CJEC, January 27, 1987, No 45-85

THE COURT

1. By an application lodged at the court registry on 15 February 1985, the Verband der Sachversicherer ev, whose registered office is in cologne, brought an action under the second paragraph of article 173 of the EEC treaty for a declaration that the Commission's decision of 5 December 1984 relating to a proceeding under article 85 of the EEC treaty (IV/30.307 - fire insurance), which was notified to the applicant on 10 December 1984 and was published in the Official Journal (Official Journal 1985, L 35, p. 20), is void.

2. The applicant is an association whose objective is, inter alia, to represent, promote and protect the business interests of insurers providing industrial fire and consequential loss insurance and authorized to carry on business in the territory of the Federal Republic of Germany.

3. The contested decision states that the applicant's recommendation of June 1980 to re-establish stable and viable conditions in the insurance sector providing insurance against the risk of industrial fire and consequential loss constitutes an infringement of article 85 (1) of the EEC treaty. By that decision both negative clearance under article 2 of regulation no 17 and exemption under article 85 (3) of the EEC treaty are refused.

4. In support of its application the applicant makes the following six submissions :

First submission : article 85 (1) is not yet applicable to the insurance industry in full and without qualification;

Second submission : the commission has no power to intervene in the economic policy of a member state;

Third submission : the applicant's recommendation which is the subject of the contested decision does not constitute a decision of an association of undertakings within the meaning of article 85 (1);

Fourth submission : the applicant's recommendation had neither the object nor the effect of restricting competition;

Fifth submission : trade between member states was not affected by the recommendation;

Sixth submission : the commission was wrong in its view that the necessary conditions which must be met for exemption under article 85 (3) were not satisfied.

5. The Gesamtverband der Deutschen Versicherungswirtschaft ev, which is the federation of trade associations of insurance undertakings in the Federal Republic of Germany, intervened in the case in support of the applicant's conclusions. It supports all the applicant's submissions and stresses in particular the validity of the first two submissions and the danger for the whole insurance industry of a rigorous and inflexible application of community competition law to that sector.

6. Reference is made to the report for the hearing for the provisions of German law concerning insurance, the previous history of the dispute and the submissions and arguments of the parties, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court.

First submission : applicability of article 85 (1) to the insurance industry

7. The applicant does not dispute that, in principle, the competition rules contained in article 85 et seq. Are applicable to the insurance industry. It maintains, however, referring to an expert' s report which it produced to the court, that the community competition rules cannot be applied to the insurance industry without restrictions or reservations as long as the council has failed to adopt special rules for their application to insurance. Article 87 (2) (c) of the EEC treaty, by providing that the purpose of the provisions to be adopted by the council to give effect to articles 85 and 86 is to define, in the various branches of the economy, the scope of articles 85 and 86, imposes an obligation on the council to temper the rigour of the prohibitions contained in the treaty in so far as is necessary to ensure the survival of certain areas of economic activity. Unlimited competition in the insurance industry would result precisely in an increased risk of some insurance companies going out of business in view of the special characteristics of that industry.

8. In that respect the applicant and the intervener state that a contract of insurance differs from other contracts in the fact that performance by one of the contracting parties is dependent on a completely uncertain factor, namely the materialization of the insured risk; variations in the occurrence of claims in certain fields, in particular in the sphere of industrial fire risks, require cooperation rather than unlimited competition between insurers for the purpose of calculating the necessary reserves and ensuring that income and expenses balance so that there is no risk of insolvency. From that point of view the protection of the insured person is of particular importance since he performs his part of the contract, namely the payment of the premiums, without being sure that when the time comes the insurer will be in a position to make good the loss covered by the contract of insurance.

9. They point out that those characteristics of the insurance industry have led the national legislatures to lay down special provisions for that industry. Accordingly, German legislation provides for a general system of supervision of insurance companies, the requirement that foreign insurers must be authorized to carry on an insurance business in the federal republic and special rules concerning the impact of the supervisory system on competition law. Paragraph 102 of the Gesetz Gegen Wettbewerb Schraenkungen ((law against restraints on competition)) provides that the general prohibition of agreements and decisions restricting competition does not apply where the agreements and decisions are linked to matters which are subject to supervision by the Bundesaufsichtsamt Fuer das Versicherungswesen ((federal supervisory office for the insurance industry)). The authority with jurisdiction in competition matters, the Bundeskartellamt ((federal cartel office)), can intervene only in cases where the agreements or decisions in question constitute abuse of an existing market position.

10. The applicant and the intervener conclude from the foregoing that until the adoption by the council under article 87 (2) (c) of the EEC treaty of special provisions relating to insurance the prohibition contained in article 85 (1) of that treaty does not apply to the insurance industry and that the commission cannot, by applying that prohibition, contribute to the creation of a position which article 87 (2) (c) intended to avoid.

