leading to longer adoption procedures and lower quality specifications to the detriment of consumers and insurers.

Transcription

1 Position Paper CEA comments on the EC draft horizontal guidelines CEA reference: SMC-COMP ID Number: Related CEA documents: Contact person: Pages: Date: 25 June CEA position on the draft IBER, 30 November 2009 (SMC-COMP ) William Vidonja, Head of Single Market and Social Affairs 9 Executive summary The CEA does not support replacing the cooperation agreements non-renewed in the 2010 Insurance Block Exemption Regulation (IBER), namely standard policy conditions (SPCs) and security devices, with guidelines. In contrast to the IBER, guidelines are not legally binding, and the resulting legal uncertainty would discourage insurers from continuing to cooperate in these areas. Should the Commission decide to address SPCs and security devices through the proposed horizontal Guidelines, the CEA would welcome clearer and more precise drafting. Only a high degree of clarity will help to avoid reduced or non-cooperation for reasons of prudence. The CEA suggests removing the proposed new condition of unrestricted and transparent participation in standard terms establishment. This additional requirement creates legal uncertainty and the fact that SPCs have to be made accessible to any interested parties is sufficient. Moreover, the CEA believes that SPCs have positive effects on competition, product choice and diversity, as well as innovation and not, as stated in the Guidelines, that they can give rise to restrictive effects on competition by limiting product choice and innovation. With regard to security devices, the CEA is concerned about the proposed new criteria compared to the 2003 IBER conditions. While appropriate security devices enable insurers to better assess the risk so as to calculate more precisely the premium they charge for a specific property, it is not correct, however, to assert, as proposed in the Guidelines, that standards aim to keep insurance premiums low. Furthermore, the new requirement that participation in standardsetting should be open to all and decisions taken on a consensus basis might be a source of conflict of interests, leading to longer adoption procedures and lower quality specifications to the detriment of consumers and insurers. Concerning information exchange, the CEA has serious concerns with the Guidelines approach that the more transparent a market is, the more it is likely to have a collusive outcome. Such an approach may have a negative impact on statistics and studies on the insurance market evolution, which are issued throughout the EU with a view to improve market transparency. Furthermore, the CEA suggests not differentiating between genuinely public information and information in the public domain. If the data exchanged leaves operators uninformed about their competitors future actions, then this behaviour has to be deemed lawful. CEA aisbl Square de Meeûs 29, B-1000, Brussels Tel: Fax: Reproduction in whole or in part of the content of this document and the communication thereof are made with the consent of the CEA, must be clearly attributed to the CEA and must include the date of the CEA document.

2 Introduction The European Commission is proposing to address the two cooperation fields not renewed in the Insurance Block Exemption Regulation (IBER) of 24 March 2010, namely security devices and standard policy conditions (SPCs) in its revised horizontal Guidelines. The draft Guidelines address security devices and SPCs in the section on standardisation agreements1, by way of two new, specific examples of legitimate cooperation on standards2 and standard terms3 in insurance. In addition, the draft Guidelines include a new section on information exchange, which may serve the assessment of information exchange agreements as they are not covered by the 2010 IBER exemption on joint compilations. The CEA does not support the proposed approach. The CEA has continually pleaded for not replacing the cooperation agreements non-renewed in the 2010 IBER by any types of guidelines. The reason is that, in contrast to the IBER, guidelines are not legally binding and do not provide a similar level of legal certainty as the IBER. Guidelines would therefore endanger the uniform application of antitrust regulation within the EU. The CEA is concerned that the resulting legal uncertainty would discourage insurers to continue cooperating in these areas. Should the Commission, however, confirm its plan, the CEA would welcome a clearer and more precise drafting of the Guidelines. Indeed, we believe that, while it is its main objective, the current draft does not provide sufficient clarity to enable insurance undertakings and national insurance associations to assess the compatibility of an individual cooperation agreement with Article 101 Treaty. Therefore, we invite the Commission to clarify the principles and insurance-specific examples provided in the Guidelines as proposed hereafter. Ideally, the Guidelines should present clear guiding principles to comply with when engaging in horizontal cooperation so as to help determining, on the basis of the specific facts of the case, compliance with European antitrust law. Only a high degree of clarity of what may and may not