The Competition Board ("Board"), in its decision dated 19.07.2017 and numbered 17-23/383-1661 ("Decision"), examined the allegation that insurance companies operating in Turkey are engaged in concerted practices or agreements that limit and corrode competition by way of increasing prices, collectively, in the Motor Vehicles Compulsory 3rd Party Liability Insurance ("motor vehicles insurance" market, and that they apply excessive prices, and engage in market sharing. The Board decided in the decision by a large majority, that Article 4 of the Act on the Protection of Competition numbered 4054("Competition Act") 2 has not been breached by the undertakings and association of undertakings that have been investigated and, thus, there is no necessity to impose an administrative monetary fine upon the undertakings, pursuant to Article 16 of the said Competition Act. In this article, this important decision of the Board is examined.
The Summary of the Claims
Between the years of 2015 and 2017, the Competition Authority ("Authority") received more than ten applications, and various claims were asserted. In the scope of these claims, firstly, it is stated that "the premium amounts of the Motor Vehicles Compulsory 3rd Party Liability Insurance ("motor vehicles insurance") has increased up to two-three times in the last couple of years upon implementation of the new legislation3 provisions, and that "the simultaneous price increase of all insurance companies may indicate an agreement that involves a breach in terms of competition law."
The complainants, due to the legal developments in the past few years, stated that "the high amounts of motor vehicles insurance premiums that are paid have driven consumers to avoid getting motor vehicles insurance," and it is claimed that "this has rendered the undertakings that operate in the international transportation sector incapable to compete with vehicles that have foreign license plates."
Furthermore, the complainants emphasized that there are significant differences among insurance companies regarding the premium/price offers offered by certain companies, and that a loophole has emerged to the detriment of the consumers because some companies make concerted offers. They stated that when this loophole was examined thoroughly, the possibility of market sharing among insurance companies was indicated.
The investigations regarding this issue by the Board are not new. In 20134, the Board evaluated whether insurance companies operating in Turkey increased motor vehicles insurance premiums through agreement, as well. However, the Board decided that "considering the information submitted by the undertakings, and that there was no evidence obtained showing that the insurance companies agreed on the collective fixing of motor vehicles insurance premiums, there was no need to open an investigation regarding the said allegations." 5
The Change in the Legislation
Alongside the claims that are summarized, above, as to the progress of the premiums in the motor vehicles insurance market, it was also claimed that the average policy premiums that remained on a stationary line between 2013 and 2014, began to increase in the second quarter of 2015. The complainants underscored that the inclusion of the claims that were not previously covered within the scope of the motor vehicles insurance premiums, and which were not included in the motor vehicles insurance premium calculation for this reason (the risks that are not related to liability, and the claims of the persons with a higher degree of fault), within the scope of coverage through judicial decisions6, may cause an increase in premiums7.
The Examination of the Board
The Examination Process and the Subject of the Investigation
Insurance may be defined as a bilateral liaison contract concluded with an institution that is engaged in this line of work in order to eliminate pecuniary damages that a person or a thing might face in the future, in any field, or to render this damage so as to be economically insignificant8. Pursuant to Article 24 of Insurance Law numbered 56849, which generally stipulates insurance activities, insurance companies must become members of the Association of the Insurance and Reinsurance Companies of Turkey ("AIRCT"), which is qualified as a public institution, through payment of an entrance fee10.
An investigation was opened by the Board, based on the report that had been drafted upon a preliminary investigation, with respect to 32 insurance companies operating in the field of motor vehicles insurance and the AIRCT, in order to determine whether they breached Article 4 of the Competition Act by means of a collective increase in motor vehicles insurance premiums.
The subject of the investigation is motor vehicles insurance that is provided within the scope of non-life insurance in the insurance sector. Motor vehicles insurance envisaged under the Insurance Law is a type of mandatory insurance that the operators of motor vehicles are required to obtain11.
Pursuant to Article 4 of the Competition Act, "Agreements and concerted practices between undertakings, and decisions and practices of associations of undertakings whose object, or effect, or likely effect is the prevention, distortion, or restriction of competition, directly, or indirectly, in a particular market for goods or services, are illegal and prohibited." According to sub-paragraph (a) of the second paragraph of the same Article, "Fixing the purchase or sale price of goods or services," and pursuant to sub-paragraph (b) "Allocation markets for goods or services, and sharing or controlling all kinds of market resources or elements," are considered to be illegal acts12.
