Irish Competition Authority Decisions

1. On 28 May 1992, the tour operator Falcon Holidays notified the Competition Authority of an arrangement whereby they make it mandatory for persons buying Falcon package holidays to take the travel insurance offered by the insurance broker, Ben McArdle Ltd. The notification was made under Section 7 of the Competition Act 1991 for a licence under Section 4(2).

2. A Statement of Objections was issued to Falcon on 13 October l993. On 8 November, l993, Falcon replied indicating their intention to amend the notified agreement. Notice of intention to issue a certificate to the amended agreement was published on 26 November, 1993 and some submissions were received.

3. The notified agreement was concerned with a scheme of mandatory travel insurance whereby as a condition of every Falcon holiday package purchased, Falcon stipulated that the consumer buying the holiday was obliged to obtain travel insurance on the terms set out in the contract for the purchase of the holiday. Under an agreement with Ben McArdle Ltd., Falcon Holidays agreed the terms of an insurance policy which were set out in the holiday contract. The policy provided for a level of cover for the customers of Falcon at a price and for a duration agreed between Falcon and McArdle. Thus Falcon and McArdle agreed that all Falcon customers were obliged to obtain travel insurance through Ben McArdle Ltd.

4. The parties involved in this notification are Falcon Leisure Group (Overseas) Limited trading as Falcon Holidays (Falcon) and Ben McArdle Limited (McArdle).

5. Falcon is the trading name of Falcon Leisure Group (Overseas) Limited ("Falcon Overseas") a private limited company incorporated in the United Kingdom with its registered office in London. Falcon Overseas is a wholly owned subsidiary of Owners Abroad plc ("Owners Abroad") a public limited company incorporated in the United Kingdom and having its registered office at the same address as that of Falcon Overseas. Owners Abroad carries on business through a number of wholly owned subsidiaries (the "Group"). The Group is, broadly speaking, engaged in the travel business including the provision of retail services, inclusive holiday packages, aviation services, ground handling and foreign agency services. The total annual turnover of Falcon Overseas is Stg£23.5 million.

6. The wholly owned subsidiary of Owners Abroad which carries on business in the State is the UK company Falcon Leisure Group (Overseas) Ltd which trades under the name Falcon Holidays. In Northern Ireland another wholly-owned subsidiary of Owners Abroad viz. Owners Abroad Tour Operations Ltd carries on business under the trading names "Martyns Holidays" and "Enterprise Holidays".

7. Falcon is a tour operator which provides a package holiday product incorporating flights, accommodation, transfers and the services of a holiday representative. It has been operating in the State for over five years and is licensed by the Minister for Transport, Energy and Communications as a tour operator under the Transport Act, 1982. Falcon specialises in providing package holidays and is not involved in the sale or marketing of any other form of travel product. Its holidays are marketed by the vast majority of licensed travel agents. Falcon is one of the top four tour operators operating within the State. Its annual turnover in respect of sales in the Republic of Ireland is IR£13 million. The Authority understands that consumers cannot book a holiday with Falcon directly and that they must always book through a travel agent.

8. Ben McArdle Ltd. is an insurance broker dealing with all forms of general and life insurance including travel insurance. The company does not specialise in the provision of any one form of insurance. It is a private limited company incorporated in Ireland.

9. Each year Falcon approaches or is approached by various insurance brokers/companies for example Durhams, D.G. Dunbar Ltd., Accident and General, AMEV and McArdle in relation to the provision of holiday insurance for its travel customers. Falcon considers the policies offered in terms of the level of cover, the cost of the policies and the service offered and makes its decision as to the policy which it will choose accordingly. For the past few years Falcon has chosen the travel insurance policy offered by McArdle. McArdle acts on behalf of a number of tour operators providing travel insurance cover on a mandatory basis to some and on a non-mandatory basis to others. At each renewal McArdle contacts all insurers writing in the Irish market who might be interested in writing travel insurance business. They receive a number of quotations from interested insurers but the majority express no interest in quoting for this class of business. Having obtained a number of quotations from various insurers, McArdle then offers to their client (the holiday tour operators) the best package which combines cover levels and premium cost.

