Report from the Commission to the Council and the European Parliament on the operation of Commission Regulation 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
Date: 1999-05-12
Institutions: European Commission
Subjects: insurance, insurance contract, insured risk, inter-company agreement, inter-company cooperation

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 
COM(1999) 192 final 

REPORT FROM THE COMMISSION TO THE COUNCIL 
AND THE EUROPEAN PARLIAMENT 

ON THE OPERATION OF COMMISSION REGULATION 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. 

REPORT FROM THE COMMISSION TO THE COUNCIL 
AND THE EUROPEAN PARLIAMENT 

ON THE OPERATION OF  COMMISSION REGULATION N° 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. 

(1 ·ext with EEA relevance) 

Notice:  this  report uses  the new  numbering of the  EC Treaty articles, following 
the  entry  into  force  of  the  Amsterdam  Treaty  on  May  1,  1999.  The  old 
numbering is nevertheless still shown in brackets. 

INTRODUCTION 

1.  By  Regulation  N°  15 34/91  of  31  May  199 Jl,  the  Council  empowered  the 
Commission to  adopt a Regulation on the  application of Article  81-3  (ex-Article 
85-3)  of the  EC  treaty. to  certain  types  of agreements  between  undertakings, 
decisions  of  associations  of  undertakings  and  concerted  practices  (hereafter 
agreements)  in  the  field  of insurance.  This  empowerment  concerns  in  particular 
agreements  concerning a)  the  joint  establishment  of  tariffs  of  risk  premiums 
based on collective statistics or on the  number of claims,  b)  the  establishment of 
standard  insurance  conditions,  c)  the joint coverage  of certain  types  of risks,  d) 
settlement  of claims,  c)  verification  and  approval  of safety  equipment  and  f) 
registers and  information systems concerning aggravated risks. 

It  is  worth  recalling  that  agreements  having  the  aim  or  effect  of restricting 
competition within the meaning of Article 81-1  (ex-Article 85-1) of the treaty can 
be authorised under Article 81-3  (ex-Article 85-3) if they contribute to promoting 
technical  or economic  progress or to improving production or the  distribution of 
insurance products and if insured persons derive benefit from them, provided that 
is  strictly  necessary  (principle  of 
the  restrictions  are 
proportionality) and that they do  not entirely eliminate competition on the market 
in question. 

to  what 

limited 

OJ N° L.l43 of07.06.1991, p.  1. 

2.  Basing  itself  on  the  empowering  Regulation  of the  Council,  the  Commission 
adopted on 21  December  1992  its  Regulation N°  3932/92  aiming  to  exempt four 
of the  six  types  of above-mentioned2  agreements.  This  Regulation  covers  the 
agreements  on  calculation  of  premiums.  on  the  establishment  of  policy 
conditions,  on  the  joint  coverage  of  certain  types  of  risk  and  on  security 
"equipment.  The  Commission  considered  it  did  not  have  sufficient  experience  as 
regards  treatment  of agreements  on  the  settlement  of claims  and  registers  of 
aggravated  risks  to  include  these  agreements  in  the  field  of  its  Exemption 
Regulation (hereafter the Regulation). 

Under  Article  8  of the  Council  empowering  Regulation,  the  Commission  has  to 
submit to  the  European Parliament and to  the  Council  a report on the functioning 
of its Regulation and formulate,  if necessary, draft amendments. The Commission 
has  to  submit  this  report  no  later than  six  years  after  the  entry  into  force  o(the 
Regulation (1  April  1993). 

This report complies with that request. It includes a first part on the application of 
Article  81  (ex-Article  85)  to  the  four  types  of  agr~ements  covered  by  the 
Regulation and  a second part (significantly shorter) on the application of Article 
81  (ex-Article 85) to the two types of agreements not covered by the Regulation. 
For each type of agreement, the Commission presents a number of considerations 
of a  general  nature,  describes  its  practical  experience  and  mentions  possible 
future  developments.  The  report  does  not  contain  adopted  proposals  for 
modifications.  It  does  however  contain  a  number  of forward-looking  ideas  on 
which  the  Commission  wishes  to  receive  comments  from  regulatory  and 
competition authorities of the Member States and from  interested parties. 

3.  Be tore going into details, it is worth making some general comments. 

First of all,  the  Regulation aims,  like any  other exemption Regulation, to free  the 
Commission  from  examining a  large  number of similar agreements  and  to  allow 
it  to  devote  its  resources  to  the  examination  of cases  which  deserve  a $pecitic 
analysis.  Before the entry into force  of the Regulation, the Commission's services 
(DG IV) were apprised of several hundred notified agreements. As from the entry 
into  force  of the  Regulation,  the  notifying parties were  invited to  specify  if they 
wished to maintain their notification(s) or if, on the other hand, they insisted on a 
formal  position  from  the  Commission  on  the  compatibility  of the  agreements 
notified with Article 81  (ex-Article 85). The Commission moreover indicated that 
in  the  event  of silence  six  months  after  receipt  of this  invitation,  they  would 
proceed  to  close  the  cases  without  further  action.  This  approach  allowed  the 
reduction of  the number of current notifications to a few dozen.  The majority of 
these  in  fact  concerned  agreements  aiming  to  create  eo-insurance  or  co 
reinsurance groupings (hereafter pools). It should be stressed immediately that the 
evaluation  of these  agreements  in  the  light  of the  provisions  of the  Regulation 
(Title IV) is by far the most complex one and will continue to be a priority for the 
Commission in the years to come. 

2 

OJ  N°  L.398 of 3 1.12.1992, p.  7. 

2 

Like any other exemption Regulation. the  Regulation contributes to decentralised 
application  of Community  competition  law.  Indeed,  both  national  jurisdictions 
and  national  competition  authorities  are  themselves  competent  to  check  if  an 
agreement  meets  the  conditions  for  application  of the  Regulation  and  benefits. 
consequently,  from  an  exemption.  Since  the  entry  into  force  of the  Regulation, 
the Commission,  in  addition,  has  laid  down  the  methods of co-operation between 
itself and  these jurisdictions  and  national  authorities3.  In  the  field  of insurance, 
however, the Commission does not have a full  list of the cases in which national 
jurisdictions or authorities  have  implemented  the  Regulation.  It considers  that  it 
would  be  useful  to  have  such  a  list  before  formulating  precise  proposals  for 
amendments  to  the  Regulation.  Consequently  it  invites  the  national  competition 
authorities  to  provide  it  with  such  lists.  These  might  constitute  a  base  for  a 
discussion,  within  the  Consultative·  Committee  on  agreements  and  dominant 
positions, on the application of the Regulation. 

Since  the  entry  into  force  of the  Regulation,  the  Commission's  services  have 
twice had the opportunity of providing explanations on the implementation of this 
Regulation  to  the  monitoring  authorities  of  the  Member  States,  within  the 
framework  of the  Committee on Insurance  which  meets  under the  chairmanship 
ofDGXV. 

FIRST PART 

THE CATEGORIES OF AGREEMENTS COVERED 

BY THE REGULATION 

I. Calculation of premiums (Title 11) 

A. General information 

4. 

The commercial (or gross)  premium  is  the  price  that the  person insured pays  for 
the  covering of a  given risk.  This price comprises  an element which  reflects  the 
net  cost of this cover.  This  is  the  risk  premium.  It is  fixed  according  to  the  size 
(the intensity) of the  insured risk as well  as to the frequency  with which this risk 
occurs.  Insurers  fix  the  risk  premium  by  first  determining  the  pure  (or  net) 
premium, which is based on the statistical data concerning the  frequency  and the 
average  intensity  of the  risk  in  the  past,  and  by  then  applying  to  it  a  coefficient 
which  takes  account  of  forecasts  of  the  future  occurrence  of  the  risk.  The 
commercial  (or  gross)  premium  corresponds  to  the  risk  premium  plus  the 
administrative costs and the profjt margin of the individual insurers. 

5. 

The  Regulation  permits  insurers  to  co-operate  with  a  view  to  calculating  a 
uniform  pure  premium  corresponding  to  the  average  cost of covering  the  risks. 

3 

See  its  communications of 1993  (OJ  N°  C.39  of 13.02.1993,  p.  I 0) and  of 1997  (OJ  N°  C.313  of 
15.10.1997, p 9). 

3 

Article  2.a  specifics  that  co-operation  has  to  be  limited  to  what  is  necessary  to 
create  reliable  statistical data on  the  intensity  and  the  frequency  of claims  in  the 
past.  Insurers can also jointly carry out studies with a view to  making forecasts on 
the  frequency  or  the  extent  of claims  in  future  (Article  2.b)  without  however 
calculating  jointly  the  security  charge  which _aims  to  take  account  of  these 
forecasts  (Article  3.b).  Co-operation  between  insurers  cannot  lead  to  joint 
calculation  either  of  administrative  expenses  or  of  insurers'  profit  margins 
(ibidem). 

