Summary

The central topic of this dissertation is ‘competition and insurance’. Research has been conducted to the application of competition law in the business insurance market. In this market, (large) business risks are often insured by several insurers in coinsurance or through pool constructions. The reason why these risks are insured through coinsurance or pools is that they are often too large and/or complex to insure on an individual basis. Furthermore, the pooling of risks would be more efficient. In essence, coinsurance is a form of risk spreading that is based on the fact that an insurer carries (no more than) a part of a risk. The intermediary – within the Dutch business insurance market this is the broker – places the (large) business risk that the client wishes to insure, to a number of insurers who each sign for a part of the risk. A pool is an agreement between a group of insurers and possibly an insurance broker and / or authorized representative on the basis of which multiple insurance policies can be issued for the same risk category. As with coinsurance, every insurer carries a part of the risk in the pool. The aim of this dissertation is to investigate the relationship between competition law and insurance. With that in mind, this research investigates how two different ‘worlds’ – insurance practice and competition law – relate to each other. The research is mainly legal-doctrinal, but because competition is of course an economic phenomenon, economic research is also used. To investigate the extent to which findings from previous researches also apply to the Dutch business insurance market, a (empirical) practical study was conducted in the form of a survey among insurers, brokers and authorized agents that are active in the Dutch business insurance market.

The book consists of three parts. Part I describes the legal and economic background of competition law. In that part also an overview is given of the organization of the business insurance market. Part II examines how competition law is applied in three main areas in the business insurance market: the phase of taking out insurance in a coinsurance or in a pool, the content of a coinsurance contract and the phase of the settlement of claims under coinsurance. Part III contains the conclusion and a number of recommendations.

Part I starts with a description of the content of competition law (chapter two). This chapter deals in general with the content of the cartel prohibition, the prohibition of abuse of a dominant position, the prohibition of state aid and the supervision on concentrations. The aim of this chapter is to provide a legal framework to conduct the further analysis. In essence, competition law aims to protect the competition or competition process in markets. Conduct of undertakings that has as their object or effect to restrict competition, in the form of cartel agreements or the abuse of a dominant position, are therefore prohibited. The cartel prohibition plays the most important role in the further analysis in the dissertation. The cartel prohibition (Article 101 TFEU and Article 6 Mw.) means that agreements between companies, whether or not made through an association of undertakings, that have the object or effect of restricting competition are prohibited.

In chapter three competition law is discussed from an economic perspective. The central question in this chapter is what role economic factors play in the application of competition law in the insurance sector. Some key concepts that are important for the application of competition law in the insurance sector are explained in this chapter. Defining (determining the relevant market) and determining the market shares of undertakings are necessary to know whether insurers have a dominant position in a market and can exert influence (market power) to the detriment of the buyer through, for example, reduced competitive pressure. It is concluded that the definition of the relevant insurance market is unclear because demand substitution (to what extent are insurance services replaceable for users?) and supply substitution (to what extent can insurers extend their product range without significant costs?) when defining the insurance market leads to different outcomes. From previous investigations and decisions of the European Commission it has been deduced that supply substitution calls for a broader definition of the relevant insurance market. This does depend on the knowledge and experience that insurers have in the insurance of major business risks and the available financial capacity.

Chapter four describes the business insurance market in the Netherlands. This chapter provides the context in which the application of competition law must primarily be placed. The chapter first explains the historical background of coinsurance. Coinsurance is an ancient form of insurance. The insurance exchange market, where brokers and insurers meet and do business with each other, have played an important role in the history of coinsurance. Insurance exchange markets facilitated the conclusion of insurance contracts and the settlement of claims. The physical insurance exchange market has existed for a long time, but nowadays insurance in coinsurance as well as the settlement of claims mainly takes place electronically on a digital platform (e-ABS). The differences between the horizontal spreading of risks ( co-insurance and pools) and the vertical spreading (insurance layers and reinsurance) are briefly explained. In the discussion of the organization of the business insurance market, attention has been paid to the players (insurers, brokers and business associations) and their position in the market.

A special characteristic of the operation of coinsurance (pools) is the distinction between leading and following insurers. A leading insurer (referred to as the pool leader in a pool) acts as a mouthpiece for the following insurers. A broker will negotiate most extensively with the leading insurers on the conditions on which the risk is insured. The idea behind this distinction is that a leading insurer has the most knowledge of the risk to be insured and that it is therefore efficient for a broker to negotiate the terms and conditions with this insurer. A pool leader also plays an important role in the insurance of risks in a pool: the acceptance policy, the claims handling or adjustments to the premium are dealed with him. These following insurers play a more modest role; they provide insurance capacity and leave the claim handling to the leading insurer. Finally, chapter 4 provides a brief description of the insurance markets in Germany, the United Kingdom, Belgium and France.