10. The product/service involved in this notification is package holiday travel insurance. It is a package policy underwritten by non-life companies. It includes elements of property, travel and personal accident insurance, with in some cases motor related cover. All Irish tour operators selling overseas holidays require their customers to have adequate insurance cover and in most cases this cover is arranged by the tour operators. The market is the market for travel insurance for package holidays. On the basis of information supplied to the Department of Transport, Energy and Communications by all tour operators, 175,000 passengers were carried to the sun spot destinations in the course of the tour operator summer season in 1991. Falcon themselves estimate that for the year 1991 (including both Winter and Summer Seasons) the total number of passengers was 190,000 and the total turnover in the market was IR£62.5m. The four major tour operators are Falcon, Budget Travel, Joe Walsh Tours and Abbey Sun (now Sunworld). Recent publicity [1] quoted a figure of £75m as the national package holiday market for the year up to September 1992, and estimated that both Falcon and Budget each had between 35% and 40% of the Irish package holiday market.

11. Total turnover in the market for travel insurance in the State for the year ended 31 December 1991, was estimated by McArdle to be IR£4m. - IR£5m. McArdle estimated that their share of this market was about 20%. This included all travel insurance including sales to the retail travel agents and to tour operators who did not carry mandatory insurance. The principal authorised and approved competitors of McArdle who place travel insurance are Durhams, D.G. Dunbar Ltd., Accident & General (brokers) and AMEV (insurance company).

12. Prior to January, 1991, travel insurance was mandatory in Ireland at the insistence of the tour operators but the travel agent through whom the particular holiday was being booked had a choice of offering either the policy negotiated by the tour operators or an alternative policy which accorded with the level of cover offered by the policy arranged by the tour operators. Since January 1991, Falcon has required all its customers to take out the insurance policy which they had negotiated with their insurance broker. Falcon stipulated that any customer purchasing one of its package holidays must take out travel insurance on the terms of the policy set out in its brochures.

13. Each year Falcon invites tenders and negotiates annually with a number of insurance brokers and selects what is, in its opinion, the best insurance policy available in terms of price and level of cover. The policy provides for a level of cover for the customers of Falcon at a price and for a duration agreed between Falcon and the insurance broker. The policy of insurance, the subject of this notification, was that sold to Falcon by McArdle and for which McArdle tendered competitively. As a consequence of this arrangement, any customer who booked and purchased a Falcon holiday since January, 1991 was obliged to obtain travel insurance on the terms agreed by Falcon and McArdle. The agreement between Falcon and McArdle was a verbal one. The agreement operated for the Winter season 1991-1992, for the Summer season 1992, the Winter season 1992-1993, the Summer season 1993 and was intended to operate for the Winter season 1993-1994.

14. For the 5 year period 1989 to 1993 the insurance premia charged by Falcon/McArdle for a 2 week sun package holiday to a European destination were as follows:

IR£ IR£ IR£

1989 17.50 13.12 61.24

1990 18.50 18.50 74.00

1991 20.00 20.00 80.00

1992 24.00 12.00 72.00

1993 25.00 12.50 75.00

The cover provided by Falcon/McArdle was set out in the following sections of the 1991/1992 insurance policy:

(1) cancellation and curtailment up to holiday cost,

(2) medical and additional expenses - £500,000,

(3) personal accident - up to £40,000,

(4) personal baggage - £1,000,

(5) personal money - £100,

(6) travel delay,

(7) personal liability.

The insurance policy also set out general conditions, general exclusions and exclusions under each section. It stated that the insurance was underwritten by certain underwriters at Lloyds.

15. In all cases customers book holidays with Falcon through travel agents and the insurance premia are paid directly to travel agents as part of the deposit payable by the customer on the cost of the holiday. The travel agents retain IR£6.75 of the adult premium by way of commission and then remit the balance of monies received by them directly to Falcon. Under the agreement between Falcon and McArdle, Falcon retain approximately 40% of the adult premia paid by the holidaymakers before transferring the balance in relation to travel insurance to McArdle. Falcon absorb most of the 50% reduction in premium level in respect of children. Children can account for up to 33% of all passengers carried, and therefore the weighted average margin retained by Falcon is in the range of £6.75 - £7.00. Falcon claimed that, in addition, very considerable expense, including flight costs, is frequently absorbed by Falcon where emergencies occur while customers are on holiday and they have to be brought home quickly. Based on the 1993 adult premium of £25 and child premium of £12.50 for a 2 week package holiday, the breakdown of the premia payments is as follows:

£ £

Travel Agent 6.75 (27%) 3.38 (27%)

Falcon 9.98 (40%) 0.85 (7%)

McArdle 8.27 (33%) 8.27 (66%)

25.00 12.50

Since it may be presumed that part of the remittance is retained by McArdle, it appears that as little as 25% of the adult premium paid goes towards the insurance cover provided.

