In December 2012 the Competition Authority (the “Authority”) issued guidelines about the use of “preferred arrangements” in the insurance sector with a specific focus on preferred repairers in the motor and housing industries. The guidance follows an investigation by the Authority into the compatibility of such arrangements with competition law.
Preferred repairer arrangements involve insurance companies entering into arrangements with service providers to repair, restore or replace a car or building when an insurance claim is made. The Authority regularly receives complaints about this, with some consumers complaining that the arrangements limit their choice and some repairers arguing that the arrangements deny them access to the market.
Accordingly, in analysing the competition impact of such arrangements, the Authority considered three key issues:
- the cost efficiencies achieved by insurance companies and the likelihood of lower costs being passed on to policyholders through lower premiums;
- the negative impact on repairers outside the arrangement, particularly the frequency of tenders for repairer contracts and the potential for foreclosure effect; and
- the impact on policyholders, including the use of financial incentives/disincentives regarding the use of preferred repairers and the protection offered by the Consumer Protection Code 2012 in relation to the quality of work done.
Concluding that these arrangements generally result in benefits for the consumers and do not breach EU or Irish competition law, the Authority also noted that “the purpose of competition law and policy is to protect competition, not firms who have trouble competing”. The Authority’s research uncovered no evidence that the preferred repairer arrangements are exclusive. This means that insurers are free to enter into agreements with any repairer of their choosing and, similarly, repairers are free to compete for insurance claim-related business with any insurer.
Furthermore, the Authority found that the efficiencies produced from the application of these arrangements far outweigh any negative impacts on individual consumers who may wish to have the repairs done by their own chosen repairer. The Authority cited the European Commission’s guidelines on vertical restraints stating “the decisive factor is the overall impact on consumers of the products within the relevant market and not the impact on individual members of this group of consumers”.
International opinion in this area appears to support the Authority’s view. Indeed the OECD has stated that “while seeming to limit consumer choice [preferred repairer arrangements] can both reduce costs and increase quality directly and provide incentives for repairers to compete on the basis of cost and quality, rather than by exploiting consumers and insurers”.
Finally, in the UK, whilst the Office of Fair Trading has recently requested the Competition Commission to conduct a full investigation into the private motor insurance industry amid fears that certain features of the industry distort competition, it did not express concern about preferred arrangements. In fact it specifically found that such schemes “appear to offer consumers benefits of speed and convenience” and “remove the otherwise unavoidable delays of obtaining competing estimates”.