Traditionally, the insurance industry has regarded itself as only marginally affected by competition law. In fairness, this has not been an unreasonable conclusion. In the UK, the industry’s attitude was, if anything, encouraged by the largely ineffective nature of competition law controls, particularly those imposed by the much derided Restrictive Trade Practices Act 1976.

At EU level, there have been very few cases involving the insurance sector and when the EU Commission came to review the specific legislation enacted for the sector a few years ago, it could only point to a very limited number of cases which had come to its attention in the recent past.

However, a series of changes in the law have changed the landscape. These affect all sectors of the economy, but when coupled with other developments, may have an even more dramatic effect on the insurance industry.

The two changes in the law of particular significance are the implementation of the Competition Act 1998 (which came into effect on 1 March 2000) and the very recent adoption of the Enterprise Act 2002.

The Competition Act abolished the arcane terminology of the old legislation and introduced EU-style direct prohibitions of anti-competitive agreements and understandings. The Act also introduced the prospect of fines for infringing behaviour of up to 10 per cent of turnover. While the Competition Act has so far not been applied to cartel-type behaviour in the insurance industry, its impact has already been felt through the GISC case. This resulted in the whole basis of the selfregulatory scheme established by the Council being swept away by the competition authorities. The Institute of Independent Insurance Brokers (IIIB) initially sought from the Director General of Fair Trading a declaration that the GISC prohibition on members dealing with non-GISC intermediaries was anti-competitive. The matter went to the Competition Commission Appeals Tribunal who agreed with the IIIB. As a result, the GISC rule was dropped.

The Government has also brought in a new criminal offence relating to cartels. This will apply, in essence, to dishonest agreements between individuals under which they agree prices, share customers, rig bids or limit supply or production. The offence is aimed at agreements between businesses which compete with each other rather than agreements between companies with different roles in the market place. Therefore, an agreement between underwriters could be within the scope of the legislation but not an agreement between an underwriter and a broker.

Why is this such a concern for the insurance market in particular? In some classes of business, there are very few significant underwriters and the nature of the subscription market already encourages close co-operation between the players in the market. It can only be a matter of time before a complaint is made to the authorities alleging that, for example, the similarity of pricing of a risk offered by a number of underwriters results from a dishonestly made agreement between them rather than from naturally occurring price convergence. As ever with jury trials, it is difficult to predict which way a jury would go.

At the EU level, just such matters are already under investigation as a result of market reaction to the events of September 11th and this may provide a useful (if unwelcome) pointer to the kind of prosecution that can be expected under the new offence.

From a number of different angles, therefore, there will be pressure on the insurance industry to comply with the new (and the existing) legislation. Even a compliant business facing investigation by the authorities could face reputational risks and swingeing compliance costs. Accordingly, best practice will increasingly involve carrying out competition law compliance programmes to educate staff about the risks and to prepare managers to deal with dawn raids and other regulatory interventions.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.