16. When a consumer booked a Falcon package holiday s/he was obliged to pay an insurance premium as part of the deposit for the holiday. The booking conditions formed part of the booking form which had to be signed by the consumer. The booking conditions inter alia stated:

"No contract shall arise until the organiser has received this complete booking form together with a deposit or full payment for the holiday and has issued written confirmation of its acceptance to the retailer. The terms of contract are contained solely in this booking form, the organiser's confirmation, the organiser's brochure or other descriptive material, any airline or sailing ticket issued and the itinerary issued by the organiser".

"The holiday must be paid for in full at least 8 weeks before the schedule date of departure. If it is not paid by that date, the organiser shall have the option to cancel the holiday. If the organiser exercises that option or if the consumer cancels the holiday (which cancellation must be notified in writing to the organiser) the following cancellation charges are payable by the consumer:

More than 6 weeks before the departure date any deposit paid shall be forfeited.

Within 6-4 weeks of departure: 30% of the cost of the holiday is forfeited.

Within 4-2 weeks of departure: 45% of the cost of the holiday is forfeited.

Within 2 weeks-72 hours of departure: 60% of the cost of the holiday is forfeited.

Within 72 hours of departure: 100% of the cost of the holiday is forfeited.

All cancellation charges apply to each person covered by a booking. Any insurance premium paid is not refundable".

"It is a condition of this contract that the consumer is covered by the travel insurance scheme arranged by the organiser. It is the responsibility of the consumer to check that the insurance scheme provides the consumer with his desired level of cover. In so arranging insurance cover for the consumer the organiser is acting as the agent of the relevant insurer and shall not be responsible to the consumer for any default by the insurer under that policy. All claims made against the insurance policy shall be made directly to the insurer. The consumer shall be responsible for making any special or increased insurance arrangements which he deems necessary".

The booking form for Falcon Holidays stated that "holiday insurance is compulsory and is arranged automatically (and the premium added to your invoice)".

17. The arrangements operated by Falcon were part of overall wider arrangements in the travel trade. According to the Irish Travel Agents Association, several tour operators, but not all, had introduced mandatory travel insurance for approximately 10 years prior to January 1991. It was done on an individual basis by the tour operators. During this period, it is understood that a number of insurance brokers brought out a range of policies offering higher cover at a similar price to the tour operators and these were offered to holiday customers by the retail agents. According to an article in Irish Travel Trade News (ITTN) at the time the commission offered to retail agents by the insurance brokers was much higher than tour operators were paying the retail agents in commission on their travel insurance arrangements. The Retail Council and the Tour Operators Council of the ITAA met after the 1990 AGM on 12 December 1990 to discuss mandatory insurance and commission levels. The following is an extract from the Minutes of that meeting:

"It was acknowledged by everyone at the meeting that the question of MANDATORY Insurance and the level of commission available on such Insurance was a matter of vital importance to both Tour Operators and Retail Agents. Both sides approached the issue in a constructive manner, and it was clear from the outset that compromise was needed on both sides if a solution was to be found. Following difficult negotiations, it was agreed that the Tour Operators Council and Retail Council would adopt the following arrangements for the next two years.

- The Insurance arranged by Tour Operators will be sold with all package holidays.

- Tour Operators will pay £6.50 commission on the Insurance element of every package.

- All Tour Operators will submit details of the cover provided in their Insurance Policies to the Chief Executive who will have them independently and professionally vetted, to ensure that they provide an acceptable level of cover and benefits.

The Retail Council Representatives accepted that while the agreed arrangement was not an ideal solution, it was, nonetheless, a fair and reasonable outcome to an issue which is potentially very divisive and damaging for the entire industry. The Tour Operators Representatives, while stressing the negative revenue implications for wholesalers of the increased commission, were unanimous in their acceptance of the arrangement, and agreed to implement it fully in their own companies".

18. However according to the Irish Travel Trade News' article mentioned above, in January 1991 the Dublin Chapter of the ITAA rejected the above arrangements but they were accepted or at least not rejected by all other Chapters of the ITAA. In November 1991 the AGM of the ITAA rejected mandatory insurance by a majority of 4 to 1 according to ITTN. It was accepted and recommended by the ITAA also at the AGM in November 1991 that every client should have adequate travel insurance but the particular policy should be optional so as to allow for the best possible choice.