6.  The ratio  legis of Title 11  is  as  follows.  Each individual risk  is  specific.  It varies 
according to  a series of parameters.  For example, the  intensity and the  frequency 
of  the  automobile  third-party  liability  risk  incurred  by  an  individual  person 
insured  will  depend  on a combination of factors,  such as  the  type of car (model, 
engine  power),  the  place  of  registration,  the  driver's  personal  profile  (age, 
profession),  etc.  An  insurer  will  seek  to  avoid  (or  at  least  to  reduce  as  much  as 
possible)  the  "dispersal",  i.e.  the  divergence  between,  on  the  one  hand,  the  real 
value  of a claim  for  which  the  person  insured  has  to  be  compensated and, on  the 
other  hand,  the  premium  which  the  person  insured  has  paid.  To  this  end,  the 
insurer will group similar risks and will calculate their average cost. The dispersal 
will decrease as a) the grouped risks are more homogeneous and b) the number of 
such  risks  is  higher.  Article  2.a)  permits  insurers  to  carry  out  precisely  this 
grouping  of risks.  It  is  the  job  of actuaries  and  statisticians  to  determine  the 
sufficient number for each type of risk.  Article 2.b)  enables insurers to complete 
their  statistical  data by jointly undertaking  studies  on the  future  development  of 
the  risk  in question.  Such co-operation makes  it possible  to  improve  knowledge 
of the risks and facilitates their evaluation by individual companies (see recital 6). 

In  this  respect,  it  is  worth  adding  a  nuance.  The  question  of to  what  extent  an 
insurer  needs  really  to  co-operate  with  its  competitors  as  regards  calculation  of 
premiums,  will  depend on its  size.  Thus,  one cannot rule out that a large  insurer 
might on  its  own have  a sufficient size to  cover sufficient similar risks  to  obtain 
reliable  statistical  data.  In  such  cases,  any  co-operation  within  the  meaning  of 
Title  11  would  have  the  purpose  - from  its  point  of view  - not  of improving  its 
own  knowledge  of the  risks,  but  rather  that  of its  competitors  whose  size  is  not 
sufficient to  cover enough similar risks.  At that moment, the virtue of such a co 
operation changes.  It establishes a certain solidarity between insurers of different 
sizes and thus creates a level playing field to the benefit of smaller insurers 4. 

7. 

4 

B. Practical experience 

The Commission has not had to  examine in detail agreements providing for joint 
premium  calculation  in  the  field  of life  insurance.  On  the  other  hand,  it  has 
considered a number of agreements of this type in the field of non-life insurance. 

Title  H thus  goes  beyond  the  decisions  Nuovo  Cegam  (OJ  N°  L  99  of 11.04.1984,  p.  29)  and 
Concordato  lncendio  (OJ  N°  L  15  of  19.01.1990,  p.  25)  by  which  the  Commission  exempted 
agreements on  premium  calculation.  In  those  two  cases,  the  parties  to  the  agreement represented 
only  a  part  of the  market  (respectively  26%  and  50%)  and  the  Commission  had  justified  the 
exemption  while referring to the difficulties that members would  have ,encountered  in  entering the 
market without such an agreement. 

4 

All  these  cases  involved  recommendations  emanating  from  insurers'  national 
associations.  In  other  words,  co-operation  as  regards  calculation  of. premiums 
extended to (almost) all the active operators on the national market concerned. 

In  two  cases  (one  involving  the  German  association  VdS,  the  other  the  Belgian 
association  UPEA),  the examination took  place  without any  formal  procedure.  A 
third  case  concerned  a  notification  carried  out  by  UPEA.  The  last  two  cases 
(pertaining  to  recommendations  from  the  Italian  association  ANIA)  were  the 
subject of a ex officio procedure. 

X.  The  German  case  concerned  the  compilation  of statistics  concerning  third  party 
liability  risks  for  cars.  The  association  Verhand der  Sachversicherer  (VdS)  had 
set  itself the  goal  of determining  the  average  cost of covering the  risks  (average 
pure  premium)  according  to  the  engine  output  as  well  as  claims  rates  in  the 
various regions.  In Germany, there are 400 regions for car registrations. The V dS 
had  claimed that  it  was  necessary to  have at  least  approximately  thirty thousand 
risks  to  calculate  in  a  reliable  way the  regional  claim rate.  This  is  why  the  V dS 
had included neighbouring regions and had used 320 regions covering each one at 
least  thirty  thousand  risks.  It had  informally  asked  the  Commission's  services 
whether  it  could  further  group  the  320  pure  premiums  resulting  from  this  first 
classification  into  ten  overall  regional  classes.  At  the  end  of  1995,  the 
Commission's  services  answered  in  the  negative,  commenting  that  this  second 
grouping exceeded the  limits  laid down by Article 2a) of the  Regulation.  Indeed, 
the  number  sufficient  to  constitute  "the  population  which  can  be  handled 
statistically"  within  the  meaning  of this  provision  had  been  reached  with  the 
reduction to 320 regions.  It was therefore for the individual  insurers to reduce this 
number still  further and to  make their own wider classes. 

9.  The case  involving  the  Belgian professional  association  of insurance  companies 
(UPEA)  had  been  communicated  to  the  Commission's  services  by  the  Belgian 
consumers'  association  Test  A chats.  It  had  complained,  inter  alia,  about  a 
recommendation  from  UPEA aiming  to  establish  a  minimum  pure  premium  for 
the  coverage  of hospital  expenses  in  the  case  of group  contracts.  There  was  a 
uniform  premium  for  contracts  with  groups  containing  up  to  10  members  and 
reductions for contracts with larger groups. There was nothing to indicate that this 
recommendation  was  based  on  statistical  data.  The  Commission's  services, 
consequently,  concluded  that  the  recommendation  was  not  in  conformity  with 
Title li and  they  informed  Test Achats and  UPEA.  The  matter was then pursued 
before national jurisdictions. The Commercial Court and then the Brussels Court 
of Appeal  both  followed  the  informal  standpoint  of the  Commission's services5. 
Currently, the case is being dealt with by the Supreme Court ( Cour de  Cassation). 

1 0.  The  other  case  involving  UPEA  involved  a  recommendation  concerning  the 
calculation of premiums  for  so-called  special  risks,  concerning  fire  coverage  for 
movable and immovable properties with a value above a certain amount, and thus 
in  particular  numerous  industrial  properties.  UPEA  had  already  notitied  this 
recommendation  in  1988,  well  before  the  entry  into  force  of the  Regulation. 

5 

Judgement of the  President of the  Tribunal de Commerce of Sept.  1,  1995,  upheld by  the Brussels 
Court of Appeals on  May'24,  1996. 

5 

Instead  of  recommending  an  average  pure  premium,  UPEA  encouraged  its 
members  to  increase  or  decrease  the  "basic commercial  premium".  that  is,  the 
basic  pure  premium  plus  the  administration  and  distribution  expenses  or  each 
individual  insurer.  Th~ choice  of this  base  already  placed  the  recommendation 
outside  the  scope  of the  Regulation.  Moreover,  each  aggravating  or  mitigating 
factor  was expressed as a percentage increase or reduction (typically  1 0%) which 
did  not  appear  to  be  founded  on  any  statistical  exercise  - a  further  reason  to 
conclude  that  the  recommendation  was  not  covered  by  the  Regulation.  This 
conclusion was  finally  corroborated by a declaration of UPEA itself according to 
which  the  premiums actually charged  by  the  insurers  were  generally  appreciably 
lower  than  those  which  would  result  from  the  application  of the  recommended 
tariff.  Having  regard  to  the  considerable  divergences  between  the  premiums 
charged by insurers, the Commission's services restricted themselves to informing 
UPEA  of the  incompatibility  of its  recommendation  with  Title  11  and  finally 
closed the case without further action. 

11.  Finally the Commission's services launched two "ex officio" (own initiative) cases 

to examine recommendations from ANIA. 

The  first  recommendation concerned the  application  by  insurers of surcharges to 
marine  cargo  insurance  premiums.  Since  these  surcharges  were  added  to  the 
(gross)  commercial  premiums,  the  recommendation of ANIA  resembled  the  one 
by  the  V dS  that  the  Commission  had  formally  condemned  in  1987  and  the 
Regulation  seemed  obviously  inapplicable  to  it.  Following  the  sending  of  a 
formal  statement  of objections,  ANIA  explained  at  the  oral  hearing  (and  then 
confirmed  in  writing)  that  the  surcharges  were  expressed  in  percentage  terms  of 
the  value  of the assets ensured (and not of the commercial premium) and that all 
these percentages had a statistical base.  Under these conditions, the Commission's 
services  decided  to  close  the  case  without  further  action  as  soon  as  ANIA  has 
furthermore  clarified  that  its  recommendation  is  purely  indicative  and  does  not 
commit its members at all (See Article 3a). 

In  1997,  the  Commission's  services  initiated  an  "own  initiative"  procedure  with 
the  aim  of checking if some other recommendations of ANIA really meet all  the 
conditions  for  application of Title  11  of Regulation  3932/92.  This  involves  inter 
alia recommendations or databases as  regards motor insurance (including general 
risks,  theft,  fire,  and  third  party  liability )6  .  This  procedure  again  confronts  the 
Commission's services with the  difficult task of checking the  compatibility of an 
agreement with Title 11.  The examination currently in hand aims to  check, on the 
one hand, if the data that each insurer has to provide to ANIA is limited to what is 
necessary to determine the average  frequency  of the  claims and the  average  cost 
of cover and, on the other hand, what effect the recommendation produces on the 
commercial premiums that insurers charge in practice. 

