Competition on the European Market for Liability Insurance and Efficient Accident Law
| Date | 01 September 2002 |
| Published date | 01 September 2002 |
| Author | Michael Faure Roger Van Den Bergh |
| DOI | 10.1177/1023263X0200900304 |
| Subject Matter | Article |
Michael Faure
Roger
Van Den Bergh∗
9 MJ 3 (2002) 279
Competition on the European Market for Liability Insurance
and Efficient Accident Law
§ 1. Introduction
In the economic analysis of law, the advantages of liability insurance have been
extensively discussed. Liability insurance is considered as the optimal instrument to
remedy the risk aversion of the injurer without increasing the size of the expected
losses. Thanks to the control devices used by the insurer, it can be guaranteed that the
injurer, although insured, will still have appropriate incentives for taking care. It has
been argued also that these benefits of liability insurance only apply when there is
sufficient competition on insurance markets.1 In spite of the latter warning, one notices
increasing co-operation between insurance companies, especially as far as larger risks
are concerned. Professional organizations, such as associations of insurers, provide
either so-called market advices to the affiliated insurance companies or outright
standard policy forms that can be used by the members. These forms of co-operation
may obviously limit competition between insurance companies.
The co-operation between insurance companies can take different forms, as the
following examples from the Dutch market illustrate. In the second half of the 1990s,
the Dutch insurers’ association formulated the advice to change the coverage for
employers’ liability from loss occurrence to claims made coverage, especially for so-
called occupational diseases. As a consequence, an individual employer will no longer
have the possibility to obtain coverage for occupational diseases on a loss occurrence
basis in the Netherlands. Another example is that in the same country, the insurers
agreed in the 1950s that for some risks considered to be catastrophic (more particularly
1. This paper draws on earlier research. See M. Faure and R. Van den Bergh, ‘Restrictions of competition
on insurance market and the applicability of EC anti trust law’, 48 Kyklos 1 (1995), 65-85 and M.
Faure and R. Van den Bergh, ‘Aansprakelijkheidsverzekering, concurrentie en ongevallenpreventie’, in
T. Hartlief and M.M. Mendel (eds.), Verzekering en maatschappij, (Kluwer, 2000), 315-342.
Competition on the European Market for Liability Insurance
280 9 MJ 3 (2002)
earthquakes and floods) no insurer was allowed to provide coverage. The latter example
shows that these practices not only limit competition, but equally limit the availability
of insurance coverage. Indeed, in some cases it can be doubted that these particular risks
(for instance floods) are indeed uninsurable from a technical insurance perspective.
The question arises whether limitations of competition on insurance markets can be
economically justified. We will address this question by taking a look at the way
European competition law deals with restrictive practices and provide a critical
perspective of that approach. The focus will mainly be on liability insurance for the
following reason. Many scholars hold that the scope of liability itself should be linked
to the availability of insurance. It can be argued that the availability of insurance may
only be increased if insurers are allowed to share information, for instance statistics on
risks or information concerning the optimal preventive mechanisms. On the one hand,
an exchange of information may thus be necessary to increase insurability. On the other
hand, such an exchange provides the framework for limitations of competition. It should
be clear from the outset that it is very difficult to discuss a co-operation between
insurers in black or white statements. It is not always easy to make a distinction
between desirable and useful co-operation between insurers, which increases the
availability of insurance, and damaging restrictive practices.
This paper is set up as follows: first it is explained why competition law is a crucial
instrument to support an efficient accident law (2). Then the question is addressed to
what extent competition law should be applied to the insurance world. This question is
partially answered by the European Commission in its Regulation 3932/92 of 21
December 19922 which provides a block exemption for insurance companies from the
cartel prohibition (3). The conditions for the exemption will then be critically discussed
(4) and it will be shown that restrictions of competition may endanger some of the
efficiency goals of liability law (5). Finally attention is given to the Report of the
European Commission to the Parliament of 12 May 19993 concerning the application of
the mentioned exemption (6) and a few concluding remarks are formulated (7).
§ 2. Competition Law as an Instrument to support an efficient Accident
Law
The central idea of the economic analysis of accident law is that the foresight of being
held liable ex post will give potential injurers ex ante an incentive for taking efficient
care and choosing an optimal activity level. In case of full insurance coverage, these
incentives are, however, no longer given by liability law, since the threat to have to
2. [1992] O.J. L398/7.
3. Report of the Commission to the European Parliament and to the Council of 12 May 1999 concerning
the operation of Exemption Regulation 3932/92, COM(1999) 92 final.
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