19. An EC Directive (90/314) on package travel, package holidays and package tours was adopted by the EC Consumer Affairs Ministers' Council on 13 June 1990. The Directive lays down obligations for package organisers/retailers and safeguards for the consumer. It applies to packages offered or sold in the territory of the Community viz., any two combinations of transport, accommodation or 'other tourist service'. Both packages with a destination outside the EC and within the Member States are affected. The Directive is expected to be brought into force by Regulation in this country shortly by the Department of Transport Energy & Communications. Enforcement will be the responsibility of the Director of Consumer Affairs.

20. Article 4.1(b)(iv) of the Directive provides that the organiser and/or retailer shall provide the consumer with the following information before the start of the journey:

- information on the optional conclusion of an insurance policy to cover the cost of cancellation by the consumer or the cost of assistance, including repatriation, in the event of an accident or illness.

The Directive, therefore, does not make holiday insurance mandatory. In addition, the approach of the Department of Transport, Energy and Communication will be to provide that the implementation regulations will require that the following should be supplied to the consumer before the start of the journey:

'information about an insurance policy which the consumer may, if he wishes, take out in order to cover the cost of cancellation by the consumer or the cost of assistance, including repatriation in the event of accident or illness except where the consumer is required as a term of the contract to take out an insurance policy in order to cover these risks in which case the information must be given before the contract is concluded'.

This proposed 'amplification' of the Directive text by the Department of Transport, Energy & Communications is in line with the Regulations made by the UK Authorities to implement the EC Directive in that country.

21. The proposed implementation of the Directive by the Department of Transport, Energy and Communication also elaborates on the information to be supplied to the consumer before the conclusion of the package holiday contract as follows:

'if applicable, the minimum level of insurance cover required by the organiser to cover the cost of cancellation by the consumer or the cost of assistance, including repatriation in the event of accident or illness, but so that nothing in these regulations authorises an organiser to make it compulsory for the intending consumer to purchase any specified insurance policy.

22. The booking form used in Northern Ireland by Falcon (using the trading names "Martyns Holidays" and "Enterprise Holidays") for the 1992 Summer season contains the following provisions in relation to insurance;

- "Holiday insurance is arranged automatically (and the premium added to your invoice) unless you or your travel agent have arranged, and supplied us with details of, alternative comparable cover.

- If you have not taken our insurance please complete the following:

My/our insurers are:

24 hour emergency telephone:

with whom I have taken a policy giving comparable or greater cover than that offered in this brochure

Signed: "

It can be seen from the above that Northern Ireland customers have a choice of taking the insurance policy offered by Falcon or making their own insurance arrangements and notifying Falcon.

23. In March 1993, the UK Office of Fair Trading (OFT) issued a press release warning holidaymakers to beware of the insistence by travel agents that clients take out travel insurance especially where the agents themselves marketed insurance policies. The OFT stated that the EC Directive which came into force on 31 December, 1992 in the UK did not require holiday makers to take out travel insurance. While they considered it a wise precaution to take out such insurance, they advised customers to shop around and compare costs because insurance represented a significant proportion of the total price of a holiday.

24. The press release further stated that although there was no legal requirement for anyone to take out insurance when travelling abroad, most tour operators made it a condition of their contracts that holidaymakers arrange adequate cover. This was quite legal. It was a matter of company policy, rather than a legal requirement however. Customers could either take out the insurance offered by the operator or where possible make alternative arrangements. If a customer decided to arrange insurance independently, he or she might have to sign an undertaking to arrange cover which was comparable to that offered by the tour operator.

25. Falcon made it mandatory for persons buying Falcon package holidays to take the travel insurance offered by McArdle. Other tour operators acted in a similar fashion. Only a small proportion of the premium paid related to the actual cost of the insurance. EC Directive 90/314 provides that travel insurance should be optional and not mandatory. In implementing the Directive into Irish Law, the Department of Transport, Energy and Communication are proposing that travel insurance should be optional. While they recognise and accept that some tour operators make the taking out of travel insurance mandatory, the proposed Regulations are not to be seen as authorising tour operators to make a specified insurance policy compulsory. In Northern Ireland the situation is that tour operators only provide travel insurance if the traveller has not arranged comparable cover himself. In the North, therefore, travel insurance is mandatory but the traveller has the choice of arranging cover himself or accepting the tour operators insurance cover. In the UK the situation is that travel insurance is not compulsory but is regarded by the Authorities as being a wise precaution and it was perfectly legal for tour operators to make it a condition of the holiday contract that holidaymakers arrange adequate insurance cover either themselves or through the tour operator.