be done to comply with Article 101 Treaty will help to avoid reduced or non-cooperation for reasons of prudence. The costs and resources required by self-assessment based on unclear Guidelines, added to the risks resulting from being challenged by competition authorities are likely to outweigh the potential benefits of entering into cooperation agreements for many insurers and national associations, especially the smaller ones. The CEA is very concerned about this. Less cooperation in SPCs for instance will make it difficult for consumers to compare and hence switch between insurance providers and for smaller companies to enter new markets. This will lead to a less competitive market. Decreased cooperation regarding standards for the installation and maintenance of security devices will result in reduced levels of safety standards and thus increased risk exposure for consumers. Further, the existence of common standards encourages competition in the insurance market, making it easier for consumers to switch insurer without having to incur the extra expense of changing their security devices. 1 See section 7, p.66 of the draft Guidelines and, for SPCs, 254, p.67, where insurance is mentioned as one of the industries in which standard terms play an important role. 318, p.78 of the draft Guidelines. 323, p.81 of the draft Guidelines. 2 of 9

3 1. Standard terms The 2003 IBER outlined correctly that SPCs can bring efficiency gains for insurers, facilitate market entry by small or inexperienced insurers, help insurers to meet legal obligations, and be used by consumer organisations as a benchmark to compare insurance policies offered by different insurers4. In its preliminary findings on the IBER of 24 March 2009, the Commission confirmed that "SPCs can give rise to positive effects for competition and consumers'5, and acknowledged that " i n many cases SPCs would not fall foul of Article 81(1) or would not fail to comply with the exemption criteria of Article 81(3)"6. However, the Commission decided not to renew the 2003 exemption for SPCs. The Commission justified its decision only by the fact that it did not believe that the characteristics of the business methods of the insurance sector were so specific - and especially so markedly different from the banking sector - as to warrant a different competition law approach to model wordings 7, and that cooperation in this field was not likely to diminish in the case of non-renewal. The CEA does not share this view and reiterates that SPCs need to be more detailed in insurance than in other sectors, including the banking sector. SPCs in insurance contribute to defining the insurance cover, ie the guarantee offered for future and uncertain risks with unknown timeframes for potential claims, and therefore are specific to the sector. Moreover, SPCs help to ensure that statistics and joint compilations relate precisely to the same category of data, by providing uniform definitions for the relevant elements of the cover to be taken into account in the calculations and thus making them valid and comparable. However, the Commission did not express any concerns with the SPCs exemption conditions of the 2003 IBER. Yet, the Commission s draft Guidelines include new conditions that the 2003 IBER did not provide for. 1.1 Unrestricted and transparent participation in standard terms establishment The draft Guidelines set out that agreements on standard terms may not give rise to competition restrictive effects in case, among other, of unrestricted and transparent participation in standard terms establishment. The 2003 IBER did not provide for any such condition in the SPCs drafting process. In example 9, the Commission is taking the case where a consumer organisation is involved in the process of laying down the SPCs. The CEA opposes the proposed additional condition, the need of which is neither explained nor justified by the Commission. There are already sufficient detailed safeguards contained in the draft Guidelines governing the use of SPCs (non-binding, effective access) and it is neither necessary nor appropriate for such a condition to be added to the current conditions. Moreover, this additional requirement creates legal uncertainty with no specifics about the nature, form and frequency of involvement needed to satisfy the criterion. This is the case in example 9 which refers to a consumer organisation. With regards to example 9, the CEA deems that it is not necessary to invite all existing consumer organisations in a relevant jurisdiction in order to fulfil the condition. The condition is also fulfilled when the invited consumer organisation does not want to attend. In this respect, the CEA stresses that establishing SPCs is a technically complex process and the development of the SPCs is often for wholesale risks and it is therefore doubtful that the invited or attending consumer body will be able to provide input into this process. Further, business is concluded not only with consumers, but also with corporate clients, including insurance companies in the case of reinsurance, most of whom are located outside the EU Recital 14 of the 2003 IBER. Staff working document, 101. Staff working document, 100. See 22 of the Commission s communication of 24 March 2010 on the application of Article 101(3) Treaty on the Functioning of the EU to certain categories of agreements, decisions and concerted practices in the insurance sector. 3 of 9

