Cultivation of genetically modified maize - European Scrutiny Committee Contents


9   Competition: the insurance sector

(30526)

8291/09

+ ADD 1

COM(09) 138

Commission Report on the functioning of Commission Regulation (EC) No. 358/2003 on the application of Article 81(3) of the Treaty to certain categories of agreements, decisions and concerted practices in the insurance sector

Legal base
Document originated24 March 2009
Deposited in Parliament3 April 2009
DepartmentHM Treasury
Basis of considerationEM of 6 May 2009
Previous Committee ReportNone
To be discussed in CouncilNone planned
Committee's assessmentPolitically important
Committee's decisionClear

Background

9.1  A Block Exemption may exempt a sector from the provisions of Article 81 EC prohibiting, "as incompatible with the common market: agreements between undertakings, decisions by associations of undertakings and concerted practices, which may affect trade between Member States and which have as their objective or effect the prevention, restriction or distortion of competition within the common market." Commission Regulation (EC) No 358/2003 governs a Block Exemption for certain categories of agreements, decisions and concerted practices in the insurance sector. This Block Exemption is due to expire on 31 March 2010.

The document

9.2  In this document the Commission summarises the preliminary results of its consultation on the functioning of the insurance sector Block Exemption and sets out a tentative policy on renewing it in 2010. In doing so the Commission considers three key questions:

  • whether the business risks or other issues in the insurance sector make it special in a way that leads to an enhanced need for cooperation among insurers;
  • if so, whether this cooperation requires a legal instrument to protect or facilitate it; and
  • if so whether the present Block Exemption, partial renewal, amended renewal or guidance would be more appropriate.

The Commission has examined these questions in respect of four categories of agreement:

  • joint calculations, tables and studies, for example, calculations of the average cost of covering a specific risk in the past or mortality tables;
  • Standard Policy Conditions, that is, joint establishment and distribution of non-binding standard policy conditions;
  • pooling operations for the co-insurance and co-reinsurance of certain risks, for example, nuclear, terrorism and environmental risks; and
  • technical specifications and rules for security devices, for example, burglar alarms or sprinkler systems.

9.3  The Commission's preliminary view is that the two forms of cooperation specific to the insurance sector, joint calculations, tables and studies and pools, should continue to be facilitated by a Block Exemption. For the two other forms of cooperation the possibility of non-renewal is raised, on the grounds that the benefits of cooperation can be achieved by industry participants without the need for a sector-specific protection under a Block Exemption.

9.4  The industry and stakeholders will make final representations to the Commission at a public event on 2 June 2009, after which the Commission will make a decision on whether or not to renew any parts of the Block Exemption for the insurance sector.

The Government's view

9.5  The Economic Secretary to the Treasury (Ian Pearson) says that:

  • on balance the Government welcomes the Commission's report, which seeks to protect forms of agreement between insurers that foster beneficial consumer outcomes and promote competition;
  • it supports renewal of the Block Exemption in respect of joint calculations, tables and studies and pools; and;
  • it favours, subject to the results of further analysis by the Commission, total renewal of the Block Exemption in these cases in order to minimise uncertainty and legal costs for the industry that would be associated with change in the rules.

9.6  The Minister continues that similar considerations arise in respect of changing the regulatory basis for Standard Policy Conditions and security devices. He says that in the case of the former:

  • the Government agrees that there are many benefits associated with Standard Policy Conditions and, indeed, as the Commission points out, the UK regulator has sought to promote increased contract certainty based on Standard Policy Conditions in some market sectors;
  • Standard Policy Conditions are particularly important to the functioning of subscription insurance, where a single large risk is underwritten by a number of insurers on a wholesale basis;
  • Standard Policy Conditions promote competition by allowing new entrants or smaller companies to take, as a starting point, policy wordings that have been found appropriate to the conditions of that market;
  • although the Government accepts that some cooperation would be likely to remain even if the Bock Exemption were not renewed, it is concerned that there may be a significant risk of less or non-cooperation on Standard Policy Conditions if the relevant provision is not renewed; and
  • the Government, therefore, would seek either the total renewal of the Block Exemption in respect of Standard Policy Conditions or equivalently clear guidelines or regulations permitting their continued use.

9.7  The Minister tells us that the case in respect of security devices is more nuanced, saying that:

  • the Commission argues, first, that insurance sector agreements about standards for security devices may lead to some manufacturers and installers being excluded from the market, in particular impacting the free movement of goods and services between Member States — the Government believes there is insufficient evidence to judge this issue, as yet, and awaits the results of further study by the Commission;
  • the Commission argues, secondly, that the need for agreements on security devices is reduced because of the subsequent introduction of Community harmonised standards concerning, for example, fire detection and alarm systems — however, it is questionable that these standards provide "exhaustive and adequate levels of security" in respect to the preservation of property as well as of life;
  • the Commission argues, thirdly, that manufacturers and service providers are insufficiently consulted in the setting of standards — the Government's preliminary view is that this is not the case in the UK, though again it would welcome further evidence gathered by the Commission;
  • in general, the Government supports the linking of technical standards for security devices to the pricing of insurance, as providing a financial incentive to take steps tending to reduce harm to consumers; and
  • it would tend, therefore, to support total or amended renewal of the Block Exemption or equivalently clear guidelines or regulations in this respect.

Conclusion

9.8  The changes which the Commission might introduce to this Block Exemption will be important for the insurance sector. So whilst we clear this document we should like the Government to tell us in due course the Commission's final decisions on this matter.



 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2009
Prepared 22 May 2009