26. Falcon stated that the introduction of mandatory insurance by them in January 1991 under which Falcon customers were obliged to take out the travel insurance policy which Falcon had negotiated with their insurance broker was motivated by developments in the industry and particularly by experiences in holiday resorts. This arrangement necessarily resulted in certain restrictions on the travel agents, through whom consumers booked holidays with Falcon, and on the consumers themselves. The arrangement prevented the travel agents and consumers from taking independent commercial decisions because:

- The travel agents were prevented from offering holidaymakers alternative schemes for travel insurance. In the absence of the Falcon mandatory insurance arrangement, travel agents could potentially negotiate with insurance brokers and arrange schemes for travel insurance separately from that provided by Falcon.

- Consumers similarly were not given any choice as to the form of travel insurance they could take or the broker or insurance company from whom they could obtain such travel insurance. The arrangement ensured that any customer booking a Falcon holiday took out the policy of travel insurance negotiated between Falcon and McArdle.

27. Falcon stated that the arrangement contributed to an improvement in the provision of services in a number of ways:

- As a consequence of the mandatory insurance provisions in its holiday packages, Falcon was assured that, in every case, customers purchasing Falcon package holidays had comprehensive travel insurance. Consequently, its representatives in the various resorts (a) were assured that in the event of an emergency e.g. death, serious injury or loss of money or property, the individual concerned had insurance cover upon which the premiums were fully paid, (b) immediately knew the identity of the insurance broker and company to contact and (c) were aware of the procedures to be put in place to provide medical or other assistance. Under the arrangements with McArdle, the customer through Falcon was provided with 24 hour emergency assistance. Customers could therefore be offered full and immediate assistance should an emergency occur in the course of their holiday. In the absence of such an arrangement, Falcon would be reluctant to provide assistance to holidaymakers in the event of an emergency as it could not be assured that a customer had any or adequate holiday insurance and that any cost incurred by Falcon in providing assistance would automatically be refunded.

- Falcon, because it had negotiated the terms of the policy itself and on behalf of its customers, could be satisfied that its customers had purchased the widest available cover at the most competitive price, with no restrictions as to age or pre-existing disability and no onerous pre-conditions or exclusions. A customer acting on his own behalf might not have obtained such cover.

- Because of the mandatory insurance, there was no risk for Falcon that, in selling the package holiday, it would be identified with inadequate or defective travel insurance sold by the travel agent and there was, therefore, no danger that Falcon would thus have to defend costly litigation, in respect of matters not covered by such defective or inadequate holiday insurance, which could potentially arise.

- Because of the mandatory insurance, the travel agents, through whom holidays with Falcon were booked, reduced the risk of problems arising for themselves because the insurance policy which the customer might have had independently arranged might prove to be defective.

28. Falcon also stated that the arrangement allowed consumers a fair share of the resulting benefit for the following reasons:

- The fact that Falcon insisted on insurance being mandatory and in accordance with a previously agreed policy enabled Falcon to provide an immediate service to its customer should an emergency occur. This assistance was of obvious practical importance and benefit to the customer at a time of distress. If no travel insurance had been obtained by the customer or if travel insurance had been obtained elsewhere, Falcon would not be in the same position with regard to providing help and assistance and the customer might have difficulty in making contact with the travel agent or insurance broker who had arranged his policy.

- In booking a Falcon holiday, the consumer was assured of insurance cover regardless of his age or state of health as the policy which Falcon had arranged gave cover in wider circumstances with no exclusion of pre-existing disability. It was common for other policies of travel insurance to exclude claims arising from pre-existing disability [2].

- The insurance policy provided by Falcon included cover for cancellation of the holiday. As the customer mandatorily acquired insurance at the time he booked the holiday, he was assured of cover should he, for whatever reason, be forced subsequently to cancel his holiday. Without mandatory insurance, there was a risk that the consumer might be forced to cancel his holiday before he had obtained travel insurance, and might therefore lose a substantial proportion of the cost of the holiday already paid.

- Consumers typically and understandably did not have enough experience or expertise in relation to insurance to be able to fully assess the merits of any particular policy of travel insurance. Consumers booking holidays with Falcon were provided with as comprehensive a policy as possible.