4 The CEA believes that the fact that SPCs have to be made accessible to any interested parties is a sufficient condition and that any involvement of third parties beyond that would not be adequate. It is the insurance industry that has to bear the insured risk and, therefore, insurance undertakings must have the right to define the scope of the product on their o w n responsibility. In relation to 265 8, the CEA underlines that SPCs are generally published and, as a minimum, they are available to any third parties. Even companies that are not members of a national insurance association or non-insurance operators can access SPCs. This unrestricted access benefits especially smaller and foreign operators, whose first access to complex and specific markets are thus facilitated. For all these reasons, the CEA invites the Commission to refer t o unrestricted access to SPCs instead of unrestricted and transparent participation in standard terms establishment, and to clarify in example 9 that the involvement of consumer associations in the process of drafting terms is not absolutely necessary, and that it is no more than one of the ways to prove the passing-on of efficiency gains. The CEA also invites the Commission to indicate in example 9 that certain efficiency gains, for instance in the form of increased comparability, are necessarily passed on to consumers No indication of the limit of cover of the risk Example 9 suggests the following new requirement: "These conditions give no indication of the limit of cover of the risk, the level of insurance premiums or excesses payable by the insured." The 2003 IBER did not prohibit giving an indication of the limit of cover, but only stated that the SPCs exemption does not apply where the SPCs contain clauses which exclude or limit the cover of a risk if the policyholder uses security devices, or insta ling or maintenance undertakings, which are not approved in accordance with the relevant specifications agreed by an association or associations of insurers in one or several other Member States or at the European level (Article 6 (1) k of the 2003 BER). So as t o avoid any confusion, the CEA invites the Commission to use the 2003 IBER wording. 1.3 Limit to product choice and innovation The CEA has concerns with the Commission s statement that standard terms can give rise to restrictive effects on competition by limiting product choice and innovation ( and ) Moreover, if the standard terms become industry practice, access to them might be vital for entry into the market. In such cases, refusing access to the standard terms could risk causing anti-competitive foreclosure. As long as the standard terms remain effectively open for use for anyone that wishes to have access to them, they are unlikely to give rise to anti-competitive foreclosure. As expressed by the Commission in Standard terms can give rise to restrictive effects on competition by limiting product choice and innovation. If a large part of an industry adopts the standard terms and chooses not to deviate from them in individual cases (or only deviates from them in exceptional cases of strong buyer-power), customers might have no option other than to accept the conditions in the standard terms. The risk of limiting choice and innovation is, however, only likely in cases where the standard terms define the scope of the end-product as, for example in insurance contracts. As regards classical consumer goods, standard terms of sale generally do not limit innovation of the actual product or product quality and variety Firstly, standard terms for the sale of consumer goods or services where the standard terms define the scope of the product sold to the customer, and where therefore the risk of limiting product choice is more important, could give rise to restrictive effects on competition within the meaning of Article 101(1). This could be the case when the wide-spread use of the standard terms de facto leads to a limitation of innovation and product variety. For instance, this may arise where standard terms in insurance contracts limit the customer's practical choice of key elements of the contract, such as the standard risks covered. Even if the use of the standard terms is not compulsory, they might undermine the incentives of the competitors to compete on product diversification. 4 of 9

