OFT investigation raised concerns over risk of price coordination

Seven of the UK’s biggest insurance companies and two IT software and service providers have agreed to limit the data that they exchange between them following the raising of competition law concerns by the Office of Fair Trading (OFT).

Ageas, Aviva, AXA, Liverpool Victoria, RBS Insurance Group, RSA and Zurich have all offered formal commitments to the OFT in the wake of an OFT investigation which identified an increased risk of price coordination among motor insurers using Experian’s specialist market analysis tool Whatif? Private Motor.

Experian Ltd and SSP have agreed to offer the same commitments.

The OFT said it had limited the scope of its investigation to a small number of parties with a view to achieving a swift and effective outcome. But it has warned that the probe could have wider implications as the Experian tool is just one of a number of similar products used throughout the insurance industry.

The OFT warned the firms that the information exchanged through WhatIf? Private Motor raised competition law concerns because:

  • the analysis tool enabled insurers to access individualised and highly disaggregated pricing data for vast numbers of permutations of customer risks across most competing private motor insurers that sold through brokers;
  • the information accessible through the analysis tool was not genuinely public information. While it would, in theory, be possible to replicate the information by obtaining individual quotes from insurers, this would be almost impossible in practice as it would require obtaining hundreds of thousands of individual quotes;
  • insurers were able to access information about their competitors’ future pricing intentions as the tool was received by insurers in advance of the pricing information going ’live’ in insurance policies sold by brokers; and
  • the analysis tool was updated and provided to subscribing insurers on a frequent and regular (monthly) basis.

The nine companies under investigation are proposing to address the OFT’s concerns by giving formal commitments which will result in the insurers no longer being able to access each other’s individual pricing information through Whatif?. Instead, they propose to exchange pricing information through the analysis tool only if that information meets certain principles agreed with the OFT. These would require the pricing information to be anonymised, aggregated across at least five insurers and already 'live' in broker-sold policies.

An RSA spokesman said: “RSA confirms that when it had identified concerns over the use of information exchange tools in the UK insurance sector, it alerted the Office of Fair Trading.

“We are fundamentally opposed to any practice that is or has the potential to be anti-competitive. Having reported the matter to the Office of Fair Trading, we have co-operated fully with the investigation and have been granted 100% immunity .

“RSA fully supports a transparent, fair and open marketplace. We pride ourselves on doing the right thing and always act in the best interests of customers”.

The OFT is consulting on a draft text of the formal commitments being offered by the parties. Formal acceptance of commitments would result in the OFT terminating its investigation, and not proceeding to a decision on whether or not the Competition Act has been infringed by any of the companies under investigation.

OFT executive director Clive Maxwell said: “'Active competition between firms drives better value for consumers and growth for the economy, and anything that potentially dampens that is a cause for concern. The OFT treats possible breaches of competition law very seriously, but we believe that formal commitments in this case would be a proportionate way of resolving our concerns. “

“'We used our discretion to limit our investigation's scope in order to reach a quick and effective outcome. However, 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.”

The ABI has defended insurers following the OFT's probe.