- The cost of the holiday to the consumer was reduced because the deduction which Falcon made from the insurance premium paid by the consumer enabled Falcon to reduce the cost of its holidays. Falcon was also enabled to negotiate a reduced premium for the insurance as it was, in effect, arranging for the buying in bulk from McArdle, which also had beneficial effects for consumers.

- In the event of any dispute arising with the insurance broker or company, the consumer had the benefit of the negotiating strength which Falcon had because of its position in the market. If McArdle wished to retain the contract with Falcon for the following year, it was in its interest to ensure a proper and efficient service to customers of Falcon.

- The cost of the travel insurance acquired by the consumer under his contract with Falcon was in line with the cost of travel insurance available elsewhere and was lower than that charged by a number of insurance companies.

29. Falcon stated that the arrangements did not impose on the undertakings concerned terms which were not indispensable to the attainment of the objectives outlined above. The benefits with regard to improved service which were directly passed on to consumers could only be achieved if insurance was mandatory and by way of a pre-arranged comprehensive policy.

30. Falcon stated that the arrangements did not afford either Falcon or McArdle the possibility of eliminating competition in respect of the market for travel insurance. Falcon did not have any long term agreement or arrangement with McArdle. Tenders were invited on an annual basis for the provision of holiday insurance. McArdle was also not precluded from selling travel insurance to any consumer who approached it and wished to purchase travel insurance from it independently. Customers of Falcon were not precluded from purchasing extra holiday insurance cover elsewhere.

31. Falcon stated, that travel insurance by its nature and in accordance with commercial usage was inextricably linked with the subject of a package holiday. Falcon did not impose any supplementary obligations. In their view Section 4(1) of the Competition Act did not apply to the notified arrangements.

32. Falcon referred to a number of block exemptions and decisions in EC law particularly to "tying" arrangements which involved a "tying product" for which the customer had a particular demand and a "tied product" which was supplied on condition that the purchaser also bought the tying product. Falcon submitted that, while the EC had not specifically exempted arrangements equivalent to that which was the subject of this notification, the requirement that consumers take out mandatory holiday insurance when booking a Falcon package holiday was analogous to a tying arrangement and was fundamental to the overall package holiday arrangement.

33. McArdle stated in its submission to the Competition Authority that as members of the Irish Broking Association, they complied with the requirements of the Insurance Act 1989. McArdle stated that it did not impose mandatory insurance but simply arranged insurance cover at the request of tour operators which was imposed by them on a mandatory basis. It was their understanding however that some brokers from the UK and a local Irish agent, who operated in the Irish market for travel insurance, were not authorised intermediaries under the Act; some of these intermediaries were also placing business into unauthorised insurance markets and, despite objections by McArdle to the Department of Enterprise and Employment, no action was taken according to McArdle.

34. ITAA stated that no comprehensive survey had been conducted with each member of the Association to establish his or her views on the subject of mandatory insurance. However a majority of members present at the Association's annual general meeting in November 1991 appeared to express the view that travel insurance should be mandatory but with choice. The Association, incorporating the views of both travel agent and tour operator, felt very strongly that mandatory insurance should remain an integral part of the holiday package. In support of this view, the ITAA pointed out that many types of insurance cover on the market did not offer, for example, cancellation loss, whereby a holiday maker due to last minute change of plans for valid reasons would forfeit possibly the total cost if s/he could not go on the holiday.

35. The Association stated that its members were affected by the mandatory travel insurance arrangements in a number of ways. It denied some members of IBA the ability to compete in terms of cover, price and service with the insurances provided on a mandatory basis by tour operators. IBA brokers had available to them comprehensive travel insurance packages, which allowed them to insure their clients on an all year round basis, for both their business and for their pleasure travel. It was a source of frequent aggravation and annoyance to some IBA brokers, and particularly to their clients, who had such cover, that, when they wished to purchase a package holiday, tour operators should force additional, unnecessary, and inferior cover on them. It was generally accepted that the mandatory travel insurance arrangements, operated by various tour operators, were frequently inferior to travel insurance packages which were available in the insurance market.

36. Many IBA members had complained that they, as insurance brokers, had been required to effect mandatory travel insurance arrangements by tour operators when they, as brokers, in their professional capacity, had the ability to arrange superior cover at competitive prices through their own businesses. However travel insurance was not regarded by brokers as core business and consequently did not represent a significant portion of their premium income.