5 Many examples demonstrate the positive effects of SPCs on competition, product choice and diversity, as well as innovation. For instance, SPCs drawn up by the German insurance association have inspired very specific product features, such as insurance of damages caused by furred game, damages caused by marten bites, etc. In addition, the CEA points out that, where SPCs are used, insurance undertakings continue to have different approaches, eg introducing additional clauses and special agreements derogating to the general insurance terms with a view to better tailor covers for clients. However, it cannot (as described in example 9) be relevant whether or not the individual insurer enables the customer to deviate from his own SPCs on a case-by-case basis. This is unrealistic in mass business and is not relevant to antitrust law. In this respect, it is only important that different offers (products) are available to the customer in the market (eg motor insurance with or without cover of damage caused by marten bites). In practice, SPCs are periodically reviewed so as to match sector s innovations and customers evolving needs, who, as a result, are being offered various alternatives (eg policies on transported goods offer many options giving the opportunity to customers to choose between coverage for all risks, nominal risks, coverage per journey, temporary coverage, etc.). Recurring exclusions such as war, insurgency, popular riots can be explained by the accumulation risk, which makes such risks uninsurable at large scale. National regulations themselves establish that such risks cannot be insured. In insurance classes that are tightly linked to the international context, certain conditions are universally applied for the sake of the market itself (eg nuclear risks exclusion) and are explicitly imposed by the international reinsurance market. Finally, the CEA suggests adding the following remarks in example 9: In most cases SPCs do not adversely affect product variety and hence not competition. Therefore, the passingon of efficiency gains and the other conditions are not relevant at all. The facilitated switching of providers and market entry by competitors should be mentioned among the direct advantages for consumers, as acknowledged in 302. The CEA believes that such advantages should be presumed to exceed any adverse competitive effects in a market with many providers, which is, on the whole, characterized by competition. 1.4 Additional comments In relation to and , the CEA stresses that SPCs do not influence the commercial premium of the final product as they do not establish any quantification of deductible, excess, discount. In its communication accompanying the 2010 IBER, the Commission stated that certain of the clauses listed the 2003 IBER would remain relevant for self-assessment of agreements under Article 101 Treaty14. So as to reinforce legal certainty, the CEA invites the Commission to clarify explicitly which of the conditions of the 2003 IBER remain relevant for the purpose of insurance undertakings and associations self-assessment beyond In addition, depending on their content, standard terms might risk affecting the commercial conditions of the final product. In particular, there is a serious risk that standard terms relating to price would restrict price competition Any standard terms containing provisions which influence the prices charged to customers (ie recommended prices, rebates, etc.) would constitute a restriction of competition by object. European Commission s communication on the application of Article 101(3) of the Treaty on the Functioning of the EU to certain categories of agreements, decisions and concerted practices in the insurance sector, 23, footnote 4: Certain of the clauses listed in Article 6(1) of the previous BER, Regulation (EC) No 358/2003, would remain relevant for self- assessment of agreements under Article 101 of the Treaty, in particular those which have an impact on prices and product innovation. Of particular relevance are, for example, clauses which: (i) contain any indication of the level of commercial premiums; (ii) indicate the amount of cover or the part which the policyholder must pay himself; or (iii) impose comprehensive cover including risks to which a significant number of policyholders are not simultaneously exposed; (iv) require the policyholder to obtain cover from the same insurer for different risks. 5 of 9

6 2. Standard-setting The CEA agrees with the Commission that "standardisation agreements generally have a positive economic effect"15. We believe that this is the case of the existing CEA specifications on security devices regarding fire protection systems and security protection systems16. The CEA specifications result from a joint cooperation between insurance undertakings experts and devices manufacturers, and are endorsed by the European Fire and Security Advisory Council (EFSAC). EFSAC is composed of European organisations which have a vital interest in effective fire and security17. The CEA specifications are not binding and are publicly available on the CEA website, free of charge: The CEA notes that, in example 4 of the draft Guidelines, the Commission sets out new criteria compared to the 2003 IBER conditions. Those criteria are raising the following concerns: "The standards aim to assist insurers to manage risk, by reducing relevant risk and preventing losses, and keep insurance premiums low. " In contrast to other sectors, asymmetry of information is widespread in insurance. Insurers do not know the precise intensity and probability of occurrence of the risk for a specific property. The person or business insuring the property knows much more about it than the insurer. It is therefore difficult to assess the risk and price the related insurance cover. Thus, industry-led agreements on the quality and installation of security devices go some way towards reducing that asymmetry of information and increasing properties safety. The CEA believes that appropriate security devices reduce the level of uncertainty