Opinion of the Economic and Social Committee on the "Report to the European Parliament and to the Council on the operation of Commission Regulation (EEC) No 3932/92 concerning the application of Article 81 (ex-Article 85), paragraph 3, of the Treaty to certain categories of agreements, decisions and concerted practices in the field of insurance"

(2000/C 51/24)

On 8 July 1999, the Economic and Social Committee, acting under the third paragraph of Rule 23 of its Rules of Procedure, decided to draw up an opinion on the above-mentioned report.

The Section for the Single Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 25 November 1999. The rapporteur was Mr Ravoet.

At its 368th plenary session (meeting of 9 December 1999), the Economic and Social Committee adopted the following opinion unanimously.

1. Introduction

1.1. The European Commission has presented a report (COM(1999) 192 final) to the Council and the European Parliament on the application of the exemption regulation to insurance companies for certain categories of agreement under the provisions of the Treaty in the area of competition [Article 81(1)].

1.2. The 1993 Council empowering regulation required the Commission to report on the application of this particular system within a period of six years. The Economic and Social Committee agrees that the report comes at a good time in terms of preparing the sequel to the policy followed under the exemption regulation, which will cease to apply as of March 2003.

1.3. The Committee welcomes the consultation process set up by the Commission for this report, particularly with the national authorities and courts responsible for matters of insurance and competition. The Committee hopes that the Commission will ensure the national bodies are unambiguous in their application of competition provisions. It believes that the risks of divergence are all the greater given that their decisions are based on both legal and economic criteria. For this reason, it is important to understand the methodologies and frameworks they are using. The prospect of decentralised responsibility for applying Community competition law, as heralded by the Commission's White Paper of 28 April 1999, heightens this concern.

1.4. The Committee would refer to its opinions(1) on the Council empowering regulation and the Commission exemption regulation.

1.5. This opinion is designed to:

- establish the context in which the provisions must be assessed;

- give a general assessment of the Commission report; and

- make a number of comments on specific points raised by it.

2. General comments

2.1. The Committee would underline its commitment to free and effective competition as a factor in economic progress, and as a factor of benefit to the consumer. It is therefore keen to ensure that derogations with regard to certain activities remain the exception and that they are not interpreted in such a way as to extend their scope.

2.2. The exemption regulation that covers insurance companies for certain types of agreement corresponds to the concern, expressed in Article 81(3) of the Treaty, to authorise agreements that contribute to technical or economic progress or to improving the production or distribution of products, providing consumers derive benefit from them.

2.3. Before the block exemption system came into force, the Commission was notified of a large number of insurance sector agreements falling into this category, for reasons often specific to this particular economic activity. The Committee welcomed the simplification that came with the adoption of the block exemption system, as it lifted some of the burden of weighty administrative control. It now notes that the Commission has consolidated its experience, and is in a position to continue application of the exemption regulation.

2.4. The insurance business features:

- a price-setting mechanism which differs from that found in most other economic activities in that the cost price elements are located in the future in relation to the premiums and contributions collected (inverted production cycle); the Committee notes that insurance price formation is also influenced by the fact that Member States make certain types of insurance compulsory; this is reflected in rigid demand and the application of price controls to certain types of insurance in several Member States; the Committee would point out that the effect of such price regulation is to reduce companies' competitiveness;

- the role of protecting insured parties and their dependants, making it essential that insurance companies do not go bankrupt; this is especially important when companies have long-term commitments, in particular regarding retirement, where their role is becoming increasingly important;

- technical and legal complexity, which means it is often helpful for the consumer to be able to find common points of reference, to ensure greater transparency and a better understanding of contractual commitments;

- the need for access to major financial resources in order to meet market requirements, a need that exceeds the financial capacities of single companies.

2.5. These particularities doubtless explain the time that was needed to draw up competition rules specifically applicable to the insurance sector. The balance they demand between the objectives of running the single market smoothly, protecting consumer interests, and the efficient use of the Commission's administrative resources, justify what is definitely an exceptional system.

2.6. The Commission is quite right to state in its report that the entry into force of the exemption regulation coincided with that of the "third generation" directives, putting the finishing touches to the completion of the single market in the insurance sector. Furthermore, the Commission seeks in the exercise of its responsibilities to strike the right balance regarding the freedom the single market offers the industry's operators.

2.7. The European insurance industry has undergone major changes since the beginning of the decade. These include, in particular, the end of the prior approval system for tariffs and conditions, the growth of cross-border competition, important mergers and acquisitions, also with other financial establishments, and the advent of new operators, technologies and sales channels.

3. Specific observations

3.1. Joint technical statistics

3.1.1. The Committee accepts that the need to ensure successful conclusion of insurance operations warrants insurance companies having access to statistics that are as reliable and representative of the market as possible. It believes that the system set up by the exemption regulation should be preserved, while ensuring that collective statistical work remains strictly indicative. The Committee joins the Commission in welcoming the fact that this work facilitates market access for the highest possible number of operators. It believes it is appropriate that the large companies should take part in these joint studies, as this increases the reliability of the findings.

