The Insurance Block Exemption: The End of an Era
31 March 2017 sees the expiry of the Insurance Block Exemption
Following the European Commission's unsurprising, but rather muted, announcement not to renew the Insurance Block Exemption (the "IBER") in any guise, the final countdown has begun and the IBER will now simply expire at the end of this month (on 31 March 2017).
What is perhaps disappointing is that the European Commission has chosen, at this stage at least, not to offer specific guidance for the insurance sector.
The IBER currently provides two exemptions for agreements relating to the joint compilations, tables and studies and to co-(re)insurance pools for the common coverage of a specific category of risks. The benefit of the IBER has been that, provided an agreement fell within its specific conditions (which needed to be assessed carefully rather than presumed), it was automatically exempt from the prohibition on anti-competitive agreements under EU and UK competition law. Consequently, the agreement did not require individual assessment from a competition law perspective.
The European Commission's decision not to renew the IBER
As previously noted, the scope of the IBER has been reduced over time since its first incarnation was adopted in 1992 and the European Commission has been moving away from sector-specific rules in preference for a more general principles-based approach. Against this backdrop and the European Commission's preliminary view, set out in its Report on the functioning of the IBER of March 2016, that it was "no longer necessary to maintain sector-specific block exemptions in this field", the IBER's demise has been reluctantly anticipated by the insurance industry.
Further consultation, studies and an impact assessment reinforced the European Commission's preliminary view, which was also supported by the National Competition Authorities. Insurers were unable to convince the European Commission that the absence of the IBER would create legal uncertainty and additional compliance costs. Indeed, the European Commission has expressly stated that it does not expect the cost for insurance premiums to increase as a consequence.
The European Commission has concluded that its Guidelines on horizontal cooperation agreements, with a section on information exchanges, provides appropriate guidance to assist the competition law assessment of agreements relating to joint compilations, tables and studies. In addition, it considered that renewal of the co-(re)insurance pools exemption was not justified due to "its limited use and relevance and the concrete risks of misapplication". The European Commission has pointed out that the insurance sector is not alone in needing co-operation on large projects in order to spread the risks and costs involved.
What Happens on 1 April?
In reality, there will be no dramatic changes. April 1st will not suddenly see all arrangements between insurers, which benefitted from the IBER only the day before, suddenly becoming anti-competitive and, therefore, illegal. As the European Commission has confirmed:
"The expiry of the IBER does not mean that these forms of co-operation become unlawful under Article 101 TFEU. Rather, insurers, as all other companies doing business in the EU, will need to assess their co-operation in the market context to see whether it is in line with antitrust rules."
Thus, this is not the end of all co-operation in these areas. The European Commission, throughout the review process, has acknowledged the need for co-operation within the insurance sector.
Nevertheless, this does not mean that insurers should simply ignore this development. If a competition law assessment has not yet been undertaken, insurers, with the assistance of their competition law advisors, should assess on an individual basis any existing agreements, for which there has been reliance on the application of the IBER.
It is important to ensure that existing agreements either do not raise any competition law concerns under Article 101(1) of the TFEU (the EU prohibition on anti-competitive agreements) or, if they do, that they satisfy the exemption criteria of Article 101(3). These criteria require that an agreement: (i) contributes to promoting technical or economic progress; (ii) whilst allowing consumers a fair share of this benefit; (iii) without imposing any indispensable restrictions; and (iv) without the possibility of eliminating competition.
All proposed arrangements going forward will require self-assessment for compliance with competition law rather than with the scope of the historic IBER.
The European Commission has indicated that it will monitor the impact of the expiry of the IBER. Over the first year, it will review whether the expiry leads to "pronounced legal uncertainty" and, if so, it will consider whether further guidance is required.