The Federation of European Risk Management Associations, has issued a bulletin welcoming the opportunity to comment on the European Commission’s latest draft of the block exemption requirements (BER) for the insurance industry.
FERMA has been maintaining a dialogue with the regulators, ever since the EC announced plans to let the BER expire in March of 2010. It has succeeded in getting the EC to reenact a number of the more important provisions, which exempt EU insurers from certain anti-trust rules (See IJ web site – https://www.insurancejournal.com/news/international/2009/10/06/104344.htm)
FERMA’s bulletin said it “welcomes the fact that the draft regulation confirms some important improvements to the Insurance BER. On the other hand, FERMA also notes some shortcomings and too narrow improvements which could affect legal certainty. Those limitations could jeopardize some forms of highly valued and beneficial cooperation between insurers and the risk management community.”
The regulation of insurance “pools,” i.e. arrangements between carriers to share large risks, are the main source of contention. The EC proposes to leave some pools out of the BER, as it feels the exemption is unnecessary, once they have passed a “necessity test” It also wants to limit the scope of other pooling arrangements.
FERMA insists no changes should be made, pools should be specifically exempt from anti-trust strictures, and the existing regulations should even be broadened to encourage more pooling arrangements.
“The necessity test has to be a permanent assessment test and not a test carried out only once, at the formation of the pool,” said the bulletin. “It is of utmost importance to take into account the evolution in insurance markets. Absence of insurance capacity in the commercial insurance market today can change rather rapidly over time. Being created in a period of capacity shortfall, pools may not restrain the commercial insurance market from growing not restrain the commercial insurance market from growing into that risk. The insurance market has to remain dynamic and competitive.”
FERMA said it is “in favor of an increase of the market share thresholds set out in the BER (above 20 percent for co-insurance groups and above 25 percent for co-reinsurance groups) in order to provide exemption to co-insurance or co-reinsurance pools comprising large and medium sized companies. In the absence of an increase in the thresholds, FERMA believes that a number of large and medium sized companies will be reluctant to either participate in pools or remain within existing pools. These large and medium sized companies often contribute most to the building of financial capacity and risk experience.”
Ancillary to this discussion is the related topic for the subscription market, as exemplified by Lloyd’s and other markets, where risks are shared on an agreed basis. The sticking point is the EC’s proposed “recital 20,” which would impose some regulations on how the subscription market operates.
FERMA said it is “concerned that this recital can restrict the operation of the subscription market and thereby reduce market capacity (or make access to market capacity more difficult) to the disadvantage of insurance buyers. These concerns are also shared by the insurance market itself.
FERMA also called on the EC to at least issue a statement that supports the continuation of agreements between insures related to the creation and use of standard policy wordings. The EC has said that no exemption is necessary for such standards, as they are, like banking agreements, a well established industry norm.
The Federation’s bulletin pointed out, however, that the “existence and evolution of new risks will influence standard terms and conditions of insurance policies. Since the definition of new risks has been extended in the draft, it would be logical to have SPCs covering such risks being protected by the insurance BER. Non-renewal will increase significantly the risk of non-cooperation and legal uncertainty.”
The complete text of FERMA’s comments, as well as additional information on the subject may be obtained on the Federation’s web site at – www.ferma.eu
Source: Federation of European Risk Management Associations
Topics Legislation Europe Market
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