Share the Risk: A Study of the Insurance Block Exemption Regulation in Conjunction with the Opportunities of its Expiry

Abstract

The block exemption regulation on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of agreements, decisions and concerted practices in the insurance sector for insurance cooperative schemes for joint compilations and common coverage of certain types of risks expired on 31th March 2017. The expiration caused a review of the block exemption to evaluate whether it was still the optimal regulating instrument to protect the need for cooperative schemes within insurance. A block exemption regulation is an exceptional instrument and should only be extended if there is sufficient assurance that the excepted categories of cooperation schemes constitute real benefits. Further the exemption must be necessary for achieving the objectives of the cooperation schemes.
It was found that the insurance companies have issues with assessing the relevant market, which is relevant for both cooperatives within and outside the scope of the block exemption. Further it was concluded that the pools within the block exemption are limited in number and consist of pools that are heterogeneous, so it cannot be presumed that the block exemption is the best way to balance the competitive and anti-competitive effects of the cooperation schemes. The block exemption and the horizontal guidelines were compared and showed that the challenges of determining market shares and the relevant market occur under both the block exemption and under the horizontal guidelines. Therefore, the main difference is the legal effect of a regulation and guidelines, respectively. Three Commission decisions where individual exemptions were granted, illustrated the balancing of the anti-competitive effects of the cooperation schemes with these effects being necessary to achieve the objective and to provide the concerned products.
The economic analysis showed how horizontal collaborations can distort the market, enabling pricing over the level of full competition. This effect is even reinforced when companies are risk averse, which we argued that pools covering new and unconventional risks are as the reasoning behind the cooperative schemes are due to the risk coverage being too large for a single insurer to carry as the risks are difficult to assess when underwriting the policy.
The findings throughout pointed to the expiration of the block exemption being optimal as the horizontal guidelines can guide with the assessment of the legality of the cooperation schemes in a manner that satisfies the objectives in the least intrusive manner. By letting IBER expire a level playing field between the various types of insurance cooperatives is created but also in relation to the other sectors that do not have a sector-specific block exemption regulation but are already guided by the horizontal guidelines.