In its final report released on 31 March 2015, the Competition Policy Review Panel (chaired by Professor Ian Harper) has maintained some of the draft competition policy recommendations that were supported by insurers, but did not single out the general insurance sector in making these recommendations. The Panel also failed to heed the call of insurers and the broader business community to refrain from recommending amendments to the prohibition on the misuse of market power in section 46 of the Competition and Consumer Act 2010 (Cth) (CCA).
On competition policy, the Panel recommends that Australian governments review regulations to ensure that unnecessary restrictions on competition are removed, which may result in statutory insurance schemes being opened up to competition. Disappointingly for insurers, the Panel did not identify statutory insurance schemes as either a priority for regulation review (these being planning and zoning, taxis and ride-sharing, and mandatory product standards) or an area where there is a need for immediate reform (being retail trading hours, parallel imports and pharmacy location and ownership rules).
The Panel has also maintained its recommendations in relation to government competitive neutrality policies. While it is hoped these may result in government providers of statutory insurance being subject to the same prudential requirements as other insurers, these recommendations are only general in nature and will require further active advocacy by insurers in order for such results to be achieved.
The Panel recommends a number of changes to the competition legislation. Significantly, the Panel recommends bringing the misuse of market power prohibition in section 46 of the CCA into line with the other provisions in Part IV of the CCA. If implemented, these amendments would expand the reach of section 46 and make it easier to prove a contravention, primarily because of the removal of the "take advantage" limb and the addition of an "effects" test.
The Australian Competition and Consumer Commission (ACCC) has long advocated for the addition of an effects test on the basis that it is difficult for it to prove the subjective purpose of an accused.
The taking advantage limb has traditionally provided comfort to firms engaging in conduct that would be a rational business strategy even for a firm without substantial market power. The Panel initially proposed including an express defence to this effect. The removal of this limb would expand the reach of the prohibition and place significant importance on the interpretation of the substantial lessening of competition test, which the Panel recommends inserting in place of the existing proscribed anti-competitive purposes. The Panel recommends requiring Courts to have regard to specific factors that increase or lessen competition including efficiency, innovation, product quality or price competitiveness. In our view, the inclusion of those factors would not alter the nature of the test. Existing jurisprudence establishes that the test requires a comparison of the state of competition in the relevant market with and without the conduct, including pro-competitive and anti-competitive factors.
The Panel also recommends allowing the ACCC to authorise conduct which satisfies a public benefit test. However, the time and cost associated with an authorisation application means that significant forward planning and investment would be required by firms with substantial market power seeking to rely on authorisation as a basis to engage in conduct that could lessen competition.
If adopted by the Australian government, the amendments to section 46 have the potential to result in uncertainty as larger insurers grapple with questions of whether the changes mean unilateral conduct by them might be said to have the likely effect of substantially lessening competition and whether authorisation is required in respect of that conduct.
In a plus for insurers offering deals to customers in conjunction with third parties, the Panel recommends that the prohibition against third line forcing be changed from a per se offence, to one which is competition tested. This reform has been recommended by many of the previous reviews of Australian competition laws, yet has remained unchanged by governments to date. The Panel's recommended approach would reduce the cost and administrative burden on insurers of having to notify the ACCC of third line forcing conduct prior to engaging in it, despite such conduct rarely raising competition concerns.