I focus mainly on two legal areas: insurance law and anti-monopoly law. Both these two areas experienced a dramatic progress in 2009. In my personal practice, I see some interesting overlapping of these two areas. In this article, I will address two cases in vehicle insurance market regarding the accusation of violation of China Anti-Monopoly Law (AML).
Background: the current competition in vehicle insurance market
Because China insurance market is still under developed, vehicle insurance is one of the core businesses of the property insurance companies now. There are many insurance companies who can provide vehicle insurance, and in order to gain advantage in competition, many insurance companies have to employ low price strategy. This strategy leads twofold outcomes, on one hand, the consumer may purchase vehicle insurance at a preferential price; on the other hand, the normal competition order is hard to be established
Case 1, Insurance Association of Chongqing was sued for fixing the price
In 2009, Insurance Association of Chongqing was sued for fixing the price thus violates the China Anti-Monopoly Law (AML). In 2009, Insurance Association of Chongqing promulgated the Self-discipline Regulation on Chongqing Vehicle Insurance Industry. This regulation stipulates that the discount the insurance companies offer should be no more than 20%, otherwise the companies will be punished. According to Article 16 of AML, any trade association may not organize the business operators in its own industry to implement the monopolistic conduct as prohibited by AML. Furthermore, Article 13 of the AML prohibits the competitors from fixing the price through monopoly agreements. The notice of the Insurance Association of Chongqing has directly fixed the price and such conduct can be deemed as a violation of the AML.
Case 2, Some local insurance association were accused of engaging in monopoly agreement as to divide the market.
The function of the Insurance Association is challenged once again in 2009. According to the CIRC’s Notice, it had received some claims on the co-underwriting model on vehicle insurance. The nature of such kind of cooperation is to divide or assign the market shares, thus restrict the competition amongst the property insurance companies and keep a higher price. According to the claims, such action was under the organization of local Insurance Associations. According to Article 13 of AML, the competitors should not engage in monopoly agreement on dividing the selling market or purchasing market of raw materials. The associations are strictly prohibited from facilitating the formation of such agreements.
Arguments raised by Insurance Association
The insurance association argues that according to global antitrust experience, the insurance industry should be exempted from antitrust law. For example, in EU, some agreements and concerted actions amongst insurance companies are exempted from antitrust review, in consideration of the special nature of insurance industry on managing risks and promoting public welfares.
Besides international experience, the insurance association also bases its arguments on the local experience. According to the association, the character of China Insurance Association and its local branch, as many of other associations in China, may not be so simply as organizations formed by the business operators of the same industry sector. Theoretically speaking, insurance association is a self-discipline and none-profit organization with no compulsory power over its members. However, China Insurance Association is supervised by the CIRC, and as a supplementary administrative measure, it has carried on some supervision powers which are authorized to administrative institution.
Due to the chaos and unhealthy price competition in the vehicle insurance market, China Insurance Association and its local offices argue that some of their anti-competition conducts are justified by the goal.
Competition is the best medicine
It is true that the insurance market is under developed in China. It is also true that in today’s Chinese insurance market, the insurance association should carry on parts of administrative power. However, competition is always the best medicine to the development of the mature market. The insurance association should know where the red-line between the administrator and the servant to the business operators is. In China, some of the current conducts which was undertook by insurance association can not be justified by the goal and may not be exempt from anti-monopoly law.