Big insurance raid – What the Competition Commission knows, and what it needs to prove

The Competition Commission is concerned about large insurance companies sharing backroom data to develop products, but they will have to prove there was an agreement or concerted practice to collude on products and pricing.

Yesterday, the Competition Commission said it was conducting search and seizure operations at the premises of eight insurance companies operating in Gauteng, KwaZulu-Natal, and Western Cape provinces.

The raid included the offices of BrightRock, Discovery, FMI, Hollard, Momentum, Old Mutual, Professional Provident Society, and Sanlam.

The Commission said it has reasonable grounds to suspect they have engaged in collusive practices to fix prices and trading conditions regarding fees for investment products.

The collusion included retirement annuity and premiums for products such as dread disease cover, disability cover, life cover, and funeral assistance benefits.

The Competition Commission said they have evidence to suggest the companies may have contravened the Competition Act.

“The companies share information on premium rates for risk-related products and fees for investment products, which enables them to adjust the prices of their existing and new insurance products,” the Commission said.

During the search, the Commission seized documents and electronic data, which will be analysed with other information gathered to determine whether these firms have contravened the Act.

Makgale Mohlala, manager of the cartels division at the Competition Commission, explained that they are not looking at the retail price of the investment products.

Instead, the Commission is investigating the information used to develop and price new retirement annuities and premiums for risk-related products.

Mohlala explained that they are investigating the exchange of actuarial data and information used to develop insurance products.

“We have information that the insurance companies are engaging and are sharing passcodes to access each other’s systems to share information,” he said.

Commenting on the absence of Liberty from the list, Mohlala said it is one of the companies they are investigating. However, they did not have any information to justify a raid.

Ahmore Burger-Smidt, director and specialist in competition law at Werksmans Attorneys, said the Commission is looking at price fixing in a trading condition.

To make the case stick, the Commission must prove that there was an agreement or concerted practice and similar behaviour among the insurance companies.

It will have to present this information in front of the Competition Tribunal to prosecute the insurance companies for collusion.

She said the Competition Commission must have prima facie evidence about collusion to have convinced a judge to issue a search and seizure warrant.

Burger-Smidt commented there is nothing wrong with following publicly available information and building products based on this data.

However, it becomes collusion when companies get together to decide which products they will launch and at what price points.

She said the premiums of some insurance products, like dread cover, have increased post-Covid.

The trend in higher insurance premiums may have sparked the Competition Commission investigation.

“This does not necessarily mean there is collusion. It can be that actuaries have formulated models and realised they have to increase premiums to make the business model work,” she said.