The Federation of European Risk Management Associations (FERMA) has issued a warning to the European Commission that any restriction in the operation of the subscription insurance market could work to the disadvantage of business by reducing market capacity or making access to that capacity more difficult.
FERMA made its concerns clear in a position paper published yesterday, June 3, in conjunction with a conference held in Paris. The paper comments on the findings of a 2013 study by Ernst & Young on co(re)insurance practices.
The Commission had asked the accounting firm to undertake the study ahead of the next review of the Insurance Block Exemption Regulation. In its current form, the Block Exemption will expire on 31 March 2017.
FERMA stated that the “exemption to the application of EU competition rules of co(re)insurance provides more benefits for the market than issues. There is competition in the process, it argues, in the selection of the leader.
“The subscription market plays a critical role in covering industrial risks. Therefore FERMA is concerned that any restriction to the operation of the subscription market would 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.
“Co(re)insurance practices are part of the basic functioning of the insurance market in Europe (both the London [particularly Lloyd’s] and the Continental European markets). They are the only way to find the huge financial capacities needed in the business insurance sector and no individual market players could meet these needs on their own. As it has been working properly so far and proved its benefits, it should not be hindered. Rather, it should be permitted and allowed to continue.”
FERMA also made the following comments in support of continuing the subscription market in its present form:
— The first phase of subscription process (i.e. the selection of the lead insurer) is a highly competitive process.
— Once the lead insurer has been selected, this practice is time-efficient.
— When it comes to handling claims and resolving disputes, this practice brings legal certainty for the parties.
— Because of this recognized efficiency, the subscription market attracts a great diversity of insurance companies, which is in the corporate client’s best interest.
— Coinsurance business in Europe is competitive and attractive because of the recognized EU expertise. These capabilities should be preserved to maintain EU competitiveness with other coinsurance markets.
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