Brussels, 26/09/2007 (Agence Europe) - On 25 September 2007, the European Commission announced the adoption of the final report of the competition inquiry on the business insurance sector. Building on the interim report of January 2007 (EUROPE 9352), a wide public consultation and extensive further fact-finding, the final report called for justifications to be made by the industry but did not make any formal charges. Some representatives from the sector say that the report conclusions (they are not binding) do not take into account the actual situation in the sector.
Competition Commissioner Neelie Kroes said that this report shows that “the Commission is serious about making markets work better, even where that means we need to question some established market practices”. Luc Hendrickx, however, the policy director for companies represented by the European Association of Craft, Small and Medium-sized Enterprises (UEAPME), believes that the image created by the report does not correspond to the real situation. He affirmed: “We do not agree with the Commission's condemnation (of certain sectors)…the report does not put enough emphasis on the fact that in most member states, the insurance market is very dynamic and competitive”.
The main criticism of the Commission targets the reinsurance and coinsurance markets involving the alignment of premiums. The report leaves open the question of whether these constitute infringements of 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.
Company priorities. According to Mr Hendrickx, the Commission has misinterpreted the situation for SMEs. It is true that SMEs have a tendency to purchase their insurance from reinsurance agents but they do not complain of a lack of transparency with regard to payments to these agents. Hendrickx explained that “If an SME is going to buy insurance, it doesn't care how much the seller gets. It wants a fair price, and a good service”. Competition between reinsurance agents commonly leads to negotiations between the SME and its reinsurance agents, at the end of which the latter is often obliged to cut its margins in order to conclude an agreement. Competition would in this way be effective, despite the lack of transparency, as deplored by the Commission. As for the idea of substituting a fixed price for a percentage commission, Hendrickx said that this option risked putting the after sales service provided by reinsurance agents in danger, a service he described as indispensable in the event of disaster striking. He concluded that the reinsurance commission did not exceed 10% of the overall invoice in general. Reducing income by, for example, a quarter, would only bring the final price for the insured party down by 2.5% and would not counterbalance the inevitable fall in the standard of service provided to consumers. If SMEs have not complained, what is the Commission basing its comments upon? It would appear that some considerably big companies have spoken out during consultation on behalf of SMEs. William Vidonja, the head of the European Insurance and Reinsurance Federation (CEA) in the single market, said that allegations of excessive payments are unfounded: “The declarations from the preliminary report gave a false image of the sector - profitability did not correspond to reality”. This was, above all, a problem of methodology, which the Commission mentioned in its final report but attention should be paid to not creating a “false image of the market”.
Exemption per category. As for the regulation on exemptions per category in the insurance sector (No. 358/2003), which expires in 2010, the Commission acknowledged the importance for the sector to be able to share certain information on statistics, standard conditions, pooled insurance and physical safety mechanisms. Nonetheless, it is not convinced that the regulation is enough in itself. It will decide in its March 2009 report but is also calling on stakeholders to submit their observations in the meantime.
A report that is not all that final. It is easy to observe that this report is not final and that it does not have the same consequences as other sectoral reports (energy, for example). Firstly, the conclusions are inconclusive given that they are without any concrete charges. The Commission declares that insurers should look at their practices to be certain that they comply with European law. In other terms, they must respect the law. As Mr Vidonja said: “There was no need for a report to say that”. Secondly, this report is to a large extent based on data collected before transposition of the Insurance Mediation Directive (2002/92/EC, better known as its English acronym IMD). Resolution of many of the problems raised in this report, notably in connection with price transparency, commissions and information sharing, is therefore taking place. It is the assessment of this directive, planned for 2008/09, which looks like it could have some heftier consequences on the sector. The report can be consulted at: http: //ec.europa.eu/comm/competition/antitrust/others/sector_inquiries/financial_services/business.html. (cd)