Where the buck stops: Motor insurers and competition law
How are Irish consumers faring in the midst of it all? Expert Dorothea Dowling outlines what's happening
Tomorrow marks two years since the Competition and Consumer Protection Commission [CCPC] announced an investigation into suspected breaches of competition law by motor insurance providers.
The announcement seemed somewhat dramatic at the time.
It came during hearings with various witnesses into the insurance cost crisis by the Joint Oireachtas Committee on Finance, Public Expenditure and Reform.
In the subsequent days it emerged the CCPC had been monitoring the sector for some time. Indeed, in October 2015 a decision had been taken not to pursue enforcement action at that stage. The focus of the CCPC investigation is on price signalling.
I am not an expert on competition law. However, research indicates that this activity could be summarised in lay terms as what I would call megaphone collusion.
That's where company executives and/or industry representative bodies announce what the future price increases are going to be.
You might ask, why is it bad for consumers to be told in advance the extent to which they will be forced to adjust their household budgets to absorb higher car insurance costs?
That brings us to the thin blue line of the balance between law enforcement and the victims of unlawful activity.
In the competition context, this seems to be only an emerging area of case law at both national and EU level.
Basically, the mischief to be prevented is that announcements on future pricing could result in co-ordinated activity by competitors.
The uncertainty about what their rivals are going to do in the future is reduced. Such reduction in market pressures means bad value for consumers.
The benefits of competitive markets include fostering innovation, productivity and growth, all of which should create wealth and reduce poverty.
The difficulty with that theory in the context of compulsory motor insurance is that purchase of the product is compulsory.
This reduces the pressure which consumers might otherwise exert by refusing to buy something that is overpriced.
As summarised by the OECD: "While anti-competitive conduct by firms is an obvious cause of weak competition, inappropriate public policies, and the power of vested interests to block necessary reforms, can also be important." Shades of all those dimensions might be detected in Ireland.
So, when can consumers expect to hear the outcome of the CCPC investigation?
Well, these things take time. There is a lot at stake and hard evidence must be secured.
An individual involved in a cartel faces 10 years in prison and a fine up to €5m. And a company can be levied with a fine of 10pc of annual global turnover.
The DPP can offer immunity or reduced fines for blowing the whistle on fellow cartel members.
But, despite such deals being done, company share values can also plummet.
At the opening of business on July 26, 2018 Facebook was worth $630bn. That had fallen to $510bn by close of business after the Cambridge Analytica scandal. It was one of the biggest one-day losses in US corporate history.
But do victims of such unlawful activities ever secure anything other than moral victory after findings that corporate ethics on companies' boards proved wanting?
The EU has tried to introduce redress for any person who has suffered harm caused by infringement of competition law.
That Damages Directive came into operation on December 27, 2016. The relevant regulation proposes full compensation, although it also abolished awards of exemplary damages previously available for competition infringements in Ireland.
The extent to which this redress will be sought by private litigants remains to be seen. Personally, I would have more confidence in disruptive change being wrought on the dysfunctional insurance market by the activities of the EU Anti-Trust Directorate.
On July 4 last year, their investigation involved dawn raids on insurers and brokers where documents were seized to explore a much wider remit than price signalling.
It seems the reason the EU Commission are taking an interest is because we are supposed to have a European single market for financial services, and freedom of movement is one of the four fundamentals of the common market.
Excessive motor premium charges can represent barriers to the free movement of people, goods, capital and services. Maybe our membership of the EEC will deliver for us again.