6  At  the  beginning of 1993,  ANIA  had certified that the  recommendation  on  various  car insurance 
risks (theft, fire) would be modified in the  light of the provisions of Title 11  of the Regulation. The 
Italian  competition  authority  (the  Autorita)  then  challenged  the  validity  under  Italian  competition 
law  of this  recommendation  as  well  as  of other  recommendations,  for  the  reason  that  it  led  the 
insurers to apply uniform  commercial  premiums.  The Autorita adopted a  prohibition  decision  and 
imposed a fine on  ANIA, but the latter obtained the annulment of the fine  first by the Latium court 
and then  by a decision of the Council of State. 

6 

C. Future prospects 

12.  The  legality  test  stated  in  Title  11  is  clear:  co-operation  as  regards  premium 
calculation has  to  remain within the  limits of what is  necessary to form groups of 
comparable  risks  in  sufficient number to  constitute a population capable of being 
handled  statisti-cally  (Article  2.a).  Each  insurer  must  have  free  choice  as  to  the 
setting-up of other groups.  It  will  make  its  choice on the  basis of criteria related 
to  statistical technique but also of other criteria related to its commercial policy. 

If the  legality  test  is  clear,  its  implementation  is  not  easy.  The  risk  grouping 
permitted  by  the  Regulation  is  a  technical  exercise  that  insurers  entrust  to 
actuaries and that  the  Commission's services are  not  in  a position to  analyse and 
to  evaluate  in  detail.  In  addition,  if they  started  such  an  effort,  the  Regulation 
would  lose  its  raison  d'etre,  namely  to  make  it possible to  insurers to  have their 
agreements  benefit  from  an  exemption  without  having  to  notify  them  to  the 
Commission. 

· 

The  Commission's  services  will  therefore  restrict  themselves  to  examtnmg 
whether  the  body  instructed  to  calculate  the  average  pure  premium  only  a) 
collects  from  insurers  the  data  necessary  from  a  statistical  point  of  view  to 
calculate  thispremium  and  b)  then  passes  on  to  them  only  this  aggregated  data 
(namely the  total  number of claims during the  period of observation and the total 
of the  payments made or due  in  respect of the claims which have occurred during 
this period). 

If they  experience  difficulties- in  checking  whether the  conditions  of application 
of Title  II  of the  Regulation  are  met,  the  Commission's  services  will  examine 
what  concrete  effect  the  co-operation  as  regards  calculation  of the  premiums 
produces on the  market in question.  If insurers depart from  the joint calculations 
of the  average  pure  premium  and/or  apply  different  commercial  premiums,  the 
Commission's services will have to evaluate the extent of the departure and/or the 
. differences  with  a  view  to  judging  if  the  agreement  in  question  restricts 
competition in an appreciable way.  If that is not the case, it will not be necessary 
to  intervene. 

11.  Standard policy conditions (Titre Ill) 

A.  General 

13.  Title  Ill  exempts  agreements  which  have  as  their  object  the  establishment  and 
distribution of standard policy conditions for direct insurance (Article 5-l) as  well 
as common models illustrating the profits to  be realised from  an insurance policy 
involving an element of capitalisation (Article 5-2). 

These  agreements  restrict  competition  insofar  as  they  tend  to  lead  to  uniform 
conditions  being  offered  by  insurers,  and  therefore  to  limit  customer  choice. 
However,  they  "have the  advantage  of improving the  comparability  of cover  for 

7 

the  consumer and  of allowing  risks  to  be  classified  more  uniformly"  (recital  7). 
As  full  standardisation  would  not  leave  customers  much  to  choose  from,  the 
exemption only applies to  standard conditions or common models which indicate 
explicitly  that  they  are  purely  illustrative,  i.e.  that  they  are  established  for 
guidance  only  (Article  6-1  and  6-2).  Furthermore,  insurers  are  not  allowed  to 
agree among themselves that the standardised policy conditions are  the only ones 
to be applied by them (Article 7-2). 

14.  Since the entry  into  force  of the  Regulation, the Commission's  services have  not 
had  to  handle  any  cases  related  to  common  models.  The  present  Report  will 
therefore focus on the scope of Articles 7 and 8 regarding policy conditions. 

15.  Article  7  contains  a  list of conditions  which insurers  cannot  agree  to  impose  on 
their customers.  These (under the  Regulation)  unexemptable  standard  conditions 
arc known as  « black clauses». By and large, they fall  into three categories. 

The  first  category comprises the  clauses  featuring  in Article 7-1  sub a to d.  These 
all  concern  the  extent  of the  cover.  Those  excluding  from  the  cover  certain  risks 
belonging to the class of insurance concerned (sub a),  making the cover of certain 
risks  subject  to  specific  conditions  (sub  b)  or  imposing  comprehensive  cover  for 
risks to  which a significant number of policyholders  ~s not simultaneously exposed 
(sub c)  are  unexemptable  unless  they  indicate that insurers remain free  to derogate  . 
from  them.  The  clause  sub d  indicating the  amount of the  cover or the  « excess » 
(i.e.  the  amount  not  covered)  is  «black»  under  all  circumstances  (i.e.  even  if 
insurers can derogate from it). 

A second set of clauses (sub e to  i) deals with the duration of the policy and aims at 
avoiding  insurers  creating  too  captive  a  customer  base.  Two  of these  clauses  arc 
nevertheless exemptable under the Regulation if their application is made subject to 
the express consent of the  policyholder (sub e and  f).  The others are  unexemptable 
without further qualification. 

/ 

The  third  series of clauses (sub j  and  k)  concerns forms of tying . One requires the 
policyholder to  obtain cover  from  the  same  insurer for  different  risks  whereas  the 
other one requires the person acquiring a risk from the policyholder to take over the 
latter's insurance policy. 

16.  Moreover,  according  to  Article  8,  the  block  exemption  does  not  apply  to 
agreements  whereby  insurers  undertake  to  exclude  cover  for  certain  risk 
categories because of the characteristics associated with the policyholder.  Article 
8  does,  however,  allow  them  to  establish  specific  insurance  conditions  for 
particular social or occupational categories of the population. 

B.  Practical experience 

1 7.  Many  notifications  made  prior  to  the  entry  into  force  of the  Regulation,  were 
subsequently  withdrawn  by  the  parties  because  they  considered  the  notified 
agreements  to  be  in  line  with  the  Regulation.  Some  other  notifications  were 
maintained  because  the  parties  saw  room  for  interpreting  the  provisions  of the 
Regulation,  especially  those  listing  the  « black»  clauses  and  sought  the 

8 

indeed 
that 
Commission's  services'  assurance 
t.:xemptable.  Occasionally.  the  Commission's services have  also  been called  upon 
to clarify the scope of Article 7 outside the  framework  of a formal  notification.  In 
one such instance,  it was an  informal complaint that prompted them  to  do  so  (sec 
below). 

the  notified  clauses  were 

18.  In  some  cases,  the  raison  d'etre  itself of Article  7-1  sub  a  has  been  called  into 
question  for  certain allegedly  « uninsurable»  risks . Insurers  submitted that  they 
should  be  allowed  to  exclude  by  common agreement  such  risks  from  any  cover. 
For  instance,  flood  risks  in  the  Netherlands,  in  particular  from  salty  water  (a 
substantial  part  of the  country  lies  below  sea  level),  are  said  to  be  uninsurable. 
The national organisation of insurers (VvV) had decided to  prevent insurers from 
offering  cover  for  flood  risks  (from  salty  as  well  as  from  fresh  water).  The 
Commission's  services  queried  why  there  was  any  need  for  such  a  decision  if 
insurers  considered  the  risks  to  be  uninsurable  anyway.  The  VvV  defended  the 
decision  by  emphasising  the  unique  situation  in  the  Netherlands.  In  some  other 
countries,  a number  of different  catastrophic  risks  (flood,  fire,  etc.)  are  incurred 
by  different  regions.  This  enables  the  government  to  impose  solidarity  on  the 
entire  population and  insurers to  offer a global  insurance  for  all  these  risks.  This 
was impossible in the Netherlands.  In this respect, the  VvV referred to the plan to 
have an insurance pool  for fresh water flood  risks in which the insurers as well  as  . 
the  government would take part.  The  Dutch State Council, however,  had blocked 
the  project  on  the  ground  that  it  was  unreasonable  to  have  six  million  fire 
insurance  policies  subsidise  the  200,000  policies  of households  really  incurring 
that risk.  Eventually, the VvV brought its binding decision in line with Article 7.1 
sub  a  by  simply  converting  it  into  a  non-binding  recommendation,  leaving  each 
insurer free to extend cover to flood risks. 

In  another  case,  a  common  agreement  to  exclude  war  risks  from  marine  hull 
insurance  was at stake.  This  was  not considered by  the  Commission's services  as 
contrary  to  Article  7~ 1 (a)  in  so  far  as  this  provision  only  aims  at  the  exclusion 
from  cover  of losses  « normally » relating  to  the  class  of insurance  concerned. 
The  term  «normally»,  however,  does  not  appear  in  all  language  versions.  This 
issue will have.to addressed when the Regulation expires. 