for the insurers and thus enable them to better assess the risk so as to calculate more precisely the premium they charge for a specific property, this being to the benefits of policyholders who then pay a fairer insurance premium. However, it is not correct to assert that standards aim to keep insurance premiums low. Therefore, we suggest deleting and keep insurance premiums low. " "The insurers have brought the specific need for such standards to the attention of the relevant EU standards body. " The CEA acknowledges that it makes sense for insurers to inform the EU relevant standards bodies of the identified needs for specific standards, their plans of developing such standards and updating about the outcome of their work. This could be done at the occasions of meetings with the relevant bodies or through informal exchanges of s. As a matter of fact, the EU-harmonised standards have very often been based on/inspired by previously adopted CEA specifications. For example, the EN /2006 related non electrical disable devices for gas extinguishing systems was inspired by a CEA equivalent (CEA4032) - although this was published more than 6 years after the CEA published it. However, the CEA does not see in which way this could be considered as a legal pre-requisite which would help fulfilling one of the four cumulative conditions of Article 101(3). Therefore, we suggest deleting this sentence , p.68 of the draft Guidelines. See the CEA position on the revised draft IBER, SMC-COMP , as well as the CEA comments on the European Commission's preliminary findings on the IBER, SMC-COMP EFSAC members are: ARGE (European Federation of Associations of Lock and Builders Hardware Manufacturers), CFPA Europe (Confederation of Fire Protection Associations Europe), EUROFEU (European Committee of the Manufacturers of Fire Protection and Safety Equipment and Fire Fighting Vehicles), EFSG (European certification bodies) and the CEA. 6 of 9

7 The standards are discussed with the majority of insta lers in the affected countries and their views are taken on board prior to finalisation of the standards. The horizontal Guidelines require that participation in standard-setting should be open to all and decisions to be taken on a consensus basis. The standard-setting organisation rules should ensure that all relevant actors can take part in the standard adoption process and voting rights are attributed in an objective and nondiscriminatory manner. This transparency requirement goes beyond the 2003 IBER and might be a source of conflict of interests, leading to longer adoption procedures and lower quality specifications to the detriment of consumers and insurers alike. Insurers standards are high quality standards promoting prevention and security. Insurers objective in defining standards for security devices is fully in line with the consumers interest to reduce risk intensity and occurrence, and thus improving insurability and reducing collateral environmental damages (eg emission of polluting agents as a result of fire). In that respect, insurers are neutral, objective and impartial. In contrast, manufacturers goals are ultimately of a business nature, ie selling devices, and this might be a source of conflict of interests when setting standards. Imposing an unrestricted adoption procedure as proposed in the draft Guidelines would leave consumers and insurers with lower standards influenced by security devices manufacturers and, in many cases, a slower standardisation process for new technology. This will be detrimental to consumers safety, and also harm innovation and competitiveness in the field. In today s practice, manufacturers and installers are invited to take part in the discussions on specifications at CEA s and national levels on a voluntary basis. Involvement of third parties should not be prescribed by means of Guidelines, and, in any case, we believe that imposing a formal voting system is excessive and would lead to the above-mentioned adverse effects. 3. Information exchange The CEA notes that the draft Guidelines include a new section on the assessment of information exchange. This section may serve the compatibility assessment with EU antitrust law of information exchange agreements which are not covered by the 2010 IBER exemption on joint compilations. This section actually refers to insurance as one sector where information exchange on consumers may give rise to efficiencies, eg incentive to consumers to limit their risk exposure, detection of consumers with lower risks which may benefit from a lower premium, and increase of competition. The CEA has the following concerns with this section: 3.1 Transparency The draft Guidelines seem to envisage any information exchanges, even those made with a view to improve market transparency, as anti-competitive. 73 and 74 of the draft are particularly worrying because they lay down that the more transparent a market is, the more it is probable to have a collusive outcome. This may have a major, negative impact on statistics and studies on the insurance market evolution, particularly for those statistics where insurance entities rankings are used or individual information of the evolution of a certain insurance line is provided, such as individual and collective life insurance contracts, occurrences, etc. While these statistics are issued throughout the EU by insurance associations with a view to improve the transparency of the market, the Guidelines seem to envisage such practices as restricting competition. 7 of 9

