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"1.
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".2
Footnotes
1. The interface between competition and consumer policies; OECD Roundtable; 2008
2. OFT Press release No.48/93; See http://www.oft.gov.uk/news-and-updates/press/2012/85-12
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