Competition Commission proposes tough measures on motor insurers

On 1 August 2018, the Competition Commission called for final comments on its far-reaching Code of Conduct for Competition in the Automotive Industry.

The code will materially impact a range of stakeholders, including motor insurers. This consultation is the last opportunity for stakeholders to comment before they decide whether or not to sign up to the code and be subject to extensive monitoring obligations. The deadline for comments on the code is 11 September 2018.

Although the code primarily targets original equipment manufacturers, it also places material obligations on insurers. The code is voluntary in nature but, once a party becomes a signatory, it will impose binding obligations that can be relied upon by third parties (including service providers and consumers).

Under the latest code, insurers must:

• fairly allocate work amongst service providers such as vehicle repairers;
• broaden the allocation of work to entities either owned or operated by historically disadvantaged individuals;
• publish a list of all approved service providers on their websites and/or other suitable media;
• offer consumers a choice of approved repairers within their geographic area;
• refrain from appointing any service provider for excessively long periods; and
• refrain from continuously renewing the appointment of the service provider.

Insurers must submit annual reports to the Commission in order to demonstrate compliance with the code. As part of these reports, insurers must confirm their aggregate annual spend and volume allocated to historically disadvantaged service providers.

As part of its advocacy function under the Competition Act, the Commission has been developing the code since early 2017. An initial draft was published in late 2017 that contained a number of far-reaching proposals that, despite the consultation, reflect the Commission’s own policy. While some concessions have been made, the latest code still contains sweeping reforms to the service, maintenance and repair of vehicles.

The Commission says that it is pursuing the code as an alternative to enforcement action because it receives a material number of complaints alleging anti-competitive practices throughout the automotive aftermarket sector. Some of these complaints have apparently focused on the allegedly unclear and unfair allocation of work by insurers for motor-body repairs.

As part of this consultation, the Commission has called for final comments from those stakeholders who made written submissions on the first draft of the code. Stakeholders must indicate whether they agree to each section of the code and confirm their specific commitments in implementing the code. These commitments will form part of the code once it is published in the government gazette. The code will take effect three months after signature.

While the code is voluntary in nature, given the time and effort the Commission has devoted to it as well as the Commission’s view that these reforms are necessary, it is unclear what steps (if any) it will take if stakeholders decide not to sign up. Given that the code was positioned as an alternative to enforcement, it cannot be ruled out that the Commission will be more inclined to investigate such stakeholders should they be the subject of ongoing or future complaints.

First published by: Financial Institutions Legal Snapshot