Insurers face EU clamp-down

The insurance sector could face heavier disclosure requirements as a result of a European Commission inquiry into illegal practices prevalent in the industry. Preliminary results of the investigation, which are due next week (24 January), are expected to focus on distribution issues and unhealthy levels of co-operation among firms offering products and services to businesses.

The inquiry was launched in 2005, in the wake of a US industry-wide investigation, which found evidence of bid-rigging among insurance providers. Conducted by the then New York State attorney-general Eliot Spitzer, the findings exposed kickbacks received by broker Marsh & McLennan for steering clients to insurers such as American International Group.

Findings in the EU are unlikely to be as sensational, but breaches of Article 81 (prohibition on anti-competitive agreements and practices) and Article 82 (prohibition on abuse of a dominant position) of the EC treaty could lead to fines of up to 10% of global turnover. "If there are any illegal practices, we’ll crack down hard," said a Commission official.

Results of the inquiry will determine whether anti-competitive practices are hindering the provision of insurance across borders, analysing the effect of block exemptions authorising certain types of agreements between insurers (in areas such as risk calculation). The Commission will crack down on companies hiding behind the exemptions to co-operate on issues such as policy conditions and premiums.

"Competition enforcers will find the paper trails, the notes of meetings, the evidence that meetings took place, the points that were on the agenda," said Philip Woolfson, a partner in the Brussels office of law-firm Steptoe & Johnson, who provides legal advice to the sector.

"It’s just possible they could try to do something in the next couple of months," he continued, drawing parallels with the results of Competition Commissioner Neelie Kroes’s sectoral inquiry on the energy industry. "It’s not as if the insurance sector is immune from scrutiny…There might be here and there practices which aren’t extremely transparent, where there should be more disclosure."

Stricter transparency requirements that could result from Kroes’ inquiry will not be welcomed by the industry, which is still adapting to the relatively new EU insurance mediation directive. The directive, implemented by all member states in 2005, set strict standards for intermediaries selling insurance cross-border. It does not, however, mandate disclosure.

The Commission will hold a public hearing on the preliminary findings of the inquiry on 9 February.

The insurance sector could face heavier disclosure requirements as a result of a European Commission inquiry into illegal practices prevalent in the industry. Preliminary results of the investigation, which are due next week (24 January), are expected to focus on distribution issues and unhealthy levels of co-operation among firms offering products and services to businesses.