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EU threatens to sue insurers that quash competition

European Union antitrust regulators threatened to sue insurers and challenged industry practices such as long-term contracts and standard policies after finding evidence of barriers to competition for business clients.

The European Commission in Brussels also criticized brokers of commercial insurance for not disclosing prices and taking fees from both sides when arranging coverage, in a preliminary report today from a probe opened a year and a half ago. Profit margins in Europe's €345 billion ($449 billion) business insurance market vary country by country, in a sign that lack of competition is pushing up prices, the commission said. The agency, with power to fine companies as much as 10% of worldwide sales for antitrust violations, may consider cases after a final report that's due in September. The commission „identified factors on all levels of the supply chain that may prevent the markets from working as well as they should,” Competition Commissioner Neelie Kroes said in a statement. „We intend to look at these issues in more detail.” The industrial-insurance probe is part of a series of investigations by Kroes, with assistance from Financial Services Commissioner Charlie McCreevy, into financial services, including retail banking and payment cards.

The EU action adds to pressure on the industry from the US, where former New York Attorney General Eliot Spitzer - now the state's governor - has wrung more than $3 billion from insurers and brokers since 2004 to settle probes of improper accounting and sales practices, such as paying hidden fees. The commission said it may revisit a 2003 antitrust waiver that lets insurers work out standard policy terms, exchange information on risks and create insurance pools. The so-called block exemption may not be needed as cooperation among insurers differs across the 27-nation area, the agency said. In other findings today, the commission said the use of standard terms in reinsurance and co-insurance may give an advantage to providers over the customers. Smaller businesses pay higher prices, a sign of less competition for their business than there is for big companies, the agency said.

Long-term contracts in Italy, the Netherlands, Austria and Slovenia, and distribution arrangements in Italy, may pose a barrier to entry of new competitors, according to the commission. The European Insurance and Reinsurance Federation said it will study the report and respond in full at a February 9 hearing. For now, the investigations demonstrate that financial services are well regulated in the EU, the association said. „The European insurance and reinsurance industry welcomes the use of competition policy to identify potential barriers in the internal market for financial services,” said Gerard de La Martiniere, president of the Brussels-based trade group, in the statement ahead of today's report. (Bloomberg)