11. The commission, whilst doubting whether article 87 (2) (c) can constitute authority for the council to restrict the application of the competition rules laid down in the treaty, confines itself to pointing out that the council has adopted no special provisions relating to insurance on the basis of article 87 (2) (c), that in principle the competition rules are applicable to all branches of the economy and that therefore those rules apply without restriction to the insurance industry.

12. It should be pointed out that, as was stated by the Court in its judgment of 30 April 1986 (joined cases 209 to 213-84 ministere public v asjes ((1986)) ecr 1425), where the treaty intended to remove certain activities from the ambit of the competition rules it made an express derogation to that effect. It did so in article 42 of the EEC treaty in relation to the production of and trade in agricultural products. Neither a provision excluding the application of the competition rules in the manner of article 42 nor a provision making their application dependent upon a council decision exists in respect of insurance.

13. It must also be observed that regulation no 17 of the council of 6 February 1962 (Official Journal, English special edition 1959-62, p. 87) lays down detailed rules for the implementation of articles 85 and 86 of the EEC treaty for all the branches of the economy to which the provisions apply with the sole exception of those branches covered by special rules laid down on the basis of article 87 of the EEC treaty, as is the case with certain sectors of the transport industry such as sea and air transport. No exception of that type, however, exists in the case of the insurance industry.

14. Consequently, it must be concluded that the community competition system, as set out in particular in articles 85 and 86 of the EEC treaty and in the provisions of regulation no 17, applies without restriction to the insurance industry.

15. That conclusion in no way implies that community competition law does not permit the special characteristics of certain branches of the economy to be taken into account. It is for the commission, within the framework of its power under article 85 (3) to grant exemption from the prohibitions contained in article 85 (1), to take account of the particular nature of different branches of the economy and the problems peculiar to them.

16. It follows from the foregoing that the first submission must be rejected.

Second submission : encroachment on national economic policy

17. The applicant maintains that article 85 (1) is directed solely at undertakings and that its aim is not to prohibit national measures of economic or competition policy. The complete supervision of insurance business in the Federal Republic of Germany, the isolating of the national market by the relevant legislation and the limitation placed on prohibitions of cartels constitute a coherent whole representing a particular choice of economic policy. No provision of the treaty authorizes the institutions of the community to contest such a choice and thereby to compromise the conduct of national economic policy.

18. The intervener adds that, in the absence of a special set of community rules concerning competition in the insurance industry, that industry can operate in a manner which respects the requirements of the profitable management of undertakings and of adequate protection for insured persons only if harmonization is brought about between the competition rules and the legislation concerning the supervision of insurers. The German rules constitute a good example of such harmonization since they attempt to reconcile the objectives of the two fields of legislation in question. That delicate balance would, however, be disrupted if the commission could intervene on the basis solely of considerations derived from competition law.

19. The commission maintains that, by its decision, it does not prohibit national measures of economic or competition policy but merely a private cartel set up independently by undertakings. It is entitled to act in that manner by virtue of the direct applicability of article 85 (1) to undertakings in the member states, and in cases of conflict between that provision and national competition law, by virtue of the primacy of community law.

20. The commission also observes that it was conscious, when it adopted its decision, of the fact that the recommendation to which it related had already been authorized by the Bundeskartellamt under the law against restraints on competition and by the Bundesaufsichtsamt. However, those circumstances cannot stand in the way of the application of article 85 of the EEC treaty; it follows from the combined provisions of article 85, article 3 (f) and the second paragraph of article 5 of the EEC treaty that provisions of national law or national administrative practices may not adversely affect the application in full of the community competition rules.

21. It must be observed in the first place that it is difficult to imagine in what respect the economic policy of the Federal Republic of Germany is supposed to be frustrated by the contested decision which is limited to objecting to a recommendation of an association of undertakings in relation to the price of their services.

22. With regard to the application of national laws concerning the supervision of insurance companies, it must be pointed out that those laws have a different objective from that of community competition law and that they may continue to be operative regardless of the manner in which the competition law is applied. The applicant has not been able to show that in this case the application of the prohibitions contained in articles 85 and 86 of the EEC treaty might be such as to impede the proper functioning of the national system of supervision of insurers.

23. It must be added that, whilst it is true that the legislation of a member state may establish a close link between the application of competition law and the law relating to the supervision of the insurance industry, community law does not, however, make the implementation of the provisions of articles 85 and 86 of the EEC treaty dependent upon the manner in which the supervision of certain areas of economic activity is organized by national legislation.

24. Moreover, in so far as the applicant maintains that the special nature of the insurance sector involves the need for the undertakings concerned to collaborate in the statistical studies which are indispensable for the calculation of the loss ratio, it must be stated that the contested decision does not relate to such a form of collaboration.