19.  The exact meaning of Article 7-1  (d)  has also  been discussed several  times.  As a 
matter of fact,  the only complaint which the  Commission's services have received 
in  connection  with  Title  Ill  concerned  this  provision.  The  (informal)  complaint 
was  lodged  by  Test  Achats,  a  Belgian  consumers'  organisation,  and  was  directed 
against inter alia the recommendation issued by UPEA concerning a standard cover 
and  the  above-mentioned  standard excess  for  hospitalisation  costs  (for the  aspects 
regarding  Title  11  see  above  paragraph  9).  UPEA  proposed  to  limit  the  cover  to 
twice  the  amount of the  costs  which the  insured could  recover  as  an  affiliate  of a 
basic  social  security  institution,  and to  set the  excess  at  10%  of that  cover (with a 
ceiling  of  20,000  BF).  The  Commission's  services  took  the  view  that  this 
recommendation violated Article7-1  sub d.7 

7  As  indicated above (paragraph 9), the matter was pursued further in  the national courts. 

9 

The formally notified German Gliedertaxe also raised an issue of interpretation with 
regard to Article 7-1  sub d.  As in the war risk case above, the interpretation problem 
is  due  to  a  lack  of concordance  between  the  various  language  versions  of this 
provision.  According  to  the  German text,  the  block  exemption  is  inapplicable  not 
only  if insurers  agree  on the  amount  of cover but also  if they  agree  on any  other 
indication ( « Angabe « ) related to cover. A  recommendation issued by the German 
association  of  insurers  (GDV)  regarding  general  accident  insurance  spells  out 
invalidity degrees for people who have lost a body part (e.g. limbs) or a sense organ. 
These  indications  have  an  impact  on  the  level  of cover  offered  by  the  insurers. 
While  declaring  Article  7-1 
the  Commission's  services 
sub  d  applicable, 
nevertheless  saw  enough  reason  for  issuing  a  comfort  letter  to  the  GDV  in 
September 1998. They were indeed unable to rebut the argument that the absence of 
unitonn invalidity degrees would lead to such a lack of market transparency that the 
insured  would  not  be  in  a  position  to  profit  from  competition  between· insurers. 
Moreover,  the  Commission's services  took  into  account the  fact  that  the  invalidity 
degrees  were  based  on  medical  experience  and  that  insurers  in  any  event  were 
allowed to derogate from the G/iedertaxe. 

In  1996,  the  standard  « 3/4ths  collision  liability » clause  in  marine  hull  insurance 
(which is essentially a property insurance) was also looked at under Article 7-1  sub 
d.  The  question  was  whether the  remaining  Y..  liability  had  to  be  considered  as  a 
uniform  excess  in  violation  of Article  7-1  sub  d.  However,  there  appeared  to  be 
separate cover for that remaining Y..  liability (offered either by the hull insurer or by 
P.  &  I.  Clubs).  In  other  words,  there  was  no  genuine  excess.  In  any  event,  the 
Commission's  services  obtained  from  the  Institute  of London  Underwriters  (ILU) 
and  the  Lloyd's  Underwriters'  Association  (LUA)  that  they  clarified  that  the  3/4 
liability clause was not a binding one. 

20.  Finally,  Article  7-1  sub  e  has  been  discussed  a  few  times.  The  Co.nu:nission's 
services  had  to  comment on  GDV  standard  policy  conditions  allowing  insurers  to 
maintain the policy in  the event that they increase the premium without changing the 
cover  (in  casu  car  insurance)  or  cancel  part  of the  cover  (in  casu  piracy  risk  in 
marine  insurance).  Such policy  conditions  are  unexemptable  under  the  Regulation 
unless  they  provide  for  the  express  consent  of the  policy  holder that the policy  be 
maintained.  In  both  cases,  the  Commission's  services  nevertheless  accepted  the 
standard policy  conditions in so far  as they provided for an adequate  notice period 
(requiring the policy holder to express his dissent) 

21.  Pursuant  to  Article  8,  the  Regulation  is  inapplicable  to  agreements  which  exclude 
the  coverage  of certain  risk  categories  because  of characteristics  pertaining  to  the 
policyholder.  A  standard  policy  clause  excluding  from  general  accident  insurance 
people who permanently require extensive care or who are' mentally ill  was declared 
contrary to  Article 8.  The fact  that the  exclusion would  occur only  some time after 
the conclusion of the insurance contract was considered irrelevant. 

C. Future prospects 

22.  As  some  of the  examples  commented  above  illustrate,  discordance  between  the 
different language versions of the Regulation has occasionally proved to be a source 
of  interpretation  problems.  This  Report  provides  the  Commission  with  an 

10 

opportunity to  invite  all  interested  parties  to  signal  other discordances  which  have 
led to a lack of clarity and to suggest ways to amend the current texts. 

23.  1\s  previously  mentioned,  three  standard  clauses  enumerated  in  Article  7-1  arc 
considered to  be  unexcmptable  under the  Regulation  unless  they  indicate  that each 
individual  insurer  remains  free  to  derogate  from  them.  This  is  the  case  for  the 
clauses  set  forth  in  Article  7-1  sub  (a)  to  (c).  The  rationale  for  this  qualification 
needs to be revisited. 

First of all, Article 6-1  already provides that the Regulation only applies to « white » 
clauses, if« they are established and distributed with an explicit statement that they 
arc  purely  illustrative», i.e.  only  if they  leave each  insurer the  freedom  to  derogate 
from  them. The qualification added in Article 7-1  sub a to c therefore in effect blurs 
the  distinction  between  "white"  and  "black"  clauses.  Secondly,  whether  or  not 
particular standard  policy conditions contain an explicit statement that  insurers  are 
not bound by them, what matters is whether these conditions constitute the « faithful 
reflection»  of the  insurance  association's  resolve  to  co-ordinate the  conduct of its 
members  on  the  market8•  This  would  be  the  case  if  in  practice  insurers  all 
implement the association's recommendation.  Thirdly, Article 7-1  sub d and Art .8 
refer  simply  to  '«  black »  policy  conditions  (i.e.  even  if insurers  remain  free  to 
deviate from them). And yet, these conditions are generally not more harmful to the 
insured than those mentioned in Article 7-1  sub a to c. 

24.  As  we have seen,  the  Regulation  is  not applicable  to  agreements  whereby  insurers 
commit themselves individually not to  offer cover for certain risks (see  Article  7-1 
sub (a) and Article 8).  The question is whether this should still be the case if these 
insurers have decided to offer such cover in common by setting up a pool within the 
meaning  of Title  IV  and  if  that  pool  is  in  accordance  with  the  requirements 
contained therein (see below). 

Ill Common coverage of certain risks (Titre IV) 

A. General 

25.  Title  IV  concerns  agreements  whereby  insurers  set  up  eo-insurance  and  co 
reinsurance pools for the purpose of covering « an unspecified number of risks » 
(recital  1 0).  In  other  words,  it  only  concerns  institutionalised  pools  for  the 
common coverage of a specific category of risks (or « groups » in the parlance of 
the  Regulation),  not  pools  which  insurers  create  ad  hoc  in  order  to  cover  a 
specified risk. The latter do not create any competition concerns at all. 

26. 

On  the  other  hand,  the  current  Regulation  is  based  on  the  premise  that  any 
institutionalised  grouping  is  in  itself restrictive  of competition.  However,  a  pool 
can  benefit from  the  block exemption  if the  market  share of its  members (or that 
of the  grouping itself where catastrophic or aggravated  risks are concerned) does 
not exceed a certain threshold. 

8 

See ECJ judgement in  Verband der Sachversicherer, # 32- Case 45/85, ECR 1987, p. 405. 

11 

In  fact,  pursuant to Article  11-1, a pool  is exemptable under the  Regulation when 
the market share of its participating members does not exceed  I 0°/o  (in the case of 
eo-insurance) or 15% (in the case of co-reinsurance). The market share comprises 
the  members'  global  turnover  in  the  relevant  insurance  market,  irrespective  or 
whether they do their business through the  pool or independently.  In  this context, 
it  must  be  noted  that  the  requirement that  all  risks  be  brought  into  the  pool  (the 
so-called  obligation  d'apport)  is  considered  as  an  excessive,  unexemptable 
restriction of competition (recital 13). 

Article  11-2 specifies that the market share to be taken into account in the case of 
coverage  of  catastrophic  or  aggravated  risks  only  relates  to  « the  insurance 
products  brought  into  the  group»,  i.e.  the  members'  turnover made  through  the 
pool (subject to two conditions which are not repeated here). 

The correct application of Article  11  hinges on a proper definition of the relevant 
product and  geographic  market.  In  a  recent  Notice,  the  Commission  defines  the 
relevant market as comprising all products which exercise competitive constraints 
on  the  product  under  consideration9 .  It  identifies  the  three  main  constraints : 
demand substitutability, supply substitutability and potential market entry .  Since 
each  insurance  policy  is  unique,  and  therefore  demand  substitutability  is 
theoretically  zero,  supply  substitutability  is  particularly  important  in  insurance 
market definition.  As  for  potential competition, this  is not taken  into  account for 
the  market  definition  but  is  taken  into  account  at  a  later  stage,  to  evaluate  the 
position of the undertakings on this market (see Article 24 of the Notice) 

27.  The  other  provisions  of the  Regulation,  in  particular  Articles  10-3  and  10-4  as 
well  as  Article  12  and  Article  13  indicate  which restrictions  of their  freedom  of 
action  the  participants  in  the  pool  may  subscribe  to  without  the  pool  losing  the 
benefit  of  the  exemption  under  the  Regulation.  Some  of  these  restrictions 
appreciably  restrict  competition  between  the  participants :  e.g.  the  obligation  to 
use  identical  policy  conditions  and  premiums  (risk  premium  in  the  case  of co 
reinsurance, commercial premium in the case of eo-insurance) or the obligation to 
submit claim settlements to the pool  for approval. Nevertheless, these restrictions 
are  considered  to  be  inherent  to  a  pooling  agreement.  Hence,  they  do  not  raise 
competition concerns on condition that the market share thresholds  laid down  in 
Article 11  are not exceeded. 