The said investigation that concerns the motor vehicles insurance market examines the claims regarding "fixing price" and "market/customer share" that takes place among competitors, and which signifies a breach of Article 4 of the Competition Act 13.
In this section of this article, firstly, the Board's market definitions, and the related product market and geographical market definitions, will be examined. Afterwards, the claims of price fixing and market sharing will be addressed.
Examining the number of the companies that operate in the field of motor vehicles insurance since 2013, this number regularly increases. As to the premiums, the lowest increase was in 2014, with a rate of 2.16%; whereas, the highest increase was in 2016, at a rate of 79.12%.
Whereas the premium and coverage was to be designated by law in the motor vehicle insurance sector, in 2008, partial discretion was provided to the insurance companies to determine premiums14. As of 01.01.2014, the amendment that allows insurance companies to freely regulate premiums entered into force. However, minimum coverage amounts are still determined by the Undersecretariat of The Treasury ("Undersecretariat"), and the Undersecretariat may intervene regarding premium amounts15.
Considering the price sensitivity of the insured during the decision-making process, and that the insurer does not have an opportunity to consider differentiations regarding the said product, a need for application of reasonable premium levels arises16. Within this context, reasonable premium levels are defined by the Undersecretariat as "the level in which the premiums are payable by the insured, and the sufficient level to meet the obligations of the insurance company." The intervening authority of the Undersecretariat as to premium amounts is regulated under Article 16 of the Tariff Regulation17. In this respect, the recent change that the maximum gross premium amounts may not exceed the determined premium amounts is remarkable18.
The Related Product Market and the Related Geographical Market
Taking the past Board decisions19 into consideration, it is evident that each insurance branch is accepted as a separate product market. The subject of an insurance product and the risks covered by it are different from other insurance products. The premium amount that is undertaken to be paid under the insurance contract changes in this respect, as well, and while this premium encompasses the losses or damages that fall within the scope of the contract, it does not include the losses or damages related to other insurance products. Therefore, with respect to the aspect of demand, each insurance product may not be substituted regarding their property and coverage subjects for consumers20. From a viewpoint of supply, insurance companies are obliged to obtain a permit for each insurance branch in which they wish to operate, pursuant to the related legislation. Hence, each insurance product constitutes a different product for insurance companies, as well21.
The claims in the applications essentially concern the fact that the insurance companies operating in Turkey collectively increased their motor vehicles insurance premiums and, thus, the premiums have excessively increased, and that they have engaged in market sharing through concerted practices. Motor vehicles insurance is a legally mandatory product for operators of motor vehicles, and insurance coverage is publicly determined. Therefore, the related product market that constitutes the subject of the current file is determined as the "motor vehicles insurance market." 22
The related geographical market is determined as "Turkey" considering the fact that motor vehicles insurance that is examined within the scope of the investigation is provided naionwide by the undertakings that have been investigated23.
Claims on Common Price Increases
No evidence was obtained in on-site examination in relation to the claims that the undertakings operating in the sector increased the motor vehicles insurance premiums, collectively, nor that the undertakings acted through an agreement and/or in concerted practices within the framework of Article 4 of the Competition Act 24. It was stated that it is difficult to determine premiums as an indicative element as there are many factors that influence the calculations in the determination process of motor vehicles insurance premiums by the AIRCT, and the weight given by companies to these factors differ from each other25.
In the decision, it is emphasized that in contrast to concerted practices, the investigated undertakings "have developed new strategies to avoid any loss upon the increases in expenses," "they have constructed their competitive strategies not only to reach the highest market shares, but to produce policies in determined numbers in accordance with profit and loss analyses," and it is stated that "in the event that the planned number of policies are reached, or the losses are foreseen, the undertakings that hesitate to take more risks make pricing on the average premiums???, as they may not avoid issuing policies pursuant to the related legislation."
Market Sharing Claims
It has been claimed that there are substantial differences between premium/price offers of different undertakings for the same vehicle, some undertakings present concerted offers, some undertakings present very high premium offers or, despite legal obligations, do not make any offer at all in order to avoid issuing an insurance policy and, therefore, a market sharing loop has been formed26. The Decision states that in order to designate insurance premiums, insurance companies take into account their data pool, evaluate expenses, and take risks and consider statistical analyses in order to issue policies, and that there has been no agreement and/or concerted practices engaged in for market sharing by the investigated parties27.
