Seven major car insurers have been ordered to limit the amount of data they share on pricing amid suggestions their practices could be in breach of UK competition law. The Office of Fair trading (OFT) has warned Ageas, Aviva, Axa, Liverpool Victoria, Royal Bank of Scotland Insurance, RSA and Zurich that their use of a computer system that allows them to share information on pricing strategy could potentially lead to drivers being charged a higher premium.
The computer system, known as “WhatIf? Private Motor” supplied to insurers by the credit reference agency Experian, gathers detailed information on the quotes that participating companies provide to brokers and allows them to analyse price points and risk assessments applied by their competitors. Insurers have agreed to stop using the program in its current form and that all data provided in the future will be anonymous and represent an average of at least five insurers. Price changes will only be available once they have “gone live” going forward.
The OFT launched an investigation after being contacted by RSA in May 2009. The probe has been halted in light of the fact that the insurance companies involved have now agreed to modify the way they use the computer system meaning that the OFT will not rule on whether individual firms were in breach of competition rules. A spokesperson from the OFT said: “Being able to view competitors’ pricing strategies could potentially have led to the risk of price co-ordination, putting upward pressure on premiums.
“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. “We are aware that similar market analysis tools exist both in motor and other insurance markets and we urge companies using them to ensure that they are complying with competition law.”
Rupert Roker, of Consumer Focus says: “We welcome the OFTs announcement that motor insurance companies will be prevented from sharing this type of information that they have in the past. “A motor insurer knowing what prices a customer will be quoted by other firms is very bad news for consumers. It reduces the chances of insurers genuinely competing on price and could end up significantly hitting the pockets of unsuspecting consumers. We hope the OFT applies this to other forms of insurance and extend it to all analysis tools used by the industry to ensure consumers aren’t losing out.”
The UK car insurance industry has been increasing prices over the past 12 months after making losses over the last 16 years. According to the AA, average comprehensive car insurance premiums rose by 39% to £792 in the 12 months to September 2010, the largest annual rise on record.
John Holmes, principal economist at consumer group Which? said that the car insurance industry’s use of competitor’s data could be the tip of the iceberg and called for a thorough investigation to ensure that the practice is not more widespread: “The OFT must now widen its investigation to other parts of the insurance industry and impose significant penalties on any firms it finds to be engaging in anticompetitive behaviour.”