B. Practical experience 

28. 

Since  the  entry  into  force  of the  Regulation,  the  Commission's  services  have 
developed their approach with regard to pools. Conceptually speaking, they apply 
a three-tier legality test to find out whether a pool falls within the scope of Article 
81- I  (ex-Article  85. I).  The  second  step of this  test  is  new,  in  the  sense  that  the 
Regulation does not explicitly provide for it. 

9 

O.J.  no  C.372 of09.12.1997. p.  5. 

12 

a)  The  first  question  is  whether  the  pool  (or  its  membership)  meets  the  market 
share test set forth in Article  11. One of the main difficulties encountered thus far 
is the adequate definition of one or more relevant product and geographic markets 
and.  subsequently, the accurate measurement of market shares.  This  is  due  to  the 
fact  that  the  insurance  sector organises  its  business  along  the  lines  of insurance 
risk branches (annex to the Commission's first  non-life directive' 0)  and that these 
branches do not necessarily correspond to the notion of a relevant product market. 
Another difficulty  is  that  a  pool  often  covers  catastrophic  or aggravated  risks  at 
the  same  time  as  normal  risks.  This  requires  an  examination  of the  pool  under 
Article  11-1  as  well  as under Article  11-2. 

b)  The second question only arises if the  pool does not (or not entirely) meet the 
criteria of Article  11,  in  particular  if it  exceeds  the  thresholds.  This  question  is 
whether  such  a  pool  is  necessary  to  allow  its  members  to  operate  in  a  specific 
market.  In  all  areas  of insurance,  an  insurer  must,  in  order  to  be  present  on  a 
market  without  incurring  excessive  risk,  insure  a  sufficient  number  of risks  so 
that  the  risk profile of its  portfolio corresponds to  the  average  for  the  totality  of 
risks in the category. There therefore needs to be a strong probability that the real 
level  of claims  incurred  by  the  insurer  will  be  the  same as  the  average  level  of 
claims  of all  insurers.  This  strong  probability  can  only  be  obtained  above  a 
certain  number  of risks  covered  by  the  insurer.  This  is  called  the  minimum 
dimension.  Certain  catastrophic  risks  may  be  such  that  no  individual  insurer  is 
capable  of insuring  it  alone.  In  such  a  case,  the  pooling  of capacity  does  not 
restrict competition.  If anything,  the  pool  strengthens competition since it allows 
several  insurers  who are  unable alone to provide cover for the risk at hand to  put 
their  resources  in  common  and  create  a  new  competitor  for  the  benefit  of 
customers in  need of such cover.  It could be added  that even  for  non-catastrophic 
risks,  small  insurers  may  need  to  group  together  in  pools  in  order  to  attain  the 
necessary  minimum dimension.  In  any  event,  the  Commission will  consider that 
pools,  no  matter how high their market share  is,  are  not covered by  Article  81-1 
(ex-Article  85-1)  when  they  are  necessary  to  allow  their  members  to  provide  a 
type of insurance they could not provide alone. 

c)  If the  pool  is  not  necessary  for  coverage  of the  risks,  a  third  question  arises, 
namely whether or not pool  members are  under a  contractual  obligation to  bring 
all  or part of their insurance products into the pool.  If there is  such an obligation 
d'apport,  Article  81-1  (ex-Article  85-1) definitely  applies.  If there  is  no  such 
obligation,  Article  81-1  (ex-Article  85-1)  is  likely  to  apply  if the  participating 
members do not have an commercial interest in offering their products outside the 
pool (see §33  infine). 

29.  This new approach towards insurance pools (especially the second step regarding 
a  pool's  contribution  to  reaching  a  certain  minimum  dimension)  in  fact  gives  to 
Article  11  of the  Regulation  the  effect  in  practice  of a  de  minimis  rule.  It has 
already  been  applied  to  a  claim-sharing  arrangement  between  insurance  mutuals 
(the  equivalent  of a  pool  in  the  non-profit  insurance  sector).  In  the  P&l Clubs 
case  (Protection  and  Indemnity  insurance)  the  Commission  concluded  that  a 

10  Council  Directive no  73/239of 24  July  1973, concerning access to  the  activity  of direct  insurance 

other than non-life insurance, and to its exercise. OJ n°  L 228/3 of 16 August  1973. 

13 

claim-sharing agreement  between  mutuals covering 89o/o  of the  world  market  for 
maritime  contractual  and  third  party  liability  insurance  is  not  caught  by  Article 
X 1-1  (ex-Article 85-1) when  it  is  necessary to  allow  its  members to offer the  level 
of cover they  now offer ($US 4.25 billion).  An in-depth market enquiry involving 
the  main brokers and re-insurers operating in the P&l insurance market as well  as 
the  P&l  Clubs  themselves  had  indeed  revealed  that  no  entity  or group  with  less 
than  50%  of the  market  was  currently  able  to  offer  such  a  level  of cover.  The 
Commission also exempted the quotation procedures which prevented Clubs from 
undercutting each other's prices (expressed in so-called rates per ton). It did so by 
analogy with Article 13  of the Regulation which allows the setting of uniform risk 
premiums in co-reinsurance pools,  but not that of commercial premiums.  Indeed 
the  amended quotation procedures will  only  apply to  the  Clubs'  costs  which are 
related  to  the  insured  risks  (including - for  case-specific  practical  reasons - the 
retention  costs).  These  procedures  no  longer  apply  to  the  Clubs'  administrative 
costs.  For further  details,  this  Report  refers  to  the  recently  adopted  Commission 
decision. 

30.  Moreover,  in  September  1997.  the  Commission's  services  also  undertook  an 
enquiry into the market for aviation risk  insurance in order to  find  out whether the 
(notified  and  other)  pools  operating  in  the  Community  tell  within  the scope  of 
Article  81-1  (ex-Article  85-1 ).  This  enquiry  showed  that  for  most  risks  the 
relevant  geographic  market  is  international  because  the  customers  (e.g.  airline 
companies  owning a  large  fleet  of aircraft)  are  large  companies who  are able  to 
look  for  the  best  available  conditions  of insurance  around  the  world.  In  this 
market,  none of the  pools  holds a  share that even comes close to the ceilings set 
forth  in  Article  11  of the  Regulation.  Therefore,  none of these pools appreciably 
restricts competition within the meaning of Article  81-1  (ex-Article  85-1) in this 
market  (see  first  step  of the  approach).  In  contrast,  for  small,  non-catastrophic 
risks (which represent low insured values in relation to the other aviation risks of 
the  same  branch),  a  national  market appears  to  exist.  Customers  include  smaller 
aircraft owners,  flying  clubs or parachutist clubs who have  limited opportunities 
of looking  for  better  insurance  conditions  abroad.  In  these  national  markets,  the 
pools  hold  a  market  ~hare which  exceeds  by  far  the  Article 11  thresholds  (first 
step).  Moreover.  they  do  not  seem  to  be  necessary  for  the  coverage  of the  risks 
(second  step).  However,  the  Commission's  services  decided  not  examine  this 
question  further.  Their  market  enquiry  had  indeed  shown  that  the  coverage  of 
these small risks accounted for a  very  minor share of world-wide turnover.  Under 
those circumstances, the Commission's services concluded early in  1999 that there 
was  no  sufficient  Community  interest  to  find  possible  infringements  of the  EC 
Treaty's  competition  rules  and 
investigation  by  , sending 
administrative  comfort  letters  to  the  insurers  who  had  notified  their  aviation 
pools. These letters included a caveat in relation to the national markets, pointing 
out  that  national  authorities  could  intervene  against ·the  pool's  anti-competitive 
structure  or  anti-competitive  behaviour  by  its  members  if they  considered  it 
appropriate.  In two  cases,  there  appeared to  be no  need any  more  for  a  comfort 
letter because, since the notification, the parties had decided to either dissolve the 
pool (Italy) or transform it into a company which would offer aviation risk cover 
in  its  own  name  (Netherlands).  For  reasons  of  proper  administration,  the 
Commission's services also informed in writing the insurers who had not notified 

terminated 

the 

14 

their pools but had also been subject to  the  market enquiry of the  outcome of the 
enquiry. 

31.  Some further points concerning the Commission's practical experience with pools 

need to  be made. 