Part II of the book examines the application of competition law in three areas. In part A, two chapters (chapters five and six) deal with the phase of underwriting an insurance contract.

Chapter 5 describes how the conclusion of an insurance policy takes place in coinsurance and on which points tension can arise with competition law. Two types of subscription-procedures were discussed: the (most used) negotiation procedure and the (less used) procurement procedure. In short, the negotiation procedure means that a broker provides a number of insurers with information about the risk to be insured and asks them to make an offer. A broker will negotiate the offer (which will in any case consist of the desired share and an associated premium) that insurers make. Initially, a broker will negotiate with a leading insurer with whom he lays the foundation for the insurance contract. The most important conditions are discussed and/or negotiated with that insurer. If there is still a shortage of capacity (this is the case if an insurer does not want to offer 100% coverage), the quotation from the leading insurer is submitted to a number of following insurers (which can also be insurers who lose for the position of leader). The practical survey evidences that in most cases the broker submits the risks for acceptance to the following insurers, after having negotiated the risk with the leading insurer. The following insurers are usually asked to sign on the same terms as discussed with the leading insurer. When it is not possible for the broker to sign the insurance policy for 100% against an out-negotiated price with the invited insurers, follow insurers may be asked/invited to sign at an independently offered premium (this is the so called” Bipar -policy). Even if every insurer submits its own quotation / pricing in accordance with the Bipar procedure, a broker may decide to harmonize the premium at a certain level (this may be the most favorable, the average or – in the absence of capacity – the highest price) for the customer. In essence, the practical research shows that 64% of the respondents (insurers, brokers) indicate that a broker no longer decides to negotiate about the premium with the following insurers.

This result is in line with previous investigations by the European Commission to coinsurance , pools and competition in the European Union. As such this premium alignment could fall within the scope of article 101 TFEU. However, premium harmonization can speed up the acceptance of risks and save costs for the group of following insurers. These efficiency gains for parties could make this practise permissible under 101 (3). After all, insurers receive the same premium, while given the difference in position and activities of a leading and a following insurer, there is not always good justification for this. In addition, premium harmonization in the bidding process that underlies the conclusion of a coinsurance contract can lead to undesirable incentives such as strategic market behaviour and/or (tacit) collusion.

Chapter 6 investigates the tension that can exist between insuring risks in pools and competition law. This chapter first gives a general description of insuring risks in pools and the different types of pools. Pools can be distinguished in insurer pools, which are usually formed to insure risks that are difficult to insure individually, and the broker pools that are formed by a broker to accept simple risks that could also have been insured without coinsurance (pools). In this context of the assessment of pools, the self-regulation that exists in the Netherlands in the form of the Protocol for intermediate pools is discussed. This protocol contains a self- assessment in which the market share of the pool is crucial. From a competition law perspective, pools can be seen as horizontal forms of cooperation, whereby depending on the specific pool agreements that are made, the pool may have the object or effect of restricting competition. The research shows that pools that are formed to insure risks that are otherwise difficult or probably uninsurable, such as for the insurance of terrorism or nuclear damage, will in general not give rise to competition problems because they insure a risk that otherwise could not have been insured. On the other hand, the broker pools that are formed to insure risks that can be insured in an alternative way, without the pool, are more likely to give raise to competition concerns. Nevertheless, it depends on the pool agreements that are made in specific circumstances. The practical survey shows that the determination of premiums in intermediary pools is different. Market parties indicate that the premium is not always fixed in advance. Depending the agreed mandate between the intermediary and the insurers, still negotiations about the premium are possible or it is possible that the premium is determined in consultation between the leading insurer and the broker. The survey evidences that intermediary pools exist for the sake of efficiency: it is cheaper to place risks in a pool, than to insure these risks on an individual or coinsurance basis. However, if such a pool gains a big market share, as was the case with the notary pool, the result can be that competition is greatly reduced. In that case intermediary pools leads to competition concerns. The book explains the self-regulatory protocol that exist for this types of pools, which for its assessment is in line with the previously applicable insurance block exemption regulation and the market share thresholds stated therein (20%). Intermediary pools with a share below this threshold are assumed to meet the exemption conditions of the cartel prohibition. However, it has been concluded that it is not entirely clear how the relevant insurance market must be defined and what weight is thereby assigned to the instruments of supply and demand substitution. When demand substitution is assumed, the relevant insurance market will turn out more closely than when supply substitution is taken into account. This book takes the position that the narrowest possible market definition based on demand substitution should be assumed, but that the sector classification provides a useful tool for self-assessment. Depending on the market share of a pool, the prohibition of abuse of a dominant position may also play a role.

