The UK Office of Fair Trading (OFT) has announced that it intends to close a competition investigation into information exchange between motor insurers, following formal commitments from the companies concerned to limit the exchange of information on individual pricing strategies.

Facts

The OFT announced on 13 January 2011 that seven insurance companies (Ageas Insurance Limited (formally Fortis Insurance Limited), Aviva plc, AXA Insurance UK plc, Liverpool Victoria Friendly Society, RBS Insurance Group Limited, Royal Sun Alliance and Zurich Insurance plc), and two IT software and service providers (Experian Limited and SSP Limited) have offered formal commitments to limit the type of information shared through a specialist market analysis tool called Whatif? Private Motor.

The commitments flow from a formal investigation, launched by the OFT in January 2010, to establish whether operation of the tool led to the exchange of commercially sensitive information, contrary to UK and/or EU competition law.

OFT Concern

According to the OFT’s press release, the exchange of information facilitated by the WhatIf? tool, which was developed by Experian, raised competition law concerns because:

  • insurers were able to access individualised and highly disaggregated pricing data for vast numbers of permutations of customer risks across most competing private motor insurers that sold through brokers;
  • this pricing information was not genuinely public information, since it would be almost impossible for one insurer to gather such a volume of quote information in practice;
  • insurers were able to access information about their competitors’ future pricing intentions, as relevant data were received in advance of the pricing information going ‘live’ in insurance policies; and
  • the tool was updated and provided to subscribing insurers on a regular basis.

As a result, the OFT was concerned that use of the tool led to an increased risk of price coordination among the motor insurers concerned.

Commitments

In order to address the OFT’s concerns, the companies under investigation have offered to give formal commitments to alter the way in which the Whatif? Private Motor tool will operate. Under the commitments proposed, the insurers will no longer be able to access each other’s individual pricing information through the tool. Rather, the pricing information exchanged will be anonymised, aggregated across at least five insurers and reflect ‘live’ broker-sold policies.

The OFT is currently consulting on the full text of the proposed commitments, with a deadline of 14 February 2011. Assuming that the commitments are subsequently accepted by the OFT, the OFT will then terminate its investigation, without reaching any finding as to infringement.

The OFT limited the scope of its investigation to a small number of parties, to facilitate a “swift and effective outcome”. However, the OFT has noted that it is “aware that similar market analysis tools exist both in motor and other insurance markets and [urges] companies using them to ensure that they are complying with competition law.”

Comments

The case is noteworthy for a number of reasons. First, it highlights that price comparison tools can give rise to competition law concerns, even though they are typically seen as a means of keeping prices down. This is also notable as the first time since 2006 that the OFT has used the formal commitments procedure, rather than the more flexible but potentially less certain informal resolution procedure.

The case also provides a timely reminder of the competition law concerns that can arise from any exchange of commercially sensitive information. These are also reflected in the European Commission’s new Guidelines on Horizontal Co-operation Agreements (Guidelines) (published on 14 January 2011) and the new Insurance Block Exemption Regulation (Regulation) (which entered into force on 1 April 2010). While the Guidelines acknowledge that information exchanges can be pro-competitive, as they can lead to the intensification of competition or significant efficiency gains, they also note that the exchange of commercially sensitive information is likely to be anticompetitive in circumstances where it enables companies to be aware of, and ultimately take advantage of, the market strategies of their competitors or if it acts as a means of reinforcing wider collusion.

The importance of certain types of information exchange within the insurance sector, particularly to assist with the assessment of the costs of covering risks, is acknowledged in the Regulation. This provides a safe harbour from the prohibition of anticompetitive agreements for the exchange of information necessary for joint compilation of information on the average costs of covering specified past risks or of mortality tables, provided that certain conditions are met, including that there is no disclosure of the level of commercial premiums. This OFT case is a timely reminder that this is a limited safe harbour and that, as a result, insurers should undertake a risk assessment for any information exchange that goes beyond its scope.

For further details please contact Becket McGrath (London) or Jo Love (London).