Firstly,  it  might  happen  that  insurers  consider  a  grouping  as  necessary  at  one 
time,  but not  thereafter.  This might be  because after  some time the  insurers gain 
the  minimal  capacity  or expertise  to  insure  these  risks  alone.  It  is  also  possible 
that the size or nature of the  risks covered by the pool changes in such a way that 
the  pool  members  can  insure  them  alone.  The  Dutch  Jnvaliditeitscentra/e  (IVC) 
co-reinsurance· pool  for  disability  risks,  which  was  set  up  in  1955,  provides  a 
telling example. Initially, insurers operated all their business through the pool and 
were  unwilling  to  provide  cover alone  because  they  had  insufficient  experience 
with  such  risks.  The  IVC  pool  was  the  major  market  player  in  the  Netherlands. 
But as  time passed  by,  insurers  acquired  more  experience and  began  to  compete 
among  each other.  In  1983,  the  pool's share  had  already  come down to  25%.  In 
1993,  it had dropped to even less than  5o/o  and  in  1994  insurers decided to  bring 
no  new insurance policies into the  pool.  The  pool  only  remained in existence  for 
the  settling of existing policies.  The pool  will  fade  away as  insured parties reach 
retirement  age  or  die.  In  this  case,  the  block  exemption  Regulation  could  not 
apply,  given  that  the  participants  in  the  grouping  together  held  a  market  share 
which  was  distinctly  over the  threshold  of 15o/o  laid  down  in  Article  11-1.  The 
Commission's  services  nevertheless  sent  an  administrative  comfort  letter  under 
Article  81-3  (ex-Article  85-3).  They  observed  in  particular that the  risk  that  the 
participants  would  co-ordinate  their  competitive  behaviour outside  the  grouping 
(the risk of "spillover") could clearly be ruled out without further market analysis, 
given the completely negligible market share of the grouping itself. Obviously, in 
other  cases  where  the  pool  proves  to  be  no  longer  necessary  but  still  holds  a 
substantial  market  share,  the  outcome  will  be  different.  For instance,  in  the  P&l 
Clubs  case  (see  above),  the  Commission  has  reserved  the  right  to  withdraw  the 
exemption  which  it  has  granted  to  the  quotation  procedure  (see  above  §29). 
should  the  claims-sharing  arrangement  at  some  point  in  time  no  longer  be 
necessary for  its members to offer the  level of cover they then offer. 

Secondly,  in  some  pools  cases,  the  Commission's  services  have  issued  comfort 
letters on the ground that the global  turnover generated by  the pool  was so  small 
that  a  further  examination  was  not  warranted.  The  turnover  figures  in  question 
were clearly well below those allowed for SMEs in the Commission's de  minimis 
notice 11.  Some  Dutch  pools  covering  professional  risks  (notaries,  real  estate 
agents,  etc.)  have  benefited  from  this  pragmatic  approach.  In  some  other  cases, 
the  insignificant  level  of the  turnover  led  the  Commission's  services  to  clear  the 
case  for  lack  of effect  on  interstate  trade  (see  e.g.  Dutch  pool  for  caravan  fire 
insurance) or to close the case without formalising the finding of an infringement 
within  the  meaning  of Article  81-1  (ex-Article  85-1)  (see  German  car insurance 

11  However,  although  this  notice  could  not  be  relied  on  as  such  because  the  insurance  companies 
participating  in  the  pool  cannot be considered  as  small  or medium  sized  undertakings  within  the 
meaning of that notice. 

15 

pool  for  third  country  owners  of  cars  who  do  not  show  adequate  liability 
insurance at the border). 

Thirdly,  in  some cases, the  Commission's services have applied straightforwardly 
the  "de  minimis"  rule  contained  in  Article  11,  thereby  defining  the  relevant 
product  or  geographic  market  in  a  broad  way  (e.g.  an  Austrian  pool  for 
international  transport  risks  which  appeared  to  obtain  around  a  third  of  its 
turnover  from  customers  abroad  was  considered  to  operate  on  a  geographic 
market  which was  wider than Austria,  the market share of another Austrian pool 
dealing  with  the  insurance  of  Volkswagen-type  cars  was  determined  with 
reference to  the  wider product market for car insurance, an Italian pool  providing 
entrepreneurs  or  contractors  with  insurance  against  late  delivery  of their  work 
was  considered  to  operate  in  competition  with  financial  institutions  providing 
such companies a bank guarantee against the same event). 

C. Perspectives for the future 

32.  The  Commission's  services  have  just  launched  their  investigation  into  eo 
insurance  or co-reinsurance  pools  dealing  with  environmental  risks  and  nuclear 
risks.  Several  of those  pools  have  been  notified  (the  French environmental  pool 
Assurpol was actually granted an exemption in  1991. This exemption expired last 
year 12).  All  these  pools  will  be  assessed  in  light  of the  three  tier  legality  test 
spelled out above (§28). 

33.  A  number  of  further  points  concerning  the  future  application  of  the  Block 

Exemption to pools can be made. 

Firstly, the Commission recognises that for certain highly atypical risks(satellites 
and  spacecraft,  for  example),  it  may  not  be  possible  to  determine  with  any 
certainty  the  minimum  portfolio  necessary  for  entry  to  the  market,  and  as  a 
consequence,  the  necessity  or  otherwise  of the  pool  for  its  members  cannot 
accurately  be  evaluated.  In  such cases the Commission intends to  give the benefit 
of the  doubt  to  the  pool  and  clear it,  unless  any  other specific  factors  preclude  a 
clearance. 

Secondly,  it is  possible that a pool  whose  members differ greatly  in size  may  be 
necessary  for  some  members  but  not  for  others,  who  could  be  present  on  the 
market  without  recourse  to  the  pool.  In  such  cases,  the  Commission  does  not 
intend  to  break  up  a  pool  if that deprives  the  former  totally  of the  chance to  be 
present on the market. However, if the size of the pool is so large that it could be 
replaced  by  two  or more  pools  in  competition  with  each other,  the  Commission 
will insist that it reorganise itself in such a way. 

Thirdly,  the  Commission  is  aware  of the  fact  that  insurers  may  set  up  eo 
insurance or co-reinsurance pools for  reasons other than to  create for themselves 
the  possibility  to  operate  in  a  specific  market.  The  pool  may  be  created  as·  a 
vehicle  to  permit  cross-subsidisation  between  different  types  of risks,  to jointly 
purchase  reinsurance,  to  increase  the  technical  capacity  of its  members  or  to 

12  0.1. n° L 37 of 14.02.1992, p.  16. 

16 

~;impli(y  the  administration  of the  insurance  of different  risks.  At  this  stage  or 
their analysis,  the  ( ~ommission's services  take  the  view  however that  insurers  can 
achieve  these objectives without having to  pool  their business,  in other words  by 
devising alternative methods which are  less  restrictive of competition (see  §28  in 
fine). 

IV. Safety equipment (Title V) 

A.  General information 

34.  Title  V  allows  insurers  to  fix  by  mutual  agreement  a)  technical  specifications 
to  safety  equipment  and  procedures  to  check  if  this  equipment 
relating 
corresponds  to  these  specifications  (Article  14  first  indent)  and  b)  conditions  of 
approval  for  fitters  or  repairers  and  procedures  making  it  possible  to  assess 
whether they  meet these conditions (Article  14  second indent).  This co-operation 
enables  insurers to  evaluate better the  risks that they  cover and to calculate more 
precisely the  premiums that they  receive.  It  also encourages the  manufacturers of 
safety  systems  to  improve  them  and  theref(lre  to  minimise  the  insured  risks.  In 
theory,  the  person  insured  benefits  from  this  because  if he  buys  powerful  safety 
equipment, his risk decreases and his insurance premium falls. 

35.  As  regards  the  technical  specifications  relating 

to  safety  equipment,  the 
Regulation  is  in  line  with  the  Commission's  new  approach  on  technical 
harmonisation  and  standardisation  and  as  regards  the  approach  on  certification 
and tests.I3  This policy advocates a harmonisation process based on the one hand 
on  legislation  laying  down  essential  requirements,  and  on the  other on work  by 
involving  all  market 
recognised  European  standardisation  organisations, 
operators.  Accordingly,  Article  14 
technical 
to 
specifications  "which  are  intended  to  become  European standards"  (See  also 
recital  16).  The  words  "in particular"  show however that technical  specifications 
established  by  insurers  (or  their  associations)  on  a  national  scale  (and  therefore 
lacking  a  European  vocation)  are  also  exemptable  under  the  Regulation  on 
condition  (inter  alia)  that  they  "are  technically  justified  "  (Article  15  sub  a). 
the 
Specifications  must 
performance  level  obtained  (Article  15  sub  e).  Article  15  thus  subjects  the 
exemptability  of  these  specifications  to  "Cassis  de  Dijon"  conditions  of 
legality applicable to  State measures  resulting  in restriction of free  movement of 
goods within the meaning of Article 28 (ex-Article 30) of the treaty. 

include  classification  according 

refers  " in  particular " 

in  particular 

to 

36.  Regarding  the  rules  of approval  of fitters  and  repairers,  Article  14  includes  no 
reference to  a  European vocation. It is enough that these  rules be  "objective~', be 
applied in a non-discriminatory fashion to the undertakings involved, and concern 
" the professional qualifications of these companies " (Article 15  sub b). 

B.  Practical experience 

13  See  Council  Resolution  of  7  May  1985  (OJ  C.l36/l  of 4  June  1985),  Communication  of the 
Corn mission of 15  June  1989 (OJ  C.267 /3  of 19  October  1989) and  Directive 98/34 of Parliament 
and ofthe Council of22 June  1998 (OJ  C.204/37 of21  July  1998). 

