08 February 2013

European Commission: Study on co(re)insurance pools and on ad-hoc co(re)insurance agreements on the subscription market

The objective of this study by Ernst & Young is to perform an in-depth review of co(re)insurance pools and ad hoc co(re)insurance agreements across the EU. The study also records similarities and differences between these two forms of co(re)insurance arrangements.

Executive Summary

The study is performed in the context of the European Commission’s ongoing monitoring of the operation of the Insurance Block Exemption Regulation (the BER), the conduct in 2007 of the Business Insurance Sector Inquiry (BISI) and the issue in 2008 by the European Federation of Insurance Intermediaries (BIPAR) of its high-level principles for placement of risks with multiple insurers.

To obtain a range of market perspectives, different market participants were interviewed in each Member State (MS), including associations of insurers, brokers and corporate risk managers, as well as individual insurers, brokers and risk managers. For co(re)insurance pools, the interviewees included pool managers and members.

Overview of ad-hoc agreements

Results presented for ad-hoc co(re)insurance agreements are based on responses by 131 participants in ad-hoc co(re)insurance agreements surveyed across the EU (brokers, underwriters, customers/risk managers). The most important subscription markets are the UK, the Netherlands, France and Germany. These markets operate for all kinds of risks. The analysis has been presented in a comparative perspective concentrating on the four main subscription markets identified. For some business, the market is global. The UK in particular is an international subscription market, and respondents considered this to be the most important subscription market for large risks.

According to European insurance market players, the prevalent procedure for the underwriting of a co(re)insurance agreement is broker-led. When there is a requirement or an incentive for a co(re)insurance solution, the process is led by the broker who advises the client and is obliged to secure the best deal for the client.

The process starts with a discussion on insurance needs between the broker and the client, in terms of the coverage required. At that point options are discussed as to which insurers should be approached, including whether one insurer should be approached to provide 100 per cent cover, or whether an insurer should be invited to act as leader of a co(re)insurance programme. These initial discussions determine the detailed risk and the sought level of service, as well as the characteristics of the insurer or insurers to be approached, initially to act as leader and subsequently as followers. Alignment of terms and conditions between participants is very common, and is usually described as being for the benefit of consumers as these do not desire differential levels of coverage. Pricing is also typically aligned, though respondents described how some large contracts might be placed on a verticalised or partially verticalised basis to benefit from different terms and prices.

Full study

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