Traffic insurance activities of almost the entire Turkish insurance industry have been subject to two examinations of the Turkish Competition Authority (“TCA”) in 2017.
The TCA first published, on 03.07.2017, a preliminary inquiry decision regarding insurance companies’ traffic insurance activities following which no full-fledged investigation has been launched. The TCA then concluded, on 19.07.2017, an investigation concerning insurance companies’ traffic insurance policies that has led to no administrative fine against any insurance company. In both of the concerned decisions, the TCA examined more generally insurance companies’ traffic insurance activities. Those decisions are important for the activities of the insurance sector given that 32 out of 34 companies (local and international) providing traffic insurance services have been subjected to investigation by the TCA.
1. The TCA’s Preliminary Inquiry Decision1
The TCA conducted a preliminary inquiry into insurance companies operating in the motor vehicles compulsory third party liability insurance market based on the suspicion that insurance companies colluded when removing/changing their installment policies or bringing additional financial charges, and thereby violating Article 4 of the Law No. 4054 on the Protection of Competition (“Competition Law”).
According to the allegations made in the framework of the preliminary inquiry, insurance companies had agreed, after the publication of the Circular for Motor Vehicles Compulsory Third Party Liability Insurance (“Circular No. 2017/1”) by the Republic of Turkey Prime Ministry Undersecretariat of Treasury (“Undersecretariat of Treasury”), on the following anti-competitive practices:
- removing the possibility of making installment payments, leaving as an only option payment in-full in cash or by credit card;
- avoiding making offers to agencies, or resorting to practices such as sending messages inciting the agencies not to provide insurance to certain persons;
- alleging technical problems as a pretext to block access to the interface on which offers are made;
- imposing additional conditions to conclude insurance contracts;
- bundling traffic insurance with other insurance policies such as home insurance or personal accident insurance.
The Circular No. 2017/1 lays down limitations regarding traffic insurance premiums that were freely determined by insurance companies. Through the adoption of the said circular, the Undersecretariat of Treasury has decided that (i) traffic insurance premiums should not exceed the premium ceiling determined for each vehicle type (passanger car, truck, commercial car, etc.), (ii) the implementation of maximum increase and minimum discount rates should be controlled, (iii) commission rates to be applied to insurance intermediaries (such as agencies and brokers) should not be below the determined rate and (iv) sanctions will be imposed if these provisions are not applied by insurance companies.
As a result, the TCA found that insurance companies have carried out similar practices of premium collection and policy issuance in order to reduce their increasing portfolio risks and to limit the number of offers in the market.
In line with the evidence gathered during on-spot inspections, however, the TCA established that the aforementioned practices are individually decided upon by insurance companies. According to the TCA, there have not been concerted practices or agreements between insurance companies within the meaning of Article 4 of the Competition Law on the grounds that (i) the conclusion of a traffic insurance policy is an obligation for both insurance companies and consumers, (ii) companies may determine their behaviors in the market by taking competitors’ behaviors into account and (iii) companies’ behaviors are based on a new economic rationale shaped by the regulation of Circular No. 2017/1.
2. The TCA’s Investigation Decision
More important for the traffic insurance sector, considering its scope, this decision comes at the end of an investigation conducted into the Insurance Association of Turkey and 32 insurance companies active in the market of compulsory traffic insurance upon allegations of anti-competitive agreements or concerted practices in the form of price increases and allocation of markets.
According to the complaints lodged before the TCA in the framework of this investigation, (i) insurance companies have agreed to double or even triple traffic insurance premiums due to the adoption of a new regulation, (ii) trucks used in international transportation, which are not labelled as risky, cause an increase in the premiums paid by risky vehicles’ users, (iii) setting high traffic insurance premiums encourages consumers not to subscribe to an insurance policy, thereby making it difficult for companies operating in the international transportation sector to compete with foreign registered vehicles, and (iv) some insurance companies request higher premiums to avoid issuance of insurance policies, or even do not make any offer despite their legal obligations to do so. Consequently, insurance companies are said to be able to divide up the market between them.