17 

J7.  The Commission's services have only  had  to  examine a few  cases  involving Title 
V.  Apart  from  a  number  of  informal  complaints  relating  to  alarm  systems  in 
motor  vehicles,  they  received  some  notifications  from  national  associations  of 
insurers  r~lating  to  safety  equipment  to  combat  burglary.  In  addition,  the 
European  Insurance  Committee  (EIC)  informed  the  Commission's  services  of 
some  isolated  initiatives  for  the  sector  aiming- to  set  up  systems  "with  a 
European  vocation"  (fire-fighting systems, common minimum rules for  approval 
of fitters).  It  pointed out that on the  other hand,  in the  field  of anti-theft  or anti 
intrusion alarms, few European standards have so far been established. 

38.  In their assessment of the  systems in question,  the Commissionts services make a 
distinction  between two  situations.  Either the  Community  legislator has  adopted 
harmonisation  directives  in  the  field  concerned.  That  is  the  case  for  motor 
vehicles, for which an EC  approval procedure exists, and for the warning systems 
installed  in  these  vehicles,  for  which  optional  harmonisation  rules  are  also  in 
force 14•  Or  no  harmonisation  has  taken  place.  This  is  the  case  for  other  safety 
equipment.  The  "low  tension"  and  "electromagnetic compatibility"  Directives 
only  in  fact  cover  some  aspects  of this  kind  of equipment.  In  the  absence  of 
harmonisation,  member  States  are  nevertheless  obliged  to  notify  their  draft 
national  technical  rules  to  the  Commission  and  to  other  member  States t s.  It 
cannot  but  be  admitted  that  the  voluntary  harmonisation  work  by  recognised 
European standardisation bodies (in particular the technical  committee TC  79  of 
Cenelec)  has  hardly  progressed,  owing  to  specific  national  regulations  and 
specifications. 

3 9.  In the first situation (e.g.  vehicle alarm systems), the Directives in question aim at 
an  optional harmonisation:  while  permitting  the  Member  States  to  enact  stricter 
rules  for  equipment  manufactured  on  the  national  territory,  they  forbid  them  to 
oppose  the  marketing  of imported equipment  if it respects  the  provisions  of the 
directives.  It follows  mutatis mutandis that  Article  81  (ex-Article 85)  forbids  the 
insurers'  national  as·sociations  to  issue  recommendations  obstructing  freedom  of 
movement of equipment which conforms to the harmonisation directives.  Indeed, 
what  the  official  authorities  of a  Member  State  are  not  permitted  to  do,  private 
companies cannot do eithcrt6. 

14  See  for  the  warning  systems  Council  Directive  n°74/61,  OJ  N°  L42  of 23  February  1970,  as 

codified by Commission Directive n°95/56, OJ L286 of29 November 1995. 

15  See  Parliament and Council  Directive 98/34, OJ n°  L 204  of 21  July  1998, which  codifies Council 
Directive  83/189,  OJ  L109 of26 April  1983,  which  provides for  an  information  procedure  in  the 
field oftechriical standards and regulation. 

16  See  Reply  to  the  parliamentary question  N°  E-0021/98  of Mr  von  Wogau  :« ...  Council  directive 
74/61,  as  last  amended  by  Commission  directive  95/56  ( ... )  provides  for  harmonised  technical 
requirements  concerning  vehicles  fitted  with  alarm  systems  and  the  alarm  systems  intended  for 
such  vehicles.  Therefore,  since  1  January  1997,  Member  States  may  not  refuse  to  grant 
Community-type  approval  to  vehicles  thus  equipped,  or  those  alarm  systems.  The  insurance 
companies are also required to comply». 

18 

For example,  if the  directive  lays  down  a  determined  colour  for  cabling  wires or 
warning systems,  insurers could  not oppose the  marketing of equipment of which 
the  wires  have  the  colour  laid  down  by  the  directive.  More  generally,  nor  could 
they  submit  equipment  accompanied  by  an  certificate  of conformity  within  the 
meaning of the directive, to  a (additional) national  evaluation procedure to  check 
if this  equipment  respects  the  national  technical  specifications.  The  infringement 
of the  competition  rules  would  be  all  the  more  patent  if the  insurers'  association 
applied  a  different  treatment  to  alarm  systems  installed  as  standard  in  different 
makes of vehicles. 

40.  In  the  second  situation  (e.g.  anti-theft  or  anti-burglary  security  systems),  it  is 
that  one  cannot  rule  out  a  priori  that 
worth  noting  as  a  preliminary 
recommendations  emanating  from  national  associations  of insurers  establishing 
technical  specifications  are  subject to  the  provisions  of the  directive  envisaging 
an  information  procedure  in  the  field  of technical  standards  and  regulations 17. 
Regarding the conditions for  application of Article  81  (ex-Article  85),  it follows 
from  Article  15  of the Regulation that these have to be linked to those relating to 
the  application  of  Article  28  (ex-Article  30)  (free  movement  of  goods)  and 
Articles 43  (ex-Article 52) and 49 (ex-Article 59) (free movement of persons and 
of  services).  Unless  there  is  objective  justification,  insurers  established  in  a 
Member State have to respect the principle of mutual recognition. They could not 
therefore place obstacles in the way of the  marketing of safety equipment legally 
manufactured and marketed in another Member State, or the activities of fitters or 
repairers  whose  professional  qualifications  were  recognised  in  another  Member 
State.  That means that,  when this equipment or fitters/repairers have already  been 
the subject of evaluation procedures in the Member State of origin, they could not 
be subject to such additional procedures in the host Member State. 

to 

test 

the  performance  of  the  safety  equipment 

In  the  context  of its  notification  of a  recommendation  concerning  anti-burglary 
safety  equipment  for  buildings,  SKAFOR  (the  Danish  insurers'  association) 
subscribed  to  this  principle  of  mutual  recognition.  It  nevertheless  asked  the 
Commission's  services  to  permit  it  to  apply  an  " intelligent "  method  making  it 
possible 
in  question 
(manufactured in  Denmark or coming from  another Member State.). This method 
would  apply  both  to  mechanical  equipment  (e.g.  a  metal  grid  behind  the  front 
door  of a  building)  and  to  electronic  warning  systems.  Instead  of testing  the 
degree  of resistance  of this  equipment  against  various  forms  of violence,  the 
"intelligent"  method  aims  to  check  to  what  extent  this  equipment  can  be 
overcome by the burglar. The Commission's services considered that this method 
technical 
is  acceptable.  Article  15( e)  enables 
specifications  which  include  "classification  according  to  the  performance  level 
obtained".  But  the  "intelligent"  method  has  the  aim  of measuring  in  a  more 
appropriate  way  the  level  of  performance  of  the  various  safety · equipment. 
Moreover,  SKAFOR committed itself to entrusting a new independent body with 
the  task  of testing,  according  to  this  method,  how  well  the  equipment  resists 
disactivation.  Under these conditions, the Commission's services have just closed 
the case by administrative letter. 

to  establish 

insurers 

the 

17  Cit.  Note  15. 

19 

C. Future prospects 

41.  As  the  reference  of Article  14,  first  indent,  to  " European standards"  indicates, 
Title  V  not  only  permits  insurers  to  agree  on  specifications,  provided  that  these 
do  not obstruct  the  integration of national  markets,  but  also  encourages them  to 
provide  a  Community  basis  for  genuine  European  standards  which  contribute 
actively to  this  integration.  In this  respect,  the  experiment was disappointing.  In 
fact,  to  the  knowledge  of the  Commission's  services,  up  till  now  no  document 
originating  from  associations  of  insurers  has  formed  a  basis  for  European 
standardisation  work.  Any  revision  of  Title  V  of  the  Regulation  should  go 
together  with  reflection  on  the  application  of the  Community  approach  in  the 
field of technical  harmonisation based on European standards.  In order to create a 
real common market, the Commission is thinking of asking European bodies, in a 
well  defined  framework,  to work out European standards in collaboration with all 
interested parties. 

SECOND PART 

CATEGORIES OF AGREEMENTS NOT CONCERNED 

BY THE REGULATION 

I. Settlement of claims 

A.  General information 

42.  As  regards  claims  settlement,  agreements  between  insurers  typically  cover  two 
aspects.  These  two  aspects  can  be  presented  separately  or  together.  The  first 
aspect  concerns  direct  compensation  for  the  person  insured.  Such  an  agreement 
will  enable the  persons insured to address themselves directly to their own insurer 
with  a  view  to  being  compensated  without  having  to  await  the  outcome  of any 
legal proceedings to establish responsibility. The advantage of such an agreement 
consists in the speed with which the claim is  settled.  The second aspect concerns 
the  allocation  between  insurers  of compensation  costs;  this  allocation  can  be 
determined on a flat-rate basis or according to a scale of the responsibilities of the 
persons  insured.  An· agreement  of this  type  enables  the  insurers  to  reduce  their 
overheads, which should in theory be reflected in the level of the premiums. 

