumers must be allowed a fair share of the resulting
benefits; and (iii) only vital restrictions are imposed; and (iv)
the elimination of competitors to a substantial extent may not be
possible.
In order to elaborate Article 101(3) of the TFEU, a number of
block exemption regulations has been adopted by the Commission, for
the purpose of indicating with respect to certain agreements when
they do not noticeably limit competition, or if they meet the
conditions for an automatic exemption from the ban. The present
Regulation is an example of such a block exemption
regulation.
Substance of New Regulation and Comparison
to Old Regulation
On 24 March 2010, after a long time of preparation and a
consultation round, the Regulation was adopted by the Commission
and entered into force on 1 April 2010. The term of the Regulation
is 7 years. The former regulation for the insurance sector was
valid until 31 March 2010.
In the former regulation the following forms of cooperation in
the insurance sector were exempted from the cartel ban:
- the testing and acceptance of technical specifications for
security devices;
- the establishment of non-binding standard policy
conditions;
- the establishment and management of co-insurance pools and
co-reinsurance pools for certain risks; and
- the joint calculation of risks and the joint examination of
future risks.
The first two forms of cooperation are no longer exempted in the
new Regulation, because the Commission does not consider these
forms of cooperation to be specific to the insurance sector.
However, this does not mean that these forms are always prohibited.
They may not always noticeably limit competition and the conditions
of the above-mentioned exemption may also have been fulfilled. It
is possible to find indications for the assessment of arrangements
between competitors in the Guidelines of the Dutch Competition
Authority about Cooperation between Undertakings, and in the EU
Guidelines on horizontal agreements. Below, we will discuss the
contents of the forms of cooperation that are still exempted under
the Regulation, and the changes therein compared to the former
regulation.
Pools
Co-insurance pools and co-reinsurance pools (which we will refer
to as "Pools") for certain risks remain allowed under strict
conditions mentioned in the Regulation. This is done to guarantee,
among other things, that big risks such as nuclear and terrorism
risks, which cannot be borne by individual insurers, are insurable.
Two specific types of pools are allowed in certain cases. Firstly,
pools relating to really new risks - i.e. only risks that did not
exist before, in principle - are covered by the exemption for a
period of three years. The Commission is of the view that
cooperation through pools, even if there are no new risks, may
bring advantages, such as gaining experience, cost savings and
lower premiums because of joint reinsurance on favorable terms.
Secondly, therefore, pools are also allowed if the total market
share of the participating enterprises inside and outside of the
pool does not exceed 20% for insurance pools and 25% for
reinsurance pools. In both cases the exemption only applies if
seven more general conditions have been fulfilled.
The main difference with the former regulation is the way in
which the market share is calculated in connection with the market
share thresholds applying to the exemption. In the former
regulation this was determined on the basis of the insurance
products contributed by the participating enterprises as part of
the insurance pool. In the new Regulation, the turnover that
participants achieve on the relevant market outside the pool must
also be taken into account. This is in line with the customary way
to calculate the market share in competition
law.
Calculation and examination of risks
The Commission considers cooperation in the field of calculation
and examination of risks crucial to a proper price calculation, and
necessary to make the insurance market function well. It is said to
promote competition between undertakings (rather than limit it).
Therefore it is allowed, under certain conditions, to conclude
agreements relating to joint addition, spreading of the calculation
of certain average costs in the past, and tables about, for
example, the frequency of certain illnesses. An exemption is also
granted for the joint performance of certain examinations, e.g.
about the scope of future claims. The above corresponds with the
former regulation. However, the Commission has made several
important changes if the exemption is renewed:
- the term "joint calculations" has been replaced by "joint
compilations"; this term may include several kinds of
calculations;
- it has been clarified that information may only be
exchanged if this is necessary; and
- consumer and customer organizations must also be allowed
access to shared data, unless grounds of public security
prevent this.
Final Remarks
As stated above, the new Regulation entered into force on 1
April 2010. Agreements that were allowed under the old regulation
must now comply with the requirements set in the new Regulation
only as of 1 October 2010 in order to remain exempted.
If undertakings that are active in the insurance sector do enter
into competition-restricting agreements that do not meet the
requirements set in the Regulation, nor fall under any other
exception to the ban on cartels, they run the risk of being imposed
a potentially high penalty by the competition authorities. The
undertakings must personally assess on the basis of the Guidelines
mentioned whether the form of cooperation they have chosen is
permitted or not. This will not always be easy.