3.1.2. The Committee believes that the compilation of more detailed joint statistics enables operators to fine-tune their underwriting policies, sharpening competition and increasing the reliability of technical calculations.

3.1.3. The Committee would recommend that these studies be made accessible to any operators interested, subject to reasonable conditions. Consumers should be able to obtain information, for instance by means of watchdog authority publications, on the part this data plays in the calculation of premiums.

3.2. Standard policy conditions

3.2.1. In the Committee's view, the interested parties - insurers, intermediaries and consumers - should be able to refer to illustrative conditions. Standard clauses are pointers, and a means of assessing the extent of cover. The report states in point 23 that the Commission intends to review the system established under Article 7(1), which lists standard exclusions, cover subject to standard conditions, and extension of standard cover to include risks to which a significant number of policyholders are not exposed.

3.2.2. The Committee notes the Commission's general standpoint on these clauses and approves of its careful approach. It feels, however, that the report does not demonstrate, in the light of practical experience, that this review is necessary. Experience shows that companies often deviate from these standard clauses - thus confirming their illustrative character - in attractive contracts, contracts covering major risks or contracts taken out through certain intermediaries who have negotiated specific terms for their customers. The use of indicative standard conditions relates both to the list of risks covered by the policy and to the precise indication of its limits in the form of exclusions or safety precautions to be taken by the policyholder in order to be eligible for cover. The use of a list of excluded risks will, furthermore, depend on the way the policy is drafted. On some markets, policies list risks covered, while on others they follow the "all, except" pattern. For these reasons, the Committee would welcome further information on experience with this type of clause, before changing the current system of exemption by notification.

3.2.2.1. The Committee would also refer to its opinions on unfair terms. Without going back as far as studies or opinions on the situation before the implementation of Directive 93/13/EC on unfair terms, the Committee would refer to the work carried out in 1997-1998 by the Single Market Observatory during preparation of the opinion on "Consumers in the insurance market". At that time, the Committee

1) pointed out the fundamental principle of the balance to be struck between the insurer and the policyholder in contractual relations,

2) recognised the justification for the exemption system dealt with by the present report, and

3) invited the Commission to conduct a more systematic study of clauses in contracts destined for consumers, in order to remedy any unfairness.

3.3. Joint cover of certain types of risk

3.3.1. In its opinion on the empowering regulation, the Committee noted the obvious advantage of joint cover of certain types of risk, especially for major risks.

3.3.2. The Committee is pleased with the pragmatic approach taken by the Commission in the complex area of defining which markets should be taken into consideration in assessing the lawfulness of the joint cover of certain risks. The Commission's recent examination of aviation insurance, mentioned in point 30 of the report, bears witness to this. It would be worth the Commission's while exploring ways of offering operators real legal security, within a reasonable timeframe, regarding whether or not joint cover of certain types of risk is lawful.

3.3.3. The Committee meanwhile would recommend that the Commission remain flexible regarding the necessary dimension (see point 28b in the report) for operating on a market as justification for joining a pool, and also take account of the opportunity that participation in a pool can offer to companies seeking technical experience.

3.4. Safety equipment

3.4.1. The Committee notes that the involvement of insurance companies in the standardisation of safety and protective equipment tends to increase the reliability of the equipment available to the consumer. On this score, the interests of the companies and those of the public are indistinguishable.

3.4.2. The Committee notes the context in which the Commission, on the basis of comments from safety equipment manufacturers, was led to adopt a critical stance towards the efforts of insurers to align technical standards regarding fire prevention and anti-theft equipment in particular. The insurers do nonetheless deserve recognition for the work they have done through their representatives in professional and consumer consultation forums and on standards bodies. The Committee is of the opinion that the slowness of progress in the European harmonisation of technical standards is owing to aspects that are often out of insurers' hands. While it is right to encourage harmonisation, insurance companies must not as a result be forced to level downwards, towards the lowest common denominator, the quality requirements which can reasonably be expected for safety equipment. Furthermore, insurers must be free to develop standards rapidly and flexibly when and where circumstances require.

The Committee invites the Commission to facilitate the free movement of goods in this sector through the appropriate channels, largely beyond the context of this report.

3.5. Settlement of claims and registers

3.5.1. The Committee notes that the interested parties have declined to extend the scope of the exemption regulation to registers and the settlement of claims, though these two categories were mentioned in the empowering regulation. It would, therefore, suggest that they should not be covered by the exemption regulation.

4. Conclusion

The report gives a fair assessment of the operation of the exemption regulation, bearing witness to pragmatism, concern to ensure potential operators can enter the market, and transparency for consumers. The Commission has exercised its responsibilities with discernment, authorising cooperation in the technical areas covered by the exemption regulation and stepping in when cooperation has an excessive influence on commercial conditions. The Committee notes that the system meets a need and, as proved by the diverse insurance terms on offer, has not led to a loss of competitiveness. The report should therefore provide encouragement to continue along the path marked out by the regulation(s) and inspire the national authorities whose role is certainly set to grow in the years ahead.

Brussels, 9 December 1999.

The President

of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI

(1) OJ C 182, 23.7.1990, p. 27 and OJ C 19, 25.1.1993, p. 97.