25 September 2007

Commission final report on Business Insurance Sector Inquiry

The Commission adopted the final report of the competition inquiry on the business insurance sector. The final report raises concerns about the operation of two areas of business insurance. First, long-standing and widespread industry practices in the reinsurance and coinsurance markets involving the alignment of premiums, which may lead to higher prices for large risk commercial insurance.

The report leaves open the question of whether these constitute infringements of the prohibition on restrictive business practices (Article 81), but invites the industry either to justify the business practices concerned under the competition rules, or to reform them.

Second, the Commission also confirms its concerns as to transparency of remuneration and conflicts of interest in insurance brokerage which may inflate prices and reduce choice, in particular for SMEs. The Commission will further explore this issue during the review of the Insurance Mediation Directive.

Co- and reinsurance

The report looks inter alia at the coverage of large risks through co- and reinsurance. The Commission is concerned that the prevailing practice in the marketplace which excludes participants in the so-called "follow market" from offering lower premiums than that offered by the lead insurer, may not comply with competition law.

The Report does not conclude that the law is actually being infringed, as this would only be possible in the context of a specific enforcement decision. Nonetheless, premium alignment is not, in the Commission's view, intrinsic to the operation of the subscription markets, and the Commission invites the industry either to justify the business practices concerned from a competition law standpoint, or to reform them.

The Commission does not intend to apply its findings retroactively and will give industry every opportunity to make the representations on this matter which it considers appropriate.

Insurance intermediaries

The Report also highlights conflicts of interest and lack of transparency in the way that insurance intermediaries are typically remunerated. This raises a number of issues for the functioning of the market and may in some cases lead to less competition and higher prices, especially for SMEs. There is a growing awareness in the market that such conflicts of interest may need to be better supervised or regulated.

The Commission is committed to follow up these findings in the framework of the review of the Insurance Mediation Directive which has already started. National authorities are also expected to take an interest in the Commission's findings.

Block Exemption

In respect of the block exemption Regulation for insurance, which lapses in 2010, the Commission has yet to be persuaded that the Regulation– which treats the insurance industry differently to other industry sectors – is still necessary. However, it will review the matter definitively in a report in March 2009.

Long-term Contracts

Finally, the Commission expresses concerns in the Report with the situation as regards networks of long-term contracts in Austria which may restrict competition. This is not a definite conclusion but it needs to be examined more closely. In the other cases examined – The Netherlands, Slovenia and Italy – the concerns raised in the interim report have been resolved.

Press release

Commission Communication

Commission Staff Working Document

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