37. IBA said that fundamentally they objected to the practice of mandatory travel insurance being arranged by tour operators, as it resulted in many persons who had comprehensive all year round cover being required to waste money on an unnecessary and inferior product. This practice also prevented insurance brokers from competing directly in this market with the products which were offered by a number of major insurers, which were both more cost competitive and more comprehensive in terms of protection afforded to the clients.

38. The Federation stated that whenever any supplier of a service imposed a pre-selected, mandatory insurance cover on his client, he thereby restricted the consumer's freedom of choice, and from the point of view of insurers, a potential market was closed off. This was particularly the case where an independent, competitive market existed for the cover in question as it did for travel insurance. The existence of mandatory travel insurance arrangements operated by individual tour operators and/or travel agents therefore restricted the travel insurance market available to those of their members writing that type of policy.

39. The Federation also stated that their members were strongly of the view that the imposition of mandatory travel insurance on package holiday clients of tour operators or travel agents was wholly undesirable as being a reduction of consumer rights of choice and a curtailment of the normal competitive and commercial life of the insurance market. It appeared that a substantial proportion of travel insurance business, particularly under the mandatory scheme, was in fact being written by unlicensed insurers. Therefore contracts of insurance taken out by clients of the tour operators involved were not enforceable (e.g., in the event of a claim dispute) and indeed were illegal under insurance supervisory law.

40. The policy of the Department was that persons purchasing holiday insurance should have a choice of insurer. Any insurance, compulsory or otherwise, should be placed through an insurer authorised to do business in the State. The provision of unauthorised insurance was a matter for that Department and allegations about difficulties in this regard in the travel insurance area were the subject of ongoing investigation.

41. The Consumers' Association of Ireland (CAI) believed that the mandatory insurance arrangements operated by Falcon were restrictive and anti-competitive. While they considered that every person who travelled should be insured, they believed that customers should have the right to select their own insurance, tailored to their own personal needs. The Association expressed concern about the cost element of compulsory insurance. Their research had shown that despite the facts that insurance cover was on a "bulk rate" basis to the tour operator, a fair share of the resulting benefit was not passed on to the consumer.

42. A survey carried out and published in the CAI magazine "Consumer Choice" in May 1992 compared the costs and benefits of travel insurance offered by 8 tour operators, 6 insurance companies and 2 charge card companies. The details related to one adult to a European destination. The premia varied from £17 - £24 per person for a period varying between 14 and 31 days. All the policies provided for personal accident to cover death and disability. The charge card companies provided the highest cover (£75,000 and £100,000). The policies provided for medical expenses varying from £1m. to an unlimited amount in many cases. There was provision in all the policies for baggage loss and baggage delays with most setting limits per item for loss. Loss of money or passport was not covered by the charge card companies. Cancellation was covered by all the policies with the exception of the charge cards and generally the amount varied from £1,500 to final invoice cost. Travel delays and public liability were also provided for. Many of the policies had other benefits which covered legal expenses, missed departure and hospital inconvenience cover abroad.

43. The CAI survey also makes reference to the then new VHI service for their members who become ill or have an accident abroad. The service known as "VHI Assist" was launched in March 1992. It is available to all VHI members with plans A to E cover, without payment of additional subscription as they renew their cover from 1 March 1992. On renewal, VHI members receive an identity card giving the telephone number of a medical emergency centre capable of giving immediate and expert assistance in any part of the world, on a 24 hours-a-day basis. The maximum benefit ranges from £3,750 (Plan A) to £13,500 (Plan E). The CAI survey also refers to Form E 111 which entitles persons travelling to an EC country except Britain, where it is not necessary, to free emergency health care. It gives some cover towards the cost of drugs, hospitalisation and general medical treatment in the event of injury or accident. The CAI survey states that Form E 111 should not be regarded as a substitute for private holiday insurance.

44. The Director of Consumer Affairs in a submission to the Authority stated that the decision to make certain travel insurance policies compulsory had been taken by the Irish tour operators themselves and the practice was of some concern to him. He believed that the booking conditions/contract (para. 16 above) which was standard to all ITAA members restricted the consumer and also restricted competition. While a great majority of consumers might opt for the organiser's own insurance package for the sake of convenience, the Director felt it would be unwise to assume that consumers should not have a choice or indeed want a choice or that competition was not possible in this area. There were for example, a number of insurance packages which were designed for the non-standard package holiday or for open-ended travel and it was absolutely certain that more packages could be designed and marketed in the event that exclusive insurance arrangements, like the Falcon/ McArdle one, ceased.

