Wednesday, 12 May 2010
Standard terms given green light from the European Commission
E.C. guidelines on horizontal competition will allow standard policy conditions so long as they are transparent, open and non-binding.
Guy Soussan, Partner with Brussels law firm Steptoe & Johnson LLP
[Brussels] – The European Commission published draft guidelines last week on horizontal co-operation that will allow the insurance sector to continue to use standard policy conditions (SPCs) so long as the terms are open to all, transparent and non-binding.
The guidelines only relate to SPCs and not the workings of the subscription or co-insurance market that is not covered by them or the recently renewed insurance block exemption on competition law.
The draft guidelines on horizontal co-operation are designed for all markets. They state that standard terms do not give rise to competition concerns as long as participation in the establishment of the terms is unrestricted (either through a trade association or directly) and transparent. The guidelines also state that the standard terms must be non-binding and accessible to all.
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Guy Soussan, partner with Brussels law firm Steptoe & Johnson told Commercial Risk Europe that SPCs will therefore not be deemed anti-competitive so long as the following conditions are all met:
- They do not limit coverage of a given risk and fix the level of premiums and/or deductibles;
- They are non-binding and their use is not in any way recommended. They are therefore merely established and distributed by way of guidance;
- Companies that participate are free to offer different policy conditions to their own customers;
- The terms are accessible to any interested third party (including new entrants, customer and consumer organisations) under reasonable and non-discriminatory terms; and,
- Consumer and customer organisations are free to participate in the elaboration of the terms.
The ability of consumer and customer organisations to participate in the creation of the SPCs is a new development and will please FERMA and the national risk and insurance management associations because it will enable them to be actively involved in the drafting of SPCs.
In its response to the Commission’s new partial block exemption ruling earlier in the month the Federation stressed the important benefits that SPCs bring in terms of transparency and reduced transaction costs to risk managers.
FERMA also stressed the importance of the ad hoc subscription reinsurance or insurance coverage for industrial risks and said it hopes that the practice should be allowed to continue.
Mr. Soussan and fellow partner Yves Botteman said: “It is important to bear in mind that the BER does not cover ad hoc co-(re)insurance.”
The lawyers pointed out that the E.C.’s recent business insurance sector inquiry had identified commercial premium alignment as a potentially harmful practice.The industry responded quickly to this concern with proposals such as BIPAR’s ‘high level principles on the common placement of risk with multiple insurers’.
“The Commission recently indicated that industry initiatives of that nature constituted moves in the right direction, but, it remained to be seen how those proposals were implemented in practice and, hence, whether they appropriately addressed all the Commission’s concerns,” they stated.
“For some time, the Commission has announced that questionnaires would be sent to the industry and stakeholders in order to acquire a better understanding of the conditions under which the subscription market operates and what recommendations, if any, ought to be made to ensure that competition rules are complied with. Until this takes place, we do not foresee the Commission coming up with clear views on premium alignment – leaving it to the market to explore available options,” they added.
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