What can we expect from the EC insurance inquiry? asks Lesley Ainsworth

On 13 June 2005, the European Commission announced that it had opened a sector inquiry into business insurance (alongside similar inquiries into retail banking and energy).

Sector inquiries are used where the Commission is concerned that competition is being restricted in a particular sector; they enable the Commission to carry out a wide-ranging fact finding exercise. Following a sector enquiry, the Commission may propose legislative changes or - if they uncover evidence of anti-competitive behaviour - the Commission or national competition authorities may initiate competition law enforcement proceedings against individual companies.

This inquiry follows hard on the heels of the US Spitzer investigation and a Commission investigation into aviation insurance; the latter resulting in undertakings being given by the International Underwriting Association and the Lloyd's Market Association on behalf of their members in March of this year. It also follows a number of investigations by various national competition authorities into aspects of business insurance over the last couple of years. Although the inquiry will cover all 25 EU countries, inevitably the London market will be a prime focus.

The investigation is limited to business insurance such as property and casualty insurance but will cover reinsurance and arrangements with intermediaries.

Likely areas of interest include: standard policy clauses; co-insurance and co-reinsurance arrangements; insurance associations; pool agreements; and the sharing of data relevant to risk analysis.

The Commission is likely to use a combination of informal inquiries and more formal written requests for information sent out to market participants.

We understand that the Commission has not yet decided which companies to target with its initial questionnaires. Fines can be imposed for failure to provide information or for supplying an incorrect or misleading response.

The Commission also has the power to carry out dawn raids on company premises to gather evidence.

At best the inquiry will create a substantial administrative burden for insurers in responding to the Commission's questions. In practice, however, there is concern that it may have more far reaching consequences.