After over two years of information gathering and deliberation, the European Commission has issued its final report into the conditions of competition in the business insurance sector
After over two years of information gathering and deliberation, the European Commission has issued its final report into the conditions of competition in the business insurance sector.
The final report raises concerns about areas of the market which the Commission feels are uncompetitive and poorly serve clients. While the industry has been quick to defend itself, the clear message is that the EC expects a reappraisal of some key aspects of business insurance.
There are three principal areas of concern. First are the long-standing and widespread industry practices in the reinsurance and co-insurance markets involving the alignment of premiums, which the Commission believes may lead to higher prices for large risk commercial insurance.
The Commission has indicated it does not intend to apply its findings retroactively. But it has invited the industry either to justify the business practices concerned under the competition rules, or to reform them.
Andrew Hobson, of Reynolds Porter Chamberlain LLP (RPC), said: ‘Whilst the EC’s processes may, at times, seem glacial I don’t think this report allows us too much room for complacency.’
The findings have stirred up some mixed feelings throughout the (re)insurance industry, which has rigorously defended its processes. Stephen Riley, chairman of the International Underwriting Association (IUA), said: ‘The London insurance market is probably the most competitive in the world and presents customers with a very efficient mechanism for covering risks.’
“I think this is one issue the insurance industry will need to continue to lobby the EU on.
Andrew Hobson, of Reynolds Porter Chamberlain LLP
Eric Galbraith, chief executive of the British Insurance Brokers’ Association, commented: ‘On co-insurance/reinsurance, the Commission has not found any breach but still considers it necessary to suggest the industry justifies its position. We do not accept the Commission’s analysis that subscription market practices are akin to use of best terms and conditions clauses, a practice we have always opposed.’
Second, the Commission also confirms its concerns as to transparency of remuneration and conflicts of interest in insurance brokerage. The report says this practice needs to be better regulated. The issue of the types and amount of commissions being sought by brokers harks back to the highly publicised US investigation by Elliot Spitzer.
Kenneth Underhill, of RPC, said: ‘Reading between the lines I think the EC wants to go for compulsory disclosure of commission.’
In a release AIRMIC said: ‘We hope the enquiry will lead to a situation where all buyers of commercial insurance routinely and automatically receive full disclosure as to how much of their premium the broker receives.’
Finally, the report has also indicated that the EC is not inclined to renew the insurance industry’s block exemption from some competition rules which is due to lapse in 2010. Eamonn Doran, competition partner at Linklaters, said: ‘The Commission, on the basis of the report, is going to take some persuading that the practices it has identified and/or BER renewal are necessary for, or conducive to, a competitive insurance or reinsurance market.’
RPC’s Hobson continued in the same vein: ‘I think this is one issue the insurance industry will need to continue to lobby the EU on.’