Government competition monitors have dealt a damning blow to the brokers who complained about insurer dual pricing by dismissing their complaints.
And they added insurers setting up cheaper direct operations is actually good for the consumer.
A small band of brokers, including John Lynch of Insurance Advisory Services and Ian Holt of Colney Insurance Brokers, complained to the Office of Fair Trading that insurers were abusing their dominant position through dual pricing and were subsidising their direct arms through overpriced broker channel products. Norwich Union and Royal & SunAlliance were named.
But the OFT has thrown out all of the complaints.
In letters to the insurers and complainants, Gordon Herbert of the OFT's competition policy division says: “Products sold through brokers will not always be directly comparable with products sold through insurers' direct operations and it is to be expected that any difference in the level of cover provided will affect the premiums offered.”
Herbert accused complainants of using wild examples rather than the norm and pointed out that some price differentials favour the broker channel, which still accounted for the bulk of the motor market.
And Herbert was scathing about further attacks: “We have not found any evidence that insurers are subsidising products sold through their direct channels from the intermediary channels of their business.”
Even where price differentials did exist on a like-for-like basis Herbert said they were justified. “There is no evidence that these differences are unjustified or seek to discriminate against the intermediary channel,” he said.
And in a final blow he said introducing direct arms “will tend to increase competition between insurers, which may be expected to be to the benefit of consumers”.
NU reacted with glee. “We are delighted the OFT has ruled in NU's favour on the issue of dual pricing. This is an independent look at an issue that we know has been a cause for concern. It is more complex than taking the cost of distribution,” said spokesman James Duffell.
Andrew Paddick, director general of the Institute of Insurance Brokers said the complainants were “stupid”. “I think the people concerned have done the broking sector and the intermediary sector a dis-service through a lack of understanding of competition law,” he said. And he added they had failed to recognise the value of the broker's products.
Mike Slack, chairman of the Association of Insurance Intermediaries & Brokers, criticised the OFT ruling, but suggested the consequences of the action could make things worse: “It has probably given them licence to do whatever they want to do on the direct side.” But he demanded that the OFT or the insurers make available the figures on which the decision was made so it could be understood.
John Lynch said he and Ian Holt had already written back to the OFT contesting the findings. He said that he would take the matter to his MP and the Government.
RSA was unable to comment and the British Insurance Brokers' Association said it needed time to study the ruling before making any comment.