The European Commission’s immediate concerns on potentially anti-competitive processes in subscription markets have been addressed. But Brussels is expected to revisit the question later this year, finds David Banks.

A year on since the European Commission sparked a change in subscription (re)insurance markets, Brussels bureaucrats are again expected to focus on the subject. Their main question will be whether the subscription markets, also referred to as co-insurance and co-reinsurance, have fully addressed concerns about potentially anti-competitive practices. In 2007/08 an EU Business Insurance Sector Inquiry raised initial concerns that followers on a subscription slip were reflecting the same price as the lead, which led to European brokers changing their contract wordings to, among other things, ensure the client’s wishes in price setting were honoured. The initiative of the European Federation of Insurance Intermediaries, BIPAR, to create a set of principles for the market to follow was endorsed by subscription markets and participants, and was heralded as a “step in the right direction” which satisfied the European Commission’s immediate concerns.

So why should the Commission, and its legal experts in the Directorate General for Competition, revisit the question in 2009? This time it is a monitoring exercise to see if the changes enshrined in contract wordings are taking effect and to ask whether any potentially anti-competitive scenarios remain.

David Gittings, chief executive of the Lloyd’s Market Association (LMA), explained why he thinks more dialogue can be expected.

“We anticipate the Commission will be back later this year to see if anything has changed,” he says, adding that Lloyd’s had reached agreement with the Commission under the BIPAR principles and that the question of model wordings was also considered.

“At the LMA, we provide model wordings – not standard wordings. This element is essential because it shows that we are not imposing them on the market. The market has the choice of using them or not, which is important in creating an environment that is not anti-competitive.”


It is believed that the Commission will send out a questionnaire to brokers, insurers and their clients to find out what steps have been taken to increase awareness of the BIPAR principles, as well as enforce compliance.

The BIPAR principles are primarily directed at the duty of brokers to act in their clients’ best interests and its main provisions, where relevant, are now included in the London Market Reform Contract.

The Lloyd’s market describes itself is “fully seized of the importance” of complying with EU competition law, however there is no reason to suppose that the Commission will target Lloyd’s in its inquiry into co-(re)insurance.

Lloyd’s and other markets have been keen to point out that the EC’s competition inquiry never called into question the fundamentals of the sharing of risks by subscription.

Asked what the worst-case scenario could be if market players failed to satisfy competition laws, Gittings says: “Dawn raids and fines levied on companies as a multiple of their turnover. No company would want to be in that situation, but I don’t anticipate we’ll get anywhere near that.”

While BIPAR’s principles were endorsed last year by the whole European insurance and reinsurance industry via the CEA, the European Commission considers that it is time for a review of the principles and their effects.

Jonathan Todd, from the European Commission’s Directorate General for Competition, says implementation of these principles is the key aspect that will determine if positive changes in the market actually take place.

With specific reference to Lloyd’s, he says: “In accordance with the BIPAR principles, Lloyd’s reminded its managing agents and their underwriters of their obligation to comply with competition law, in its Market Bulletin of 29 April 2008. Likewise, insurers responded positively as the BIPAR principles have also been endorsed by the European Insurance and Reinsurance Association (CEA).”

The Commission’s words echo those made last year which welcomed BIPAR’s suggested changes as being “in the spirit of discussions with market parties”, but which emphasised that implementation by CEA members would be key to change practices.

Observers believe there is a slight difference in tone between the European Commission’s competition authorities and those co-(re)insurance parties, such as the Lloyd’s market, whose job it is to keep the former happy.

While subscription market players stress that they have satisfied the questions raised to date, the Commission’s representatives emphasise that it is still an evolving process and have called for “new and creative ways of completing placements at the most advantageous terms for clients”.

Eithne McCarthy, a project director on the Block Exemptions question at the European Commission and a former London corporate lawyer, says concern over price alignment in subscription markets remains a live subject.

“The Commission has welcomed the role of organisations, including BIPAR, to move the market away from premium alignment, but there might be a case for the [European Commission] to issue further guidelines that ensure there is no alignment of premiums. “Any process that leads to more leeway and competition will be helpful. There are alternatives and one of these is the suggestion of an auction process.”

David Banks is Deputy Editor of Global Reinsurance.

Principles for placement of a risk with multiple insurers

BIPAR, the European Federation of Insurance Intermediaries, issued the following set of placement principles in April 2008 designed to guide their members on how to comply with competition law in the placement of subscription business.
1. The intermediary shall, based on information provided, specify the demands and needs of the client as well as the underlying reasons for any advice.
2. Before placing a risk, an intermediary will review and advise a client on market structures available to meet its needs and, in particular, the relative merits of a single insurer or a multiple insurer placement.
3. If the client, on advice of the intermediary, instructs the latter to place the risk with multiple insurers, the intermediary will review, explain the relative merits and advise the client on a range of options for multiple insurer placement. Intermediaries will expect insurers to give careful independent consideration to the option requested.
4. In the case of a placement of a risk with a lead insurer and following insurers on the same terms and conditions, the previously agreed premiums of the lead insurer and any following insurers will not be aligned upwards should an
additional follower require a higher premium to complete the risk placement. Indeed, the intermediary should not accept any condition whereby an insurer seeks to reserve to itself the right to increase the premium charged in such
5. During the placement of the risk, the intermediary will keep the client informed
of progress.

There are a range of options for multiple insurance placements. Two examples are:
i. Selection of a lead insurer through a competitive process and subsequent
invitation to potential following insurers to cover part of the risk on the same
contract conditions and premium, it being understood that nothing should
prevent following insurers quoting a different premium;
ii. Selection of lead insurer through a competitive process followed by a series of negotiations between the broker and potential following insurers for the coverage of part of the client’s risk not covered by the lead insurer with identical contract.