AS378 – INSURANCE SALES AND THIRD-PARTY AUTO POLICIES
PRESS RELEASE
PRESS RELEASE
INSURANCE: ANTITRUST AUTHORITY CALLS FOR STRENGTHENING OF BERSANI DECREE TO ENCOURAGE COMPETITION
A single market is needed and exclusive arrangements for all types of policies should be phased out over time
Introduction of what should eventually become a single market system by abolishing exclusive arrangements for all types of insurance policies and provision for a mechanism whereby agents’ remuneration is increasingly represented by the commissions paid by customers for advice and assistance. These are changes to Article 8 of the Bersani Decree, which deals with “anti-competitive clauses in third-party automobile insurance”, suggested by the Italian Competition Authority in a report sent to Parliament and the Government. The Authority believes these corrections can reinforce the decree’s effectiveness by encouraging competitive comparisons among the products on offer in the market, with benefits for large numbers of consumers in terms of lower prices, greater transparency and better service for insurance policies, including third-party motor vehicle insurance.
In general terms, the Authority agrees with the Bersani Decree’s remodelling of the distribution system to increase competition in the third-party insurance market.
The decree banned exclusive sales arrangements only in the case of third-party motor vehicle policies, stipulated that sales commissions should be published for the sale of such policies, and prevented insurance companies from imposing minimum prices or maximum discounts on agents.
In the Authority’s view, however, limiting the ban on exclusive arrangements to third-party motor vehicle policies diminishes the decree’s effectiveness in achieving its objective of greater competition. An owner who requests total cover for the risks associated with driving a motor vehicle (fire and theft, no-fault collision, driver injury, legal protection, breakdown assistance), will probably be offered a policy from the company with which the agency continues to have an exclusive relationship for branches other than third-party auto insurance. The same probability exists for all non-auto insurance cover, for which buyers tend to turn to the same agent.
In its report, the Authority points out that international experience and theoretical studies alike show that, in the case of highly standardized policies like motor vehicle risks, it is preferable to have an insurance market that gives a greater role to brokers or independent advisers. In any case, a gradual move toward a system where the agent is paid by the client (a solution which is already widely used for some categories of agents in other fields), would also help solve the problem of incentives for the seller, since his retribution would be independent of the amount of the premium.
As to the matter of the obligation to inform the consumer, the Authority’s view is that knowing the amount of the commission earned by an agent for the sale of a single policy is partial and not very useful information for the consumer. In some cases such information could even induce the consumer to make a distorted choice, as in the case of a high commission offered to the agent by a company keen to enter a market in which it will then become a competitive force.
Lastly, the Authority emphasizes in the report that the ban on the imposition of maximum discounts or minimum prices could conflict with the requirement for stability in insurance companies, since part of the premium paid serves to finance the paying out of future claims. It is no coincidence that so-called tariff flexibility (or the discounting system) is the subject of oversight by the competent Authority precisely because it affects the companies’ premium income needs. If instead agents were free to set their own remuneration levels based on negotiation with customers, as the Authority suggests, they could decide for themselves the size of any discount to be offered, as already happens in numerous business sectors.
Rome, 16 January 2007