25. The second submission must therefore be rejected.

Third submission : the non-binding nature of the recommendation

26. The contested decision finds that the Verband der Sachversicherer is an association of undertakings within the meaning of article 85 (1) of the EEC treaty and that the recommendation to re-establish stable and viable conditions of June 1980 was adopted by the competent body under the association' s statutes and was duly brought to the notice of its members as an official statement of the association' s policy by the secretary general acting within the powers conferred on him. Although the title of the recommendation describes it as "non-binding", it is nevertheless in the nature of a "decision" of an association of undertakings. It is sufficient that the recommendation is in conformity with the association' s statutes and that it was brought to the notice of its members as a statement of the policy of the association of undertakings in the manner laid down therein.

27. The applicant contends that, as is indicated by its title, the recommendation is not at all binding in nature. The committee of experts on industrial fire and consequential loss insurance, which produced the recommendation, is competent merely to examine technical problems and not to adopt decisions binding on the association or its members. The only organs of the association with the power to adopt decisions of such a nature are the general meeting of its members and the bureau. In fact neither of those organs adopted a decision with regard to the recommendation.

28. The commission replies that the Verband der Sachversicherer was authorized by its statutes to regulate the commercial conduct of its members and that the committee of experts which produced the recommendation was empowered, according to the provisions of those statutes, to adopt decisions and recommendations binding on the association. In addition, the recommendations of an association of undertakings, which are formulated by committees acting within the framework of the association and which are communicated to the association' s members, constitute the expression of a concerted practice put into effect by the undertakings affiliated to the association with the object of restricting competition between those undertakings.

29. In that connection account must be taken of various factors. In the first place it is common ground that the insurers who are members of the Verband der Sachversicherer had a common interest in putting the market on a viable footing by means of an increase in premiums which had fallen considerably between 1973 and 1980 in the industrial fire insurance sector, whereas the loss ratio and insurers' expenses had not varied appreciably during the same period. The contested decision, which was not disputed on this point, stated that insurance companies did not respond individually to that negative trend by raising premium rates because it was their practice, as composite insurers or through sister companies connected with the same group, to do business in several classes of commercial insurance; they therefore attempted to win substantial business in other classes by charging their commercial customers fire-insurance premiums which were insufficient to cover their expenses.

30. Secondly, it is necessary to take account of the nature of the recommendation itself. Although it was described as a "non-binding recommendation", it lays down in mandatory terms a collective, flat-rate and across-the-board increase in premiums. That that was the result intended may also be seen from the fact that shortly after the recommendation was notified to the members of the Verband der Sachversicherer German re-insurance companies decided to include in their contracts of re-insurance concerning the same risks a special "premium calculation clause" according to which premium rates which fail to conform to the recommendation are to be treated in the event of a claim as under-insurance.

31. Thirdly, the statutes of the association state that it is empowered to coordinate the activities of its members, especially in relation to competition, that the task of the specialist committee on industrial risks is to coordinate the policy of the members with regard to premium rates and that the decisions or recommendations of the committee are deemed to be definitive unless they are referred to the bureau for approval at the request of one of the organs expressly given such a power of reference.

32. In view of those factors it must be stated that the recommendation, regardless of what its precise legal status may be, constituted the faithful reflection of the applicant's resolve to coordinate the conduct of its members on the German insurance market in accordance with the terms of the recommendation. It must therefore be concluded that it amounts to a decision of an association of undertakings within the meaning of article 85 (1) of the EEC treaty.

33. Consequently, the third submission must be rejected.

Fourth submission : restriction of competition

34. The contested decision finds that the recommendation has the object of restricting competition in industrial fire and consequential loss insurance within the common market. The reasons set out in the decision in support of that conclusion emphasize in particular the fact that the premium rates were increased across-the-board, the fact that the applicant includes all insurers doing business on that market in the Federal Republic of Germany and the reinforcement of the restrictive effect of the recommendation by the insertion of the premium calculation clause by the re-insurers who occupy a strong position on the German market.

35. In support of its submission directed against those findings the applicant relies primarily on three arguments. First, it states that the recommendation does not seek to attain any objective in the field of competition since it merely represents the expression of a method of cooperation which is usual and necessary in the insurance industry given the special characteristics of that industry with regard in particular to the calculation of risks. Secondly, it states that the court of justice has accepted in its decisions that objective criteria applied in connection with the choice of the channel of distribution and the network of distributors does not, in principle, constitute a restriction of competition; the applicant relies in particular on the Court' s judgment of 25 October 1977 (case 26/76 metro sb-grossmaerkte gmbh & co. Kg v commission ((1977)) ecr 1875). Finally, it states that the commission failed to check whether the recommendation led the undertakings to alter their conduct; according to the applicant the recommendation has hardly been acted upon in practice.

