Canadian COMPETITION LAW

January 14, 2011

The U.K. Office of Fair Trading has announced that seven insurance companies and two IT software and service providers have offered formal commitments to resolve the OFT’s concerns in relation to an information exchange system implemented by the companies. For a copy of the OFT’s Press Release, see: Motor insurers agree to limit data exchange after OFT investigation.

In making its announcement, the OFT said:

“Insurers Ageas Insurance Limited (formally Fortis Insurance Limited), Aviva plc, AXA Insurance UK plc, Liverpool Victoria Friendly Society, RBS Insurance Group Limited, Royal Sun Alliance and Zurich Insurance plc, and the IT software and service providers Experian Limited and SSP Limited have all offered formal commitments to the OFT. This follows an OFT investigation which identified an increased risk of price coordination among motor insurers using a specialist market analysis tool by Experian called Whatif? Private Motor.

The OFT limited the scope of its investigation to a small number of parties with a view to achieving a swift and effective outcome. However, the investigation potentially has wider implications as the Experian tool is just one of a number of similar products used throughout the insurance industry.

The tool allowed insurers to access not only the pricing information they themselves provided to brokers but also pricing information supplied by other competing insurers. 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 that will result in the insurers no longer being able to access each other’s individual pricing information through Whatif? Private Motor. 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.”

Like Canada, the U.K. Competition Act 1998 prohibits certain types of agreements that may have a damaging effect on competition (in Canada, some types of agreements between competitors, including price-fixing and market allocation/division agreements, are “per se” illegal without any requirement to show anti-competitive effects, while others are potentially subject to civil review where they may prevent or lessen competition substantially in a relevant market).

Unlike Canada, where an agreement or arrangement must be proven, U.K. and EU competition rules prohibit not only certain types of anti-competitive agreements, but also “concerted practices” that have the object or effect of preventing, restricting or distorting competition.

As such, the potential risk associated with the exchange of competitively sensitive information between competitors, including through third parties such as customers or suppliers, is considered to be higher in the U.K. and Europe than in Canada (though is still considered to be a high risk area under both Canadian and American competition/antitrust law).  In this regard, courts and competition/antitrust enforcement agencies are inherently suspicious when direct competitors exchange competitively sensitive information (or engage in discussions regarding confidential or competitively sensitive aspects of their businesses).

Some of the types of competitively sensitive information that can raise issues when exchanged among direct competitors without adequate precautions include information relating to individual pricing (e.g., current or future pricing, pricing formulas and discounts), costs, sales and terms of sale, territories, capacity and production data, output, customers and business and strategic plans.

The principal risk of information exchanges between competitors is that they can lead to agreements that violate the criminal conspiracy provisions under section 45 of the Competition Act.  In addition, even where an express agreement does not exist, the exchange of competitively sensitive information between competitors can allow the federal Competition Bureau or a court to more easily infer the existence of an agreement.  For example, in its recently issued Competitor Collaboration Guidelines, the Competition Bureau has highlighted the potential risk that an information exchange between competitors can lead to the inference of an agreement that contravenes the Competition Act.

Having said that, before the 2009 amendments to the Competition Act, it was thought (at least in theory – as there had never been a decided case) that an information agreement itself could, depending on the circumstances, contravene the criminal conspiracy provisions of the Act (i.e., where an information exchange agreement prevented or lessened competition “unduly”).

This could no longer be the case under Canada’s newly amended conspiracy rules under the Competition Act, given that section 45 of the Act now only prohibits three specific categories of agreements between actual or potential competitors: price-fixing, market allocation and supply restriction agreements.

An information exchange agreement between competitors could, however, now contravene the new civil agreements provision (section 90.1), where the Competition Bureau was able to prove that it prevented or lessened competition substantially in one or more relevant markets.  It would, however, be necessary to establish both the existence of an agreement between two or more competitors, as well as the other necessary elements under section 90.1 (including the requisite market effects test – i.e., that competition has been prevented or lessened substantially as a result of the information exchange or agreement).

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