All is not well in the Irish insurance industry

It’s a curious thing that the competition authority and the insurance industry were claiming a triumph of sorts last week following a five-year investigation into alleged price signalling by the insurers.

On one side, the Consumer and Competition Protection Commission (CCPC) announced that it had secured legally binding commitments from six leading motor insurers in the Irish market to “reform their internal competition law compliance programmes”.

In September 2020, the CCPC issued preliminary findings from its investigation alleging that the insurers had engaged in anti-competitive co-operation over a 21-month period during 2015 and 2016, via price signalling. All of the insurers denied that they were in breach of competition law.

The insurers in question were AIG, Allianz, AXA, Aviva, FBD and AA Ireland, and they have agreed to independent oversight of their competition compliance programmes. It sounded like a victory for the CCPC when it was announced last Thursday, although questions are now being asked about how “independent” this oversight will be.

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On the other side, Moyagh Murdock, chief executive of industry group Insurance Ireland, said its members had “constructively engaged” with the CCPC throughout this process, and proudly noted that “no breaches of competition law were found”.

Murdock said the implementation of these “compliance reforms” by its members demonstrated a “commitment to competition law compliance, which... supports markets to operate in a fair and competitive way and ultimately for the benefit of consumers”.

Sinn Féin’s finance spokesman Pearse Doherty described it as boasting by the industry and lamented the fact that the CCPC did not take legal actions against the insurers.

You would have to wonder why the insurers agreed to sign up to legally binding agreements with the CCPC if they hadn’t broken the law. Brokers Ireland was also captured by this investigation but steadfastly refused to sign up to the agreement with the commission, insisting that it hadn’t broken the law. It faces no further action as the investigation is now closed.

“The nature of the CCPC processes raises concerns especially where, as here, preliminary findings were issued and the CCPC didn’t respond to detailed submissions on these findings,” Diarmuid Kelly, chief executive of Brokers Ireland said, adding that the compliance framework sought by the commission has essentially been in place at his organisation since 2017.

The real winners in this arrangement between the CCPC and the insurers are the auditors and accountants who will be remunerated to provide these reports, which must be submitted annually to the CCPC. This will be another cost to insurers, and one that will be passed on to motorists.

What this case has highlighted is the inadequacy of the CCPC’s powers, something that was acknowledged in its statement last week.

Current legislation only allows a fine to be imposed by the courts for a criminal breach of competition law, unlike in most other EU countries. The CCPC’s powers in relation to non-criminal breaches are “limited and do not pose a significant deterrent”, as noted by law firm Beauchamps in an advisory to clients in January.

The CCPC can only seek commitments from a business that they will cease the practice and obtain an injunction against them doing the same action again.

Change

This is set to change with the anticipated enactment of the Competition (Amendment) Bill, which will transpose an EU directive into Irish law.

The new Bill will ensure that fines can be imposed for non-criminal breaches of EU competition law, along with a raft of other powers.

All is not well in the Irish insurance industry. We should be concerned that this is the third investigation by the CCPC into the sector in recent years. This latest one has prompted the commission to write to the Central Bank of Ireland – the insurance sector’s financial regulator.

The CCPC said it was not giving the industry a “clean bill of health” and that its letter to the Central Bank has outlined “broader cultural concerns in the industry which have come to light during the course of the investigation”, adding that it was available to assist in any look into “wider cultural issues in the financial services sector”.

In June, the European Commission informed Insurance Ireland of its preliminary view that it breached EU antitrust rules by restricting competition in the Irish motor insurance market, in relation to certain conditions of access to a data sharing system, which Insurance Ireland administers.

That same month the Central Bank proposed to ban home and motor insurance companies from imposing so-called loyalty penalties on long-standing customers.

We have also seen the collapse of a number of insurers, including Quinn, Setanta and Enterprise, which disrupted the market and pushed added costs onto consumers here. RSA was the biggest player in the market until a major accounting scandal emerged in 2013 and it required a €423 million injection of cash from its parent group to shore up its balance sheet.

Whether it’s the Central Bank or the CCPC or both, it is long past time for a deeper dive into the workings and culture of the Irish insurance industry.