It has been stressed that insurance companies operating in the traffic insurance sector calculate premiums in accordance with the provisions of the Law No. 5684 on Insurance and generally accepted actuarial techniques. Within the framework of their calculation method, insurance companies take into account the following factors: the region where the vehicle is registered, the vehicle type, the damage history of the vehicle, the driver’s gender and age, the fuel type, the brand name, the engine power, etc.
Despite their leeway in the definition of terms and conditions of the services they provide has been restricted, insurance companies still are entitled to determine, in compliance with the legislation in force, the amount of security, the form of payment, and insurance policy issuance processes. Therefore, while insurance companies can only distinguish themselves on the basis of the quality of their services, this has little importance for consumers who generally consider primarily the price of the services they are looking for.
a. Claim regarding agreements on price increases
As far as the price increase allegation is concerned, the TCA considered that the observations shared by the concerned insurance companies, under the aegis of the Insurance Association of Turkey, on maximum gross premiums are not anti-competitive given that they have been limited to publicly available information and that the Association is empowered to amend the said premiums by taking into account inflation and modifications to the minimum wage.
In this context, the TCA also analyzed the concerned companies’ internal correspondence and established that (i) companies have collected information from the market through their agents and were only observing each other’s behaviors, (ii) companies have determined their price levels and assessed for which categories of insurance and regions competitive premiums might be offered, (iii) exclusive discounts have been granted to certain agencies and customers, (iv) companies have raised their premiums to meet their profit expectations and generally tried to set their prices above the sector’s average in order to avoid an excess of insurance policies issued compared to what has been planned, and (vi) companies requesting high premiums have raised them whenever competitors increased their prices to remain non-competitive and thus to restrict their offer on the market.
Regarding costs increases, it appeared from companies’ internal correspondences, according to the TCA, that insurance companies had to increase their provisions to deal with the increase in the minimum wage, regulatory changes, proceedings regarding diminution claims (in case of value loss), or exchange rate increases. This situation has led to losses, which have been linked by insurance companies to premium miscalculations and to the competition situation of the market. The TCA then established that most of the losses incurred are common for most of the companies in the sector, which underlaid the decisions to increase premiums.
In addition to the evidence gathered during on-spot inspections, the TCA evaluated insurance companies’ pricing policies by taking into account their market shares, the relation between price and demand, and the relation between price and cost. As a result of those evaluations, the TCA established that premiums increase is linked to the increase of costs elements that occurred at the same period and that have affected the setting of premiums.
b. Claim regarding market allocation
It has been claimed that insurance companies’ offers for a given type of vehicle differ widely, and that some of them make parallel or high offers, or even avoid making offers.
Besides, another allegation under this claim is that despite the fact that trucks used in international transportation present a low-risk profile, insurance companies charge high premiums to insure them with the aim of compensating the losses incurred with risky vehicles, and that this situation makes it difficult for companies operating in the international transportation sector to compete with foreign registered vehicles.
The TCA thus examined the concerned companies’ market shares depending on vehicle type and on the number of policies issued for the “tow truck” type vehicles. The TCA then established that the market shares dynamically evolve according to the number of this latter vehicle type. The TCA further determined that a substantial share of the market consists of policies issued for cars and vans and that insurance policies concerning other types of vehicles only represent a narrow market share. Nevertheless, the TCA ruled that despite certain companies issuing more policies for certain types of vehicles, no indication of market allocation has been found.
Eventually, the TCA concluded that the concerned companies have not been involved in any anti-competitive practice and, accordingly, that they should not be imposed any administrative fine.
1. Dated 03.07.2017 and numbered 17-20/324-144.
By Bahadır Balki, Managing Partner, Mustafa Ayna, Associate, and Hasan Guden, Associate, ACTECON