Consultation will decide whether to maintain block exemption beyond 2010.

The insurance industry could lose its block exemption from certain EU competition rules, following the launch of a consultation in Brussels.

The block exemption enables insurers to co-operate on certain matters, such as standard policy conditions. The consultation will examine whether the exemption, which will expire in 2010, should be maintained.

It is coupled with targeted questionnaires to the insurance industry, national regulatory bodies, such as the FSA, competition authorities and consumer groups.

The consultation will determine how the block exemption is being used and its impact on the UK’s insurance markets. It will examine whether there is a special case for providing an exemption for the insurance sector, and whether it gives rise to any anti-competitive effects, such as higher prices or reduced supply of certain insurance products.

Competition Commissioner Neelie Kroes said: “We need to investigate how the insurance block exemption is working in practice and whether there are sufficient grounds to renew it. Sector specific competition regulations are exceptional legal instruments. If there are to be special rules for a particular sector, I need to be convinced that they are justified in terms of bringing real benefits to competition and to consumers.”

A spokesman for law firm CMS Cameron McKenna said: “Should the commission remain unpersuaded, it will not enact a further insurance sector block exemption.”

Reynolds Porter Chamberlain, the London-based law firm, has said that abolishing the exemption would create huge uncertainties, as the insurance industry would have to find other ways to ensure that the co-operation needed to run a dynamic insurance market was protected under other exemptions from EU competition law.

It said that the other exemptions in EU law were imperfect and would lead to a huge level of legal uncertainty for insurers.

CEA, the Brussels-based representative organisation for the European insurance and reinsurance industry, said that the block exemption should be expanded to include claims settlement agreements.

The European Commission said last year that it had yet to be persuaded that the block exemption was still necessary. The deadline for responses is 17 July 2008.

What is block exemption?

Under European law the insurance industry has a block exemption from some competition rules to allow a measure of co-operation across the industry. This co-operation between competitors allows insurers to break up big risks and spread them around the market in insurance pools.
Supporters argue that the rules encourage competition and lead to lower premiums. It also enables insurers to share knowledge which enables insurers to better ascertain their price limits and share risk.
The European Commission is concerned that the exemption may cover practices that distort competition.