B. Practical experience 

43.  At  the  time  of the  adoption  of the  Regulation,  the  Commission  had  not  gained 
sufficient experience to  include  claim  settlements  agreements  in the  Regulation. 
Six  years  later,  the  experience  has  hardly  become  richer.  The  Commission's 
services  have  had  to  examine  some  notified  agreements  concerning  the  direct 
compensation of persons  insured,  or the  allocation  between  insurers  of the  costs 
of this  compensation,  or a  combination  of these  two  aspects.  In  all  these  cases, 
they  were  able  to  send  an  administrative  letter t9  the  notifying  parts  confirming 
that the agreements did not raise any problem from the point of view of Article 81 
(ex-Article 85). 

20 

44.  lt should  be  stressed that the  scope of these agreements was always  limited.  They 
concerned  claims  giving  rise  to  relatively  limited  compensation.  Thus,  an 
agreement  by  which  insurers  had  agreed  each  to  pay  50°/o  of  the  payments 
resulting  from  a  collision  between  ships  flying  ditTerent  flags  on  inland 
waterways in the Netherlands (without determining responsibility), was limited to 
compensation  claims  not  exceeding  ten  thousand  Swiss  francs.  The  scope  of a 
Spanish agreement covering at the same time the principle of flat-rate distribution 
of compensation  costs  between  insurers  and  that  of direct  compensation  of the 
persons  insured  in the  field  of car third party  liability  insurance was for  its part, 
limited  to  maximum  claims  of one  million  pesetas.  The  Commission's  services 
considered that the advantages resulting from these settlement agreements, which 
cover claims for which the financial  stake is limited (speed of settlement, savings 
on  overheads) made up  for the  possible disadvantages (a certain degree of cross 
subsidisation  between  the  premiums  paid  by  the  persons  insured  not  assuming 
any  responsibility  and 
incurred 
responsibility). 

those  due  by 

insured  who 

the  persons 

45.  More  recently,  the  Commission's  services  - for  the  first  time  - received  a 
complaint  concerning  a  claim  settlement  agreement.  The  complainants  advance 
that  the  agreement  leads  to  an  unjust  increase  in  their  premium  and  to  a 
phenomenon of unjust  cross  subsidy  between  persons  insured.  The  examination 
of this complaint is in hand. 

C.  Future prospects 

46.  In  view of the  relatively  new  character  of the  complaint  of negative  effects  on 
persons  insured of agreements on the  settlement of claims,  the  Commission will 
have to  examine fully  the  above-mentioned complaint and,  if necessary,  of other 
cases  which  might  be  brought  to  its  attention,  before  being  able  to  envisage 
extending the scope of the Regulation to this category of agreements. 

; 

j 
f 

l 
\ 

\ i 
l I 

21 

I I.  Registers of and information systems on aggravated risks 

A. General information 

4 7.  Agreements on  keeping  registers  or exchanging  information on aggravated  risks 
have  the  aim  of making  it  possible  for  insurers  to  know  better the  nature  of the 
risks  to  be  insured.  They  are  in  particular used  for  motor  insurance,  where  such 
registers  or  specific  information  mechanisms  allow~ for  example,  to  know  the 
history of -"bad"  drivers or "bad" payers or to account for stolen cars. 

These  agreements  do  not  fall  normally  within  Article  81-1  (ex-Article  85-1)  if 
they  restrict  themselves  to  giving  information  on  aggravated  risks.  This 
evaluation  is  without  prejudice  to  measures  applicable  for  the  protection  of 
personal  data.  In  any  case,  a  simple  exchange  of information  on  the  nature  of a 
risk does  not appear to  have the  aim  of restricting competition between  insurers. 
lt is  different  if the  exchange  of information  is  accompanied  by  an  agreement 
aiming  to  adopt  a  common  attitude  with  regard  to  the  risks  in  question.  For 
example, recommendations to refuse to  cover the  aggravated risks  in question or 
to  raise  the  risk  premiums  for  these  risks  (whether  it  is  the  simple  principle  of 
such  an  increase  or  of a  percentage  or  fixed  amount  of increase)  fall  clearly 
within  the  scope of Article  81-1  (ex-Article  85-1) and  do  not appear exemptable 
under the  terms of Article  81-3  (ex-Article  85-3) (See.  already Title  Il  and  Ill  of 
the  Regulation). 

B.  Practical experience 

48.  Since  the  entry  into  force  of the  Regulation,  the  Commission  has  only  been 
. notified  of three  agreements  on  keeping  registers  or  exchanging  information  on 
aggravated  risks.  In  only  one  case  (in  Spain),  the  Commission's  services  had  to 
insist  on  the  abolition  of a  clause  going  beyond  the  legitimate  object  of these 
agreements. This clause compelled insurers to  impose a minimum supplement on 
the  premiums  of "bad"  drivers.  In  the  three  cases,  the  Commission's  services 
declared  Article  81-1  (ex-Article  85-1)  inapplicable,  by  administrative  comfort 
letter.  They  specified  that  this  conclusion  was  without  prejudice  to  measures 
applicable for the protection of personal data. 

More complex  is  the question  if it  would  be  appropriate to  intervene with regard 
to  agreements  aiming  to  establish  registers  of  bad  risks  if  these  would 
systematically  lead  insurers  to  refuse  to  cover  those  risks.  In  the  absence  of a 
formal  commitment of the  insurers to  do  this or of a recommendation from  their 
association  aiming  to  encourage  them  no  longer  to  insure  these  risks,  Article 
7.1(a)  of Title  Ill  (prohibiting  any  clause  which  excludes  damage  involving  the 
risk  branch  concerned  from  the  cover)  would  not  apply.  In  any  event,  the 
Commission's  services  do  not  have  for  the  moment  evidence  suggesting  that 
insurers carry o~t such parallel behaviour 

C. Future prospects 

22 

49.  Agreements  limited  to  keeping  registers  and  to  exchanging  information  on 
aggravated  risks  not  appearing  likely,  apart  from  exceptional  cases,  to  fall  under 
the  scope  of Article  81  (ex-Article  85).  Agreements  going  further  will  in  theory 
have  to  be  assessed  with  respect  to  Titles  II  and  Ill  of the  Regulation.  The 
Commission  does  not  think,  at  this  stage  of its  experience,  that  it  is  timely  to 
adopt in this connection a block exemption mechanism. 

C<>NCLUSION 

50.  The  Regulation  applies  to  two  types  of  agreements  concerning  compet1t10n 
parameters which, at the  time of the adoption of the  Regulation,  had just been  the 
su~jcct of deregulation  at  the  Community  level,  namely  premiums  and  policy 
conditions.  The  obje.ctive  of the  Regulation  was  to  accompany  this  process  of 
deregulation  and  to  ensure  that  the  newly-created  competition  would  not  be 
restricted  by  self-regulation initiatives exceeding the  limits of what was justified 
by the characteristics of the insurance sector. 

The  question  is  whether  the  Regulation  has  achieved  this  objective.  Experience 
shows that the implementation of Title II  concerning the calculation of premiums 
is  not  easy.  Owing  to  the  technicality  of the  matter,  the Commission's  services 
have  difficulties  in  checking  whether  or  not  co-operation  as  regards  risk 
premiums  is  compatible  with  the  Regulation.  However,  in  the  few  cases  where 
they  collected data concerning the  (gross)  commercial  premiums charged  by the 
insurers,  the  Commission's  services  were  reassured  by  the  range  of  these 
premiums.  With regard to policy conditions (Title Ill), the experience emphasises 
a different type of application problem.  Among the so-called "black"  clauses,  the 
most  harmful  for  competition,  there  are  several  which  become,  under  the  very 
terms of Article 7,  cxcmptablc since their authors declare that they do not commit 
Insurers. 

51.  The  examination  of joint  eo-insurance  or  co-reinsurance  groupings  ("pools") 
under Title IV of the Regulation will remain a priority. The economic approach to 
be  followed  has been determined (see paragraph 28) and already applied to pools 
covering aviation risks.  It will  be necessary  to  modify  the  provisions of Title  IV 
in  the  light of this approach and  its  application to  the  families  of pools currently 
notified to the Commission. 

Each stage of the economic approach in question raises a question for  which the 
answer depends  on the actual  facts.  The question if the pool benefits from the de 
minimis  rule  of Article  11  of the  Regulation  depends  on  the  definition  of the 
market concerned (first  stage).  The question of checking if the  pool  is  necessary 
for  the coverage of the risk depends on the minimum size (second stage).  And the 
question  concerning  the  restrictive  character  of a  pool  for  which there  is  not  a 
ohliKalion d'apporl  requires  that  one examines up  to  what  point  insurers  have  an 
economic interest in  providing cover outside the pool  (third stage). 

52.  The agreements  involving Title V  (safety equipment) as well as those  mentioned 
in  the  Council's  empowering  Regulation  (claims  settlement  and  registers  of bad 

23 

risks)  have  not  so  J~tr  occupied  a  leading  place  in  the  administrative  practice  of 
the Commission.  lt will  act only  in  the event of complaints and then solely  insolltr 
as  the  jurisdictions  or  national  competition  authorities  arc  not  ocllcr  placed  to 
examine them. 

53.  This  Report  gives  the  Commission  an  opportunity  not  only  to  inform  interested 
authorities  and  undertakings  of the  way  in which  its  services  have  implemented 
the  Regulation,  but  also  to  collect  facts,  comments  and  suggestions  for 
improvements  from  these  authorities  and  undertakings.  In  this  respect,  if 
necessary, a hearing could be envisaged. 

24