Short-term insurers under investigation for outrageous price-fixing
The Namibian Competition Commission has launched an investigation into short term insurers, after findings show that various short-term insurance companies have engaged in collusive conduct, specifically price fixing, in contravention of the Competition Act by setting maximum mark-up rates that panel beaters should charge for repairs to insured vehicles.
The Commission’s preliminary investigative findings show that insurance companies have set the maximum rates and mark-up in order to reduce their cost without having regard to panel beaters input cost. In doing so, insurance companies unjustly influence the price rather than allowing competition to determine the prevailing market conditions.
The Commission’s investigations found that on top of setting maximum mark-ups on parts, these insurance companies further impose maximum labour rates to be charged by panel beaters for the rendering of their services. Labour rates refer to the costs per hour charged by panel beaters for the repair of vehicles while mark-up rates refer to the margins that panel beaters add on top of the costs of vehicle parts.
The specific insurers under investigation include; Santam Namibia Ltd, Alexander Forbes Insurance Company Ltd, Hollard Insurance Company Ltd, Old Mutual Short-Term Insurance Company Ltd, Outsurance Insurance Company of Namibia Ltd, Phoenix Assurance Namibia Ltd and Momentum Short-Term Insurance Ltd (previously Quanta Insurance Ltd).
The Competition Act, 2003 classifies price fixing conduct as prohibited, rendering the conduct as inherently illegal without extrinsic evidence of the effect of the conduct. The conduct by the insurance companies (otherwise competitors) is designed to subvert competition and is characterized globally as cartel conduct being amongst the most egregious forms of collusion between competitors.
“The setting of mark ups and labour rates, which are in material respects identical between the various insurance companies, gives rise to a finding that there exists a concerted practice between the insurance companies mentioned above,” a statement issued by the Commission said.
Moreover, these insurance companies further benefit from the costs imposed to the detriment of reduced panel beater competition and limited consumer choice and potentially, prevent consumers from having access to better pricing.
“Under normal competitive conditions, insurance companies would consider the lowest substantial quotation from a group of panel beaters, panel beaters would as a result seek to compete against each other to ensure that they secure the work through employing innovative strategies that would reduce cost and improve efficiency. This innovation has however been curtailed as a consequence of the behaviour by the concerned insurance companies,” the Commission stated.
However, as of current, the Commission’s findings are preliminary, thus no final decision has been made. Meanwhile, all affected undertakings, including the insurance companies, have been duly notified of the Commission’s findings and an oral conference is scheduled for 29 August 2018.
At this conference, these undertakings are expected to make representations to the Commission on its preliminary investigative findings before a final determination is made regarding whether or not the Commission will refer the matter to the High Court for remedial action as prescribed in the Competition Act.