36. The same arguments are put forward by the intervener, who lays emphasis in particular on the two requirements which the insurance industry has to face. In the first place it is necessary to fix premiums at an appropriate level. This is the only method of ensuring in the long term that contracts of insurance will be performed. Secondly, in order to fix that premium level it is necessary to carry out thorough statistical analyses relating to the data of the market as a whole, analyses which cannot be carried out without the participation of all insurers.

37. The commission states in the first place that it suffices for the purposes of the application of article 85 (1) that it is apparent from a decision of an association of undertakings, taking into account the economic context, that its objective is the restriction of competition. If that is the case, it is unnecessary to consider its effects. Secondly, the commission, relying on the figures for the loss ratio between 1979 and 1983 and for premium income during the same period, disputes that the recommendation failed to produce any effect.

38. The commission also takes the view that the arguments put forward by the applicant and the intervener misunderstand the function of a recommendation of an association of undertakings as a means of coordinating the commercial conduct of those undertakings. Since the members of the association participated in the formulation of the recommendation, they are both the authors and the addressees thereof. In the latter capacity they--eeping the different classes of business separate, does not mean that an across-the-board increase in premiums is capable of improving insurance services.

55. The contested decision states, finally, that the recommendation goes beyond what can be regarded as acceptable cooperation between insurers in collectively analysing statistics regarding claims and translating the results into practical guidance for writing policies. That it exceeds what is acceptable is shown not only from the fact that increases of 10, 20 or 30% fail to take into account the cost and revenue situations of individual insurers but also that, according to the very principle of those increases, they were based on the fixing of a gross premium which, ignoring the situation of individual insurers, provided in all cases for the same percentage supplements for expenses and profit as percentages of statistically determined claims.

56. According to the applicant, that reasoning is incorrect. It points out that the recommendation relates solely to an increase in the level of premiums actually charged and not to gross levels. Nevertheless, recommendations with regard to gross premiums are objectively necessary and are applied throughout the whole world.

57. That argument is supported by the intervener. It emphasizes that the commission failed to take into account the effect of the recommendation on classes of insurance other than fire insurance. As a result of the re-establishment of viable conditions in the fire insurance sector the other classes of insurance are able to improve their services. The recommended increase in premiums was intended not only to ensure that contracts of insurance against industrial fire risks would be performed in the long term but also to free other classes of insurance of expenses for which they were not responsible.

58. With regard to those arguments it must be emphasized that the commission' s task under article 85 (3) is to determine whether the contested recommendation contributes to improving the provision of services on the insurance market. In that connection the commission correctly took the view that its task was not merely to check whether the aim of the recommendation was to deal with the actual problems confronting the market as a result of the continuing fall in premiums for industrial fire and consequential loss insurance and to consider whether the recommendation was a proper means of dealing with that situation, but also to assess whether the measures put into effect by the recommendation went beyond what was necessary to that end.

59. In that connection it is not necessary to examine all the arguments put forward and the expert reports produced to the court concerning the effect of the recommendation on "gross" premiums and the need for an association of undertakings seeking to re-establish viable conditions in the sector in question to take the "gross" premiums as its starting point. The question to be considered is whether the collective, fixed-rate and across-the-board increase in premiums was justified by the objective pursued.

60. By reason of its general and undifferentiated nature the increase involved a rise in premium rates which encompassed not only cover for the expenses resulting from insurance claims but also the operating costs of the insurance companies. It is apparent from the documents before the court that there were considerable differences in the level of operating costs between different insurance companies. The global nature of the increase was therefore likely to result in restrictions on competition going beyond what was necessary to achieve the intended objective.

61. By taking the view that in those circumstances the disadvantages arising from the solution chosen were, from the point of view of competition law, greater than the advantages and that, consequently, there was no improvement in the provision of services in the insurance market, the commission did not exceed the limits of the discretion vested in it in connection with the application of article 85 (3) of the EEC treaty.

62. Consequently, the contention that all the conditions for the application of article 85 (3) were met, so that the commission was obliged to grant exemption from the prohibition contained in article 85 (1), cannot be accepted. The sixth submission must therefore be rejected.

63. It follows from the whole of the foregoing that the application must be dismissed in its entirety.

Costs

64. Under article 69 (2) of the rules of procedure, the unsuccessful party is to be ordered to pay the costs if they have been asked for in the successful party' s pleading. Since the applicant has failed in its submissions, it must be ordered to pay the costs. The Gesamtverband der Deutschen Versicherungswirtschaft ev, which intervened in support of the applicant, must bear the costs arising from its intervention.

On those grounds,

THE COURT

hereby :

(1) Dismisses the application;

(2) Orders the Gesamtverband der Deutschen Versicherungswirtschaft eV to bear the costs arising from its intervention;

(3) Orders the applicant to bear the remainder of the costs.