Online insurance information and its possible misuse
Motor insurers agree to limit data exchange after OFT investigation
13 January 2011
Seven insurance companies and two IT software and service providers have provisionally agreed to limit the data that they exchange between them after the OFT raised competition law concerns.
Insurers 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 the IT software and service providers Experian Limited and SSP Limited have all offered formal commitments to the OFT. This follows an OFT investigation which identified an increased risk of price coordination among motor insurers using a specialist market analysis tool by Experian called Whatif? Private Motor.
The OFT limited the scope of its investigation to a small number of parties with a view to achieving a swift and effective outcome. However, the investigation potentially has wider implications as the Experian tool is just one of a number of similar products used throughout the insurance industry.
The tool allowed insurers to access not only the pricing information they themselves provided to brokers but also pricing information supplied by other competing insurers. The OFT warned the firms that the information exchanged because:
- the analysis tool enabled insurers 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
- the information accessible through the analysis tool was not genuinely public information. While it would, in theory, be possible to replicate the information by obtaining individual quotes from insurers, this would be almost impossible in practice as it would require obtaining hundreds of thousands of individual quotes
- insurers were able to access information about their competitors’ future pricing intentions as the tool was received by insurers in advance of the pricing information going ‘live’ in insurance policies sold by brokers, and
- the analysis tool was updated and provided to subscribing insurers on a frequent and regular (monthly) basis.
The nine companies under investigation are proposing to address the OFT’s concerns by giving formal commitments that will result in the insurers no longer being able to access each other’s individual pricing information through Whatif? Private Motor. Instead, they propose to exchange pricing information through the analysis tool only if that information meets certain principles agreed with the OFT. These would require the pricing information to be anonymised, aggregated across at least five insurers and already ‘live’ in broker-sold policies.
The OFT is consulting on a draft text of the formal commitments being offered by the parties. Formal acceptance of commitments would result in the OFT terminating its investigation, and not proceeding to a decision on whether or not the Competition Act has been infringed by any of the companies under investigation.
Clive Maxwell, Executive Director at the OFT said:
‘Active competition between firms drives better value for consumers and growth for the economy, and anything that potentially dampens that is a cause for concern. The OFT treats possible breaches of competition law very seriously, but we believe that formal commitments in this case would be a proportionate way of resolving our concerns.
‘We used our discretion to limit our investigation’s scope in order to reach a quick and effective outcome. However, we are aware that similar market analysis tools exist both in motor and other insurance markets and we urge companies using them to ensure that they are complying with competition law.’
- The Competition Act 1998 prohibits agreements, practices and conduct that may have a damaging effect on competition in the UK. The Chapter I prohibition covers anti-competitive agreements and concerted practices that have the object or effect of preventing, restricting or distorting competition in the UK or a part of it and which may affect trade in the UK or a part of it.
- The Act allows the OFT to accept binding commitments from those under investigation, although generally not for secret cartels (such as price fixing, bid rigging, establishing output restrictions or quotas, sharing and/or dividing markets) or in cases involving serious abuse of a dominant position. The formal acceptance of such commitments, which must address the OFT’s competition concerns, requires the OFT to close its investigation into the conduct addressed by the commitments.
- The proposed commitments will be consulted on before they are accepted by the OFT. A copy of that text and an accompanying consultation document can be dowloaded from the consultation page.
- A decision by the OFT accepting binding commitments will not include any statement as to the legality or otherwise of the conduct by the parties under investigation either prior to acceptance of the commitments or once the commitments are in place.
- The OFT launched its investigation in January 2010.