8 3.2 Business volume and cost information are taken as a commercially sensitive information ( 81) The Guidelines should clearly outline that the disclosure of the amount of insurance premiums, even when sorted by companies or business lines, does not provide per se commercially sensitive information that could allow anticompetitive agreements between insurance companies. The diversity of products, insureds, risks, etc. for each business line makes it impossible to deduce from such data the exact premium charged, the commercial strategy or any other business-related secret. Also, the disclosure of occurrence-cost ratio does not affect the insurance market. This information must be considered to have a neutral impact on competition. 3.3 Public and non-public data The CEA has concerns with regard to 82 and 83 because of their direct impact on market studies and information. Those two paragraphs contradict the other sections of the Guidelines: 92 only refers to information exchange that is genuinely public. Moreover, the fact that the information is made available to all actors in the market ie entities, clients and general public has always been regarded as positive for competition. The Commission considers that exchanges of genuinely public information are unlikely to infringe Article 101 if the information is equally easy (ie costless) to access for everyone. The Commission also states that even if the data is in what is often referred to as the public domain, it is not genuinely public if the costs involved in collecting the data discourage to a sufficient degree other companies and buyers from doing so. The CEA does not support the distinction between genuinely public information and information in the public domain, as it follows a restrictive approach of the Italian Antitrust Authority in the IAMA case which was voided by the Italian Administrative Court of First Instance18 for the reason that the difference in cost ( ) cannot be used as a mark distinguishing what is lawful and what is not from an antitrust point of view. The Italian Administrative Court confirmed that when data have public nature, they cannot be considered as sensitive information lato sensu 19. This is also supported by the Italian Supervisory Authority for Insurance (ISVAP), which considers that processing public data is pro-competitive. If the data exchanged leaves operators uncertain about their competitors future actions, then this behaviour has to be deemed lawful. Moreover, the market information cannot rely only on the information disclosed by the supervisor ( 83). In Spain, for instance, the supervisor discloses little and, in many occasions, outdated (a year late) information. 3.4 Risk information The CEA is concerned about 90, which treat the exchange of information about consumer risk characteristics within the scope of Article 101(3) Treaty. In contrast, the CEA points out that risk information (claims data of the individual customer) is no competitive parameter and, therefore, the exchange of such information does not adversely affect competition, and should not figure under Article 101(3) The Antitrust Authority introduced the distinction between genuinely public information and information in the public domain in the IAMA case in order to highlight that the exchange of the former, being immediately accessible without fee and really usable by anyone who is interested in obtaining them cannot be considered as a conduct breaching antitrust rules. The Authority concluded that this distinction was irrelevant as the actual size of the illicit behaviour of an agreement aiming at the collection and exchange of sensitive information depends on the collection cost of such information by the individual undertaking, the time employed for the collection as well as the possibility to obtain complete information (Antitrust Authority (AGCM) decision n of 30 September 2004, RAS GENERALI/IAMA Consulting in Boll. AGCM n.40/2004). The Antitrust Authority was voided by the Administrative Court of First Instance (TAR) for the reason that the difference in cost (among the various possibilities to timely obtain public information) implies choices based on economic reasons and cannot be considered as a mere propensity to cost curbing and efficiency, and cannot be used as a mark distinguishing what is lawful and what is not from an antitrust point of view (Administrative Court of First Instance (TAR) ruling 20 April / 8 August 2005, n. 6088). 8 of 9

9 About the CEA The CEA is the European insurance and reinsurance federation. Through its 33 member bodies the national insurance associations the CEA represents all types of insurance and reinsurance undertakings, eg pan-european companies, monoliners, mutuals and SMEs. The CEA represents undertakings that account for approximately 94% of total European premium income. Insurance makes a major contribution to Europe s economic growth and development. European insurers generate premium income of 1 100bn, employ one million people and invest 6 900bn in the economy. 9 of 9