The Office of Fair Trading (Britain’s competition authority) announced in early January that it had reached an agreement with seven motor insurance carriers and two computer software providers that requires them to modify the manner in which the insurers exchange pricing information. The agreement brings to an end an investigation into the competitive implications of the insurers’ exchange that the OFT had begun in January of 2010.
The OFT’s challenge focused on a computer software market analysis tool called “WhatIf?,” which was created by Experian to provide insurance brokers with the ability to quote insurance rates from multiple insurers. The tool required Experian to collect detailed pricing information from each of the participating insurers with whom the brokers did business. Experian, however, also offered this information back to the insurers themselves, in the same detailed, non-aggregated, format that it had been initially provided by the participating insurers. Moreover, this information was available to insurers before it went “live” to the brokers, providing the insurers with information not only about their competitors’ current prices, but also their future pricing plans.
In challenging the insurers’ information exchange, the OFT contended that, while there was no evidence of a direct agreement between the insurers on pricing, the indirect exchange through Experian greatly enhanced the insurers’ ability to reach coordinated decisions on insurance pricing in the private motor insurance market. Specifically, the OFT asserted that the data permitted the insurers not only to reverse engineer their competitors’ current pricing models, but also to ascertain their competitors’ future pricing plans. The OFT also contended that the exchanges did not constitute protected action under the “Block Exemption” for insurance in the EU.
To resolve the investigation, the insurers and software providers agreed that, going forward, the manner in which the information was provided to the insurers would be restricted in various ways. The insurers would no longer receive information about their competitors’ prices on a disaggregated basis (it would instead be aggregated across at least five insurers), the information would be provided on an anonymous basis (i.e., the receiving insurer would be unable to ascertain from whom any particular data other than its own had been collected), and no data would be provided to the insurers prior to its going “live” to the brokers. No change would be required to the manner in which the information was provided to the brokers, as the OFT noted that the data was necessary for the brokers to price the insurers’ products and permitted smaller and regional insurers to compete more effectively in the marketplace.
Notably, the restrictions imposed by the OFT on the insurers’ information exchange are similar in many respects to those under the U.S. antitrust laws. The 1996 DOJ/FTC Healthcare Guidelines are generally looked to as the source of guidance on information exchanges (in all industries, including insurance). The guidelines provide a “safety zone” for exchanges where the information is (1) exchanged through a third party; (2) at least three months old; and (3) aggregated from at least five competitors, with the recipient unable to determine from whom any specific data was received, with no participant accounting for more than 25 percent of the data. The proposed settlement between the OFT and the insurers draws upon many of these principles.
Finally, in announcing the settlement, Clive Maxwell, Executive Director of the OFT, stated that “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.” This is sound advice for U.S. companies as well; prior to engaging in any information exchange with a competitor, whether through a trade association, a benchmarking exercise, or otherwise, an insurer should carefully assess whether the exchange will be operated in compliance with the DOJ/FTC Healthcare Guidelines.