The recently-published EC report into business insurance has stirred up some mixed feelings throughout the industry
The findings of the European Commission’s sector inquiry into business insurance held no surprises for reinsurers, insurers or their lawyers but the industry seems to feel that the debate is far from over.
Many firms and associations have issued brief statements in the wake of the report being published on Tuesday. Among the comments, a spokeswoman for Swiss Re said the firm “supports the efforts of the EU Commission to create and maintain transparency in the marketplace.
“Swiss Re believes that all participants in the insurance industry have an obligation to clients to maintain the highest levels of integrity and legal compliance and that fair dealings for all involved in insurance and reinsurance transactions must be ensured.”
“Swiss Re believes that all participants in the insurance industry have an obligation to clients to maintain the highest levels of integrity and legal compliance
And a Lloyd’s spokesperson said, “If you look at the conclusions of the report, the Commission has found that the European business insurance market is operating efficiently but has highlighted some isolated areas for further discussion with the industry - notably around broker remuneration disclosure and some aspects of the coinsurance market. We welcome the opportunity to engage in that debate.”
The EC said the final report raises concerns about the operation of two areas of business insurance. The first, long-standing and widespread industry practices in the reinsurance and coinsurance markets involving the alignment of premiums, which may lead to higher prices for large risk commercial insurance.
Competition Commissioner Neelie Kroes said the “report shows that the Commission is serious about making markets work better, even where that means we need to question some established market practices when these may be harmful to consumers and competition.”
“The Commission is concerned that the prevailing practice in the marketplace may not comply with competition law
The report looks inter alia at the coverage of large risks through co- and reinsurance. The Commission is concerned that the prevailing practice in the marketplace which excludes participants in the so-called "follow market" from offering lower premiums than that offered by the lead insurer, may not comply with competition law.
The report did not conclude the law is actually being infringed, but found “premium alignment is not, in the Commission's view, intrinsic to the operation of the subscription markets. The Commission invites the industry either to justify the business practices concerned from a competition law standpoint, or to reform them.” It has said it will not apply its findings retroactively.
Stephen Riley, chairman of the International Underwriting Association (IUA), said the association noted “comments on the operation of differentiated co and reinsurance pricing in the subscription market. Such vertical pricing already exists for a number of classes of business and will continue to be adopted by IUA members where appropriate. The London insurance market is probably the most competitive in the world and presents customers with a very efficient mechanism for covering risks.”
“This has been an unnecessary and pointless inquiry led by the EU. It could be regarded as an unsuccessful attack on the UK general insurance sector
Eric Galbraith, chief executive of the British Insurance Brokers' Association
Eric Galbraith, chief executive of the British Insurance Brokers’ Association was more forthright: “On co-insurance/reinsurance, the Commission has not found any breach but still considers it necessary to suggest the industry justifies its position. We do not accept the Commission’s analysis that subscription market practices are akin to use of best terms and conditions clauses, a practice we have always opposed.
“This has been an unnecessary and pointless inquiry led by the EU. It could be regarded as an unsuccessful attack on the UK general insurance sector, where the UK and London are leading players. It has certainly cost the industry millions of pounds and for what?”