Law firms warn that imposing standard wordings could be anti-competitive

Introducing standard wordings to achieve contract certainty could compromise competition between companies and spark an investigation by the EU, a law firm has warned.

The industry has until the end of 2006 to formulate a market-wide approach to contract certainty. The standard wordings approach will not be made mandatory, but industry leaders see it as a step in the right direction.

But Reynolds Porter Chamberlain partner Andrew Hobson warned last week that "standard wordings leave competition down to price" and clients would not be allowed to differentiate between the quality of policies. This, he argued, could be anti-competitive.

He said the London market may have to "find another route" towards contract certainty if the EU deemed standard wordings anti-competitive.

Brokers that attempted "to foist wordings" on insurers could also be seen as anti-competitive, he said.

Outgoing Lloyd's chief executive Nick Prettejohn has said that using standard wording "around which we can at least have a dispute" was one solution to the contract certainty dilemma.

Brit chief executive Dane Douetil has also said that "standardised wordings will help us get there".

The EU Competition Directorate's inquiry into insurance competition is coming to the end of its first phase.

Industry bodies are understood to have returned questionnaires about their functions to the competition commission.

The next phase is to begin contacting industry companies.

The directorate refused to comment on whether standard wordings were anti-competitive until it completes the review in 2006.