In the insurance market there is a high degree of standardization of policy conditions. Therefore the book investigates in chapter 7 the competition law aspects of standard policy conditions in the business insurance market. The chapter first clarifies which types of standard conditions are used in the business insurance market. Cooperation on the content of the standard policies takes mainly place within the association of the VNAB. The standard policy conditions that are established through cooperation between insurers and broker within the VNAB are non-binding model conditions for which members are free to deviate in individual cases.

The establishment and distribution of common policy conditions by an association is a form of horizontal cooperation between companies. Even though the standard conditions use in the business insurance market are non-binding, they can be a decision of an association in terms of the cartel prohibition if the policy conditions have the object or effect to restrict competition. Although a non-binding policy condition is less likely to lead to competition concerns, it may have a negative effect on competition if it relates to the determination or calculation (via a discount) of the premium or otherwise affects the premium or distort competitive pressure. The assessment under the cartel prohibition must also examine the influence on product quality, product diversity and innovation. Standard policy conditions that fall within the scope of the cartel prohibition can qualify for an exemption from the cartel prohibition if four (cumulative) exemption criteria are met. In short, the question is whether the competitive advantages sufficiently compensate for competition concerns. The use of standard policies entails various advantages for competition. Consideration can be given to (efficiency) improvements such as lower transaction costs, better comparability, faster acceptance of policies and easier entry to the market (lower entry barriers). In relying on the exemption from the cartel prohibition it also appears to be important that it can be demonstrated that the benefits are passed on to the customer, that the restriction is indispensable and that there is sufficient competition. With regard to binding clauses, the position has been taken that invoking an exception to the cartel prohibition is based on the indispensability requirement. In short, the research evidences that the content of an insurance contract gives less competition concerns than the phase of the insurance conclusion.

Claims handling is an important part of the insurance chain. That is the reason why I investigated in part C of this book (chapter 8) how claims settlement in coinsurance actually works and what tension arises with competition law. The added value of this part of the book is in particular the clarification of the process of claims settlement with the insurance in coinsurance. Existing practices do not, or at least to a much lesser extent, give rise to tension with competition law. In the context of the discussion of the settlement of claims, attention was paid to the operation of to-follow clauses and competition law, the assessment of the relation between damage assessment and competition law, and vertical cooperation in the insurance distribution chain. The e-ABS electronic platform also plays an important role in this phase. This is an electronic exchange platform where claims are approved and underlying (expertise) reports are exchanged. The discussion in this part of the book shows that cooperation in the claim settlement phase can have an impact on the competition on the claim compensation. A special characteristic of the claims handling in coinsurance is the use of the to follow clause in the insurance policy. This clause has the purpose to streamline the settlement of claims by multiple insurers. It relates to the previously discussed distinction between the position of leader and follower in co-insurance. From a competition law perspective, the use of such a clause may have the disadvantage of reducing competition in the area of compensation, but the book takes the position that it seems plausible that the benefits sufficiently outweigh the disadvantages. In short, the research evidences that the claims settlement gives less cause for competition than in the insurance conclusion phase.

The book concludes the research in part III. Chapter 9 presents some policy recommendations. These address the players in the insurance market (insurers, but also the trade associations), the competition authorities and the legislator. It is concluded that a certain tension will be inherent in the relationship between insurance in coinsurance and pools, and competition law, but that this can be dealt with in various ways. On the one hand, more attention and awareness of the competitiveness of the closing/underwriting process in the case of coinsurance can delight the tension. It is recommended that the familiarity with the competition rules on the 'trading floor' is increased or that supervisors or trade associations otherwise ensure proper compliance with the competition rules or self-regulation. On the other hand, sector-specific regulation or the provision of additional guidelines or policy documents can reduce the tension or conflicts with competition law. It is finally worth noting that competition law is in principle positive about cooperation between companies, provided that it does not restrict competition.