Update on Competition Commission investigations: healthcare insurance and motor insurance
1) Private healthcare insurance
On 28 February this year, the Competition Commission (CC) published provisional views on competition issues in the UK private healthcare market. Its investigation includes a key focus on the conduct of private medical insurers, including on whether certain insurers exercise buyer power in relation to individual consultants. The CC is concerned that this buyer power may mean that insurers only contract with those consultants who do not charge fees for their services beyond the maximums that insurers are willing to pay, and that this might be disadvantageous for patients, by restricting patient choice of consultants.
The CC is also investigating the interrelationship between insurers and private hospital operators, in particular:
- whether private hospital operators have market power in negotiations with insurers and whether this could be leading to higher prices for patients; and
- whether volume-related discounts offered to insurers by hospital operators increase barriers to entry for new hospital operators.
The CC is expected to publish its final assessment on the healthcare market in March 2014.
2) Private motor insurance
The CC in February 2013 published an update to its investigation into the UK private motor insurance market in the UK, which began in September 2012. The CC is concerned that prices of compensatory services (e.g. repair, legal and medical services) supplied following a road accident are increased due to the incentives created by the UK system of cost allocation. Under this system, the cost of compensatory services is paid by the fault-party insurer, but selected by the nonfault- party, so that the insurer paying for the services is not in control of its costs.
The CC is also investigating whether consumers suffer harm as a result of the following characteristics of the motor insurance market:
- a potential lack of alignment between the interests of consumers and those of parties who procure post-accident services on consumers’ behalf;
- the prevalence of add-on insurance in the sector, for example, legal expenses cover, windscreen cover and breakdown cover. The CC considers that add-on insurance products can be complex, that it may be difficult for consumers to know exactly what is included or excluded, and that information available at the point of sale may not be sufficient to enable consumers to understand these products fully or estimate their value;
- no-claims bonuses disincentivising consumers from switching;
- whether certain clauses in contracts between insurers and price comparison may be harmful to competition; and
- in Northern Ireland alone, whether a limited choice of insurers is allowing insurers to charge higher prices or reduce the quality of service offered.
Update on other competition investigations: add-on insurance and co(re) insurance
1) FSA study into add-on insurance
In December 2012, the FSA announced a study into general add-on insurance products, such as insurance sold in conjunction with large purchases like cars or holidays. The FSA will assess whether the add-on market contributes to the weakening of competition, or driving poor consumer outcomes. In March 2012, in its Retail Conduct Risk Outlook, the FSA commented that the bundling of add-on insurance products, sometimes at a high profit margin, might impact on consumers’ understanding of the overall value and cost of the primary product. The FSA is undertaking this study in preparation for the transition to the FCA, a new financial services regulator which will also wield competition powers. The Handbook for the new FCA comes into force on 1 April 2013.
2) European Commission study into co(re)insurance pools and subscription
In February 2013, the European Commission (the “Commission”) published a study of competition issues within co(re)insurance pools and agreements on the subscription market.
A previous inquiry by the Commission into the business insurance sector, published in 2007, had flagged concerns that anti-competitive agreements or concerted practices might be leading to the alignment of premiums in the market for joint reinsurance. This year’s study has found that the subscription market is competitive. The Commission found that such alignment is instead the result of market equilibrium following an intensely competitive auction process for the selection of the lead insurer in a pool and the competitive negotiation of terms and conditions, including premiums.
However, despite this, the Commission did note that in relation to co(re) insurance pools and line slips, businesses are not conducting adequate competition self-assessments and there is only “mixed” awareness of the Insurance Block Exemption Regulation, which grants certain pools a safe harbour from certain competition restrictions.
Payment protection products - final guidance
Following the PPI mis-selling investigation, in January 2013 the OFT and FSA issued final guidance on a new generation of payment protection products (“PPP”). The guidance warns firms of the risks of PPP, such as firms not identifying, or tailoring their product to, their target market adequately, and provides tips on how a firm might design PPP in order to comply with the regulatory regime.