The London insurance market insists it is not anticompetitive, and AIRMIC agrees, says John Hurrell.
London’s insurance market successfully fended off allegations of anti-competitive practices recently when the European Union said that it would seek only minor changes. It was the right decision.
No one can accuse AIRMIC [Association of Insurance and Risk Managers] of being soft on the insurance industry. As big customers, we’re quick to demand improvements where practices fall short of acceptable standards.
AIRMIC therefore received the interim report of EU competition commissioner Neelie Kroes into the insurance industry with great anticipation when it was published last year. On the whole it was an impressive document, and we were especially heartened by the strong line it took on the transparency of brokers’ remuneration.
We were concerned, however, with the suggestion that the London subscription market, where risks are openly shared, might be inherently anti-competitive. The report even appeared to question the use of multi-year and “evergreen” policies, which many risk managers view as a useful means to guarantee long-term stability.
“We were concerned with the suggestion that the London subscription market might be inherently anti-competitive
JOHN HURRELL Chief executive of AIRMIC, the UK-based risk management association.
Those particular doubts disappeared relatively early in the consultation process, but there remained the strong suspicion in some quarters that the EU regarded as anti-competitive some fundamental building blocks of the London market. These included the practice of following a lead underwriter, which can be an excellent method of creating adequate capacity for our members’ risks.
In recent discussions with AIRMIC, however, the EU made it clear that it had concluded that the practice of market cooperation on horizontal layers would not be regarded as inherently anti-competitive. The EU has also accepted that jointly-used wordings are a fair way to share best practice. Otherwise, it would have increased paperwork and cost as well as causing potential uncertainty on cover and claims. The recent gains in contract certainty would have gone into reverse.
The EU still plans one significant change. Whilst happy that the lead indication of price could be freely communicated to the following market, they wish to encourage the following market to compete on price within the layer, which will bring a welcome element of increased competition. In the meantime, AIRMIC will continue to support efforts to further reduce London’s frictional costs and other inefficiencies.
John Hurrell is chief executive of AIRMIC, the UK-based risk management association.