As a result of the legal and economic analysis of the sector, it is evident that the parties to the investigation are not engaged in market-sharing on the basis of vehicle type, and that they issue policies taking into consideration the data pool, expenses, risk analyses and statistical evaluations in the determination of insurance premiums. In light of the legal and economic analyses considered by the Board, the Board emphasized that there have been no agreements and/or concerted practices engaged in between the parties of the investigation in order to fix prices, despite the findings with respect to information exchanges between such parties28.
In summary, as the Board decided that it was unnecessary to open an investigation regarding motor vehicles insurance premiums in 2013, upon the complaint in relation to this recent decision, the Board conducted an investigation, but did not impose any penalty, because there was no determination of an agreement and/or concerted practices engaged in amongst the parties.
(First published on the website of Erdem&Erdem in January 2018)
1 Access is available for the decision of the Competition Board's Decision dated 19.07.2017 and numbered 17-23/383-166 ("Decision") from http://www.rekabet.gov.tr/Karar?kararId=2d95eb1c-2fd9-4d1b-8236-ee7d2dfa5805.
2 Published in the Official Gazette dated 13/12/1994 and numbered 22140.
3 Pursuant to the General Terms on Motor Vehicles Compulsory 3rd Party Liability Insurance that is published in the Official Gazette dated 14.05.2015 and numbered 29355, and to the Highway Traffic Law dated 13.10.1983 and numbered 2918, the rules and procedures regarding the related persons' rights and obligations in terms of Motor Vehicles Compulsory 3rd Party Liability Insurance, which is stipulated for the legal liability of the operators of motor vehicles, are revised. The General Terms on Motor Vehicles Compulsory 3rd Party Liability Insurance that was published in the Official Gazette dated 12.08.2003 and numbered 25197 is abrogated.
In the 186th paragraph of the Decision, the following view is presented: "In the General Terms published by the Undersecretariat of the Treasury in June, 2015, the loss of value is also included in the material losses coverage, and that the losses that are occurred directly in the patrimony of a person, is also covered within the scope of the aforementioned coverage. As a matter of fact, as explicitly stated in the Highway Traffic Law, "suffering a loss" is within the scope of the coverage and any kind of losses that a person suffers due to an accident, in other words, the losses occurred in the patrimony of a person, that are not the direct result of an accident, are not included within the scope of the coverage. As a result, it is intended to eliminate uncertainty, and to unify compensation content by way of including loss of value and its calculation formula in the General terms. Nevertheless, the related item of loss was considered within the scope of compensation in the calculated compensation payments by the courts beginning in 2000, and this item was not included with the General Terms. Hence, considering the fact that insurance companies have been paying compensation for loss of value since that time, loss of value should not be regarded as a new item of expense."
4 The Board Decision dated 09.05.2013 and numbered 13-27/369-171.
5 Para. 539, Decision.
6 In the Decision, there are references to the Court of Cassation General Assembly Decision dated 15.6.2011 and numbered E.2011/17-142, K.2011, and to the Court of Cassation General Assembly Decision dated 22.2.2012 and numbered E.2011/17-787, K.2012/92.
7 Para. 182, Decision.
8 Para. 60, Decision.
9 Published in the Official Gazette dated 03.06.2007 and numbered 26552.
10 Para. 66, Decision.
11 Para. 67, Decision.
12 Para. 537, Decision.
13 Page. 197, Decision.
14 Para. 76, Decision.
15 Para. 77, Decision.
16 Para. 83, Decision.
17 Published in the Official Gazette dated 12.11.2009 and numbered 27404.
18 Para. 99, Decision.
19 The Board's following Decisions: dated 22.08.2007 and numbered 07-66/806-301; dated 27.05.2010 and numbered 10-38/650-218; dated 05.08.2010 and numbered 10-52/965-339; dated 30.09.2010 and numbered 10-62/1279-483; dated 25.08.2011 and numbered 11-46/1115-386; dated 14.09.2011 and numbered 11-47/1165-411; dated 26.06.2013 and numbered 13-40/520-229.
20 Para. 111, Decision.
21 Para. 112, Decision.
22 Para. 113, Decision.
23 Para. 114, Decision.
24 Para. 572, Decision.
25 Para. 204, Decision.
26 Para. 694, Decision.
27 Para. 715, Decision.
28 Para. 716, Decision.