Insurers have failed to fully understand competition law and current Block Exemption Rules (BER). There is therefore doubt over whether they are compliant, writes David Banks.

Some insurers are confused by European guidelines on competition law, according to Eithne McCarthy, a project leader at the European Commission’s competition directorate.

“Some sector operators are confused by what comes under the BER. Some don’t know that it covers certain areas, whereas some think it is wider than it actually is,” McCarthy says. For example, according to McCarthy, some think that practices of a subscription market are covered under the BER, but in fact “they are not mentioned in the BER.”

Block Exemption Rules permit insurers exemption from certain standard competition laws, but the

BER are due to expire in March 2010. European Competition Commissioner Kroes (pictured) says that she needs to “investigate how the insurance block exemption is working in practice” and whether there are “sufficient grounds to renew it”.

The expectation is that the European Commission may not find sufficient grounds for renewal.

McCarthy says that each of the four competition Block Exemption Rules will be considered on their individual merits to assess whether each should be renewed, replaced or allowed to expire. A draft set of proposals regarding what comes next will be issued by the European Commission at the end of March

2009. The European Commission’s competition directorate will send its draft report to the European Parliament and European Council before 31 March 2009, including feedback on the functioning of the BER and proposals for amendment.

According to McCarthy, the European Commission’s competition directorate was “yet to be convinced” that practices currently allowed under one of the four Block Exemption Rules – referring to standard policy conditions – comply with anti-competition law.

This would have bearing for Lloyd’s, which issues and applies standard wordings.

Rob Gillies, head of market processes at the Lloyd’s Market Association, confirms that the issue of standard policy conditions was a key issue of discussion between the LMA and the European Commission’s competition directorate.

“I think people value the legal clarity that BER brings,” Gillies says, fearing that some companies might pull away from certain lines of business if such clarity did not exist.

For Gillies, the BER provides a “legal safe haven” and that “same clarity” will be absolutely essential in the future. In the absence of the BER, Gillies says “we will be happy with guidance.”

McCarthy confirms that if the BER are allowed to lapse and not replaced, the competition directorate would continue to work with the insurance industry to issue guidance.

David Banks is Deputy Editor of Global Reinsurance

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