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In a January 13, 2011 press release, the UK competition regulator the Office of Fair Trading (“OFT”) announced that a number of leading UK insurers and two IT software and service providers have provisionally agreed to limit the data that they exchange in relation to motor insurance premiums. The announcement is the latest in a long line of developments in EU and UK competition law enforcement relating to information exchange in general and the insurance sector in particular.
In June 2009, the OFT received information suggesting that a scheme for the exchange of information in relation to motor insurance cover might involve an infringement of UK and EU competition rules. The scheme - called Whatif? Private Motor - was set up and operated by IT software and service providers Experian Ltd and SSP Limited and is understood to be one of a number of similar schemes in operation in the insurance sector in the EU. Most insurers active in the UK motor insurance sector participated in the Whatif? Private Motor scheme, which allowed access to market data compiled from broker-distributed cover.
The exchange of market-related information – whether via trade associations or other third party providers – can often be legitimate and have pro-competitive effects. By way of example, in the insurance sector, historic information on claims percentages and payouts can be of significant benefit to firms considering starting to write the type of cover in question. However, as is made clear in the European Commission’s 2010 Guidelines on Horizontal Cooperation, the exchange of certain types of information among competitors can have a dampening effect on competition and can even serve to facilitate collusion among market participants.1 Factors relevant to the assessment under EU and UK competition rules of information exchange schemes include: (i) whether the information is publicly available or is confidential and commercially sensitive; (ii) whether the information is individualised or provided only on an aggregated basis; (iii) whether the information is historic, current or relates to future intentions; and (iv) the percentage of the relevant market accounted for by those involved in the scheme in question.
According to the OFT’s announcement of January 13, 2011 (and its related consultation document)2 Whatif? Private Motor allowed access to information that was:
- commercially sensitive (i.e. it enabled back-calculation of each insurer’s rating model);
- individualised (i.e. it gave access to disaggregated data showing individual insurers’ actual pricing of particular risk factors);
- related to future intentions (i.e. the information on each insurer’s pricing was available around two to three weeks in advance of it coming into effect); and
- frequently updated and exchanged.
Where information exchanged relates to companies’ individualised intentions regarding future conduct on matters such as pricing, such exchanges will likely be deemed to infringe the EU or UK provisions regulating agreements and concerted practices among two or more entities (i.e. Article 101 TFEU3 and its UK equivalent, the Chapter I Prohibition). In its public consultation document in relation to the commitments offered by the parties in the Whatif? Private Motor case, the OFT considers the possible effects of the information exchanges in question on competition in the motor insurance sector. The OFT notes in particular the high combined market shares of participants in the scheme and the manner in which the information exchanged would have allowed each of the participants to work out the others’ pricing models and strategies.
The commitments offered by the parties – which the OFT considers adequately address the competition concerns identified – include measures aimed at ensuring: (i) that the data exchanged does not relate to future intentions; and (ii) that the data exchanged must be anonymised and averaged across at least five insurers. The parties’ commitments – and the OFT’s assessment thereof – are open for comment until February 14, 2010.
The OFT’s announcement marks the latest in a number of enforcement actions and policy developments in relation to information exchange in general and the insurance sector in particular. Following the European Commission’s 2007 antitrust Sector Inquiry into Business Insurance, there have been a number of investigations at EU Member State level in relation to the insurance sector. The European Commission’s 2009 consultation on the sector-specific Block Exemption Regulation4 continued the regulator’s focus on cooperation in the insurance industry and led to its decision in 2010 to renew only parts of the Block Exemption Regulation going forward.5 It also served to alert regulators – and industry – to arrangements that might be deemed to infringe EU (and UK) competition rules.
Information exchange has also been a significant area of focus for EU and UK competition agencies in recent years. The European Commission’s 2010 Horizontal Guidelines contain detailed discussions of the assessment under EU competition rules of information exchange, which were the subject of much legal and industry comment in the course of the consultation process leading to the adoption of the guidelines. In addition, a number of recent and high profile UK cases have involved exchanges of information via third party intermediaries.6
The OFT emphasises in its announcement and consultation document that it is aware that market analysis tools similar to the Whatif? Private Motor scheme exist in relation to other types of insurance cover. A Q&A document7 accompanying the OFT’s consultation document sets out in stark terms what the OFT considers should be the impact of today’s developments on those involved in information exchange systems:
“the OFT expects insurers and information providers who either provide or make use of similar market analysis tools to Whatif? Private Motor, to review the findings of this investigation and ensure that they comply with competition law.”
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1 Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, available at: http://ec.europa.eu/competition/antitrust/legislation/horizontal_guidelines_en.pdf
2 Notice of intention to accept binding commitments to modify a data exchange tool used by Motor Insurers, available at: http://www.oft.gov.uk/shared_oft/consultations/OFT1301.pdf
3 Treaty on the Functioning of the European Union.
4 See, for further information, previous Sidley Updates dated March 26, 2009, October 7, 2009 and March 24, 2010.
5 Revised Block Exemption Regulation available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:083:0001:0007:EN:PDF. The OFT considered, but ruled out, the application of the Block Exemption Regulation to the exchanges of information at issue on the basis, inter alia, that the information exchanged contained indications of the level of commercial premiums.
6 Often in the context of so-called “A-B-C” or “Hub and Spoke” cartels.
7 Available at: http://www.oft.gov.uk/OFTwork/consultations/current/private-motor/qandas
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