The European Commission has authorised, under EU State aid rules, a measure adopted by Denmark which provides a state guarantee on non-life insurance against damages stemming from nuclear, biological, chemical or radioactive (NBCR) terrorist attacks that exceed a certain threshold.
The European Commission has authorised, under EU State aid rules, a measure adopted by Denmark which provides a state guarantee on non-life insurance against damages stemming from nuclear, biological, chemical or radioactive (NBCR) terrorist attacks that exceed a certain threshold. The Commission found that the measure was an appropriate means of ensuring that insurance coverage against NBCR risks would be available in Denmark and approved the measure under Article 107 3 (c) of the Treaty on the Functioning of the European Union (TFEU), that allows under certain conditions aid for the development of certain economic activities. In particular, the measure is designed to be self-funding and concerns insurance cover that is currently insufficiently available on the private market.
Competition Commissioner Neelie Kroes said: "Today's decision shows that the Commission and Member States can work together on important public policy goals. The decision will ensure that insurance coverage against certain terrorist risks is available on the Danish market, while at the same time ensuring that state aid and Single Market rules are respected."
Denmark considers it an important public policy goal that Danish citizens and enterprises have access to insurance against NBCR risks. However, the global reinsurance market for low probability but high impact events such as a NBCR attack is underdeveloped and as a result there is insufficient reinsurance capacity for Danish insurers that wish to provide this cover in Denmark.
In order to ensure that NBCR coverage is available, Denmark plans to introduce a state guarantee. Under the scheme, insurers that provide NBCR insurance in Denmark will be liable for non-life damages up to a certain pre-determined threshold. The risk retained by the insurance industry is based on their capital base and the availability of NBCR reinsurance on the global market. This threshold will be reviewed every year and currently stands at DKK 5 billion. The Danish state then provides a guarantee for the next DKK 15 billion of losses that exceed this threshold.
Insurers will pay a fee for this guarantee, currently set at 0.15% of the guarantee amount (but which can vary according to the level of the threshold). Furthermore, in the event of a payout on the guarantee, Denmark will recover this payout over time from all policyholders through a levy.
The Commission has concluded that the measure complies with the conditions laid down in Article 107 3 (c) of the TFEU. The scheme favours the provision of insurance cover in an area where no or insufficient cover would otherwise be available. The aid is appropriate, necessary and proportional to alleviate the market failure in the area of NBCR coverage.
The scheme also has a limited impact on competition. The scheme is open to all Danish and foreign non-life insurance companies. Finally, the own risk retained by the insurance industry is recalculated on an annual basis. If in future the market for NBCR coverage develops, and greater reinsurance capacity is available on international markets, the insurers' own risk retention will increase and the threshold as of which the state would have to compensate losses will rise. At some point this threshold could become so high that it could become uneconomical for insurers to avail of the state reinsurance, which has a minimum fee. In this way the scheme has an inbuilt review mechanism which ensures that the state is not replacing private market operators. This will ensure that the distortions of competition are minimised.