On 13 December 2016, the European Commission announced that the Insurance Block Exemption Regulation will not be renewed and so will be allowed to expire on 31 March 2017. This means that certain types of agreements between insurance businesses will no longer be automatically exempt from prohibition under EU and UK competition law, though in practice it is unlikely that many agreements will now be caught by the prohibition.
Background to the Insurance Block Exemption Regulation
EU competition law prohibits any agreement that has the object or might have the effect of appreciably restricting competition within the EU. An agreement that is deemed anti-competitive may, however, be exempt from the prohibition, either because the parties can show other economic benefits that outweigh any anti-competitive effects (referred to as individual exemption) or because the agreement complies with the framework set out in a block exemption regulation. A block exemption regulation also confers exemption from the equivalent UK competition law prohibition.
Most block exemption regulations deal with industry-neutral types of agreements (such as distribution or research and development agreements). Insurance is one of only three sectors with a block exemption regulation that is specific to agreements within a particular industry (the others are maritime liner shipping and motor vehicle distribution).
The current Insurance Block Exemption Regulation
The first insurance block exemption regulation was adopted in 1991 and the block exemption has been renewed through successive versions since, with the current regulation adopted in 2010. However, over the years, the scope of the block exemption has reduced, with categories of agreements originally covered in 1991 being removed from the ambit of the regulation. This process has reached its logical conclusion with the Commission choosing not to renew the latest regulation at all when it expires in accordance with its terms on 31 March 2017.
The current insurance block exemption regulation (Regulation 267/2010) provides automatic exemption from the EU and UK competition law prohibitions with respect to two types of agreements:
- joint compilations, tables and studies enabling the exchange of statistical information; and
- common coverage of certain types of risks (insurance and re-insurance pools).
In both cases exemption is subject to detailed conditions stipulating what types of provisions the two types of agreement may contain. Earlier versions of the regulation also covered agreements relating to standard policy conditions for direct insurance and agreements for joint testing and acceptance of security devices, but such agreements have not been automatically exempted since 2010.
The Commission's decision
The Commission carried out a consultation in 2014 on whether renewal of the block exemption regulation was appropriate and in 2016 published a report. In brief, the Commission concluded that, whilst the insurance sector has certain distinct features that mean that co-operation between competitors is more important than in other industries, these were insufficient to justify an industry-specific regulation. Instead, businesses can rely on guidance on issues such as co-operation agreements and information exchanges that is contained in general Commission guidelines and in case-law. It also found that the provisions relating to insurance and re-insurance pools had become of limited use and relevance.
Accordingly, the Commission provisionally concluded that there was no need to renew the insurance block exemption regulation, a conclusion that it has now confirmed.
Implications for businesses
It is important to note that withdrawal of the block exemption regulation does not mean that agreements that were previously automatically exempted are now prohibited.
In fact, given that such agreements were previously regarded as so benign that they could be automatically exempted, in future they are unlikely to infringe EU/UK competition law except in very exceptional circumstances relating to the specific market position of the participants and the market impact of their arrangements. Moreover, there is extensive guidance available to enable businesses and their advisers to assess for themselves whether an arrangement infringes competition laws or, if it might do so, whether it would qualify for an individual exemption – it is not necessary (indeed, not possible) to apply to the Commission to confirm that an agreement is exempt. Businesses may feel they can be more flexible in arrangements, given that complying with the strict terms of the regulation no longer brings the benefit of automatic exemption.
Accordingly, the expiry of the block exemption regulation is unlikely to have a major impact on insurance businesses, although they may need to spend more time consulting competition lawyers for re-assurance that their agreements are compliant now that the "comfort blanket" of the regulation has been removed.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.