45. The Director believed that the tour organiser was under no legal or contractual obligation to provide services to holidaymakers in the event of a problem arising in the course of a holiday. It was appreciated that in many cases tour operator representatives did help out but this could not be relied upon as a justification for a particular form of insurance being made compulsory. The Director had no objection to insurance, per se, being made compulsory for consumers buying package holidays or to a certain minimum level of cover being insisted upon.

46. The Director stated that it was not clear to what extent insurance companies provided insured travellers with services such as the arranging of flights home, but it was clear, however, that the tour operator took no responsibility because the contract stated that "in so arranging insurance cover for the consumer the organiser is acting as the agent of the relevant insurer and shall not be responsible to the consumer for any default by the insurer under that policy. All claims made against the insurance policy shall be made directly to the insurer".

47. The Director also stated that complaints had been received from consumers about extra costs, lack of choice and possible reduced cover resulting from mandatory insurance. In some cases consumers had argued that they could get a standard insurance package cheaper than the compulsory package. In other cases consumers had already paid for insurance by way of annual policies or by having it included in their credit card arrangements (e.g. with gold cards). In a number of cases consumers had complained that the compulsory insurance over-rode earlier insurance (annual or credit card) and gave them less favourable insurance than they otherwise would have had. It was possible that compulsory insurance would not meet consumers' full needs. This was acknowledged in the standard booking conditions/contract where it was stated that "it is the responsibility of the consumer to check that the insurance scheme provides the consumer with his desired level of cover". Furthermore the standard booking conditions/contract states that "the consumer shall be responsible for making any special or increased insurance arrangements which he deems necessary". The Director points out that it was almost certainly more expensive to make travel insurance arrangements by means of two policies than it was with one policy only, e.g. administration charges would be doubled.

48. The Director considered that the agreement of December 1990 between the Retail Council and the Tour Operators Council of ITAA (para 17 above) changed the policy which had operated prior to that in relation to consumer contracts. This agreement became part of the standard ITAA booking conditions and applied to all ITAA members and appeared to be a concerted practice which restricted competition according to the Director. The Director also maintained that it had not been demonstrated that the practice contributed to improving the provision of services while allowing consumers a fair share of the resulting benefit. The Director, therefore, submitted that a licence should not be granted by the Competition Authority in respect of the Falcon/McArdle arrangements on mandatory travel insurance.

49. There have been many complaints to the Competition Authority from members of the public who were forced to take the particular policy on offer by tour operators. In some cases customers were booking seats only. In other cases customers felt that they were adequately covered by private arrangements e.g. Premier Visa card and, therefore, felt that the mandatory insurance being imposed on them by tour operators was unnecessary. Not all of these complaints referred to Falcon Holidays. It was pointed out that the Authority had no power to investigate arrangements which had not been notified to it.

50. Following the issue of the Statement of Objections by the Authority, Falcon agreed to amend the notified arrangements. Falcon agreed, by letter dated 8 November, 1993, that customers booking holidays with Falcon would have the option of taking Falcon's pre-arranged insurance policy or of making alternative arrangements for insurance as and from 1 December 1993. They stated that customers might have to sign an undertaking that they would organise their own insurance cover. They also stated that it seemed to be implicit in the Statement of Objections that the Authority would have no objection to such arrangements.

51. Following publication on 26 November, 1993 of its intention to take a favourable decision on the amended arrangements, the Authority received a number of observations from third parties. Joe Walsh Tours Ltd stated that under the existing mandatory insurance arrangement, the tour organiser was in a position to pay the cost of providing a linking service with the Assistance Company and the Underwriter from the gross profit earned from the sale of that insurance policy. In the event of a holidaymaker arranging an alternative policy to that arranged by the tour organiser, the tour organiser received no commission/handling fee to cover such costs. In the event of the Authority publishing its decision in the Falcon/McArdle case, JWT stated that they would propose charging a handling fee to the consumer/retailer to cover such costs. It has also come to the notice of the Authority that the tour operator Sunworld has instructed travel agents to charge an administration fee of £6 per adult and £3 per child under 16 years, from 4 January 1994, to customers who opt for holiday insurance cover other than that provided under Sunworld's own policy. Falcon stated that one of its competitors charged an administration fee, another insisted that no bonus commission would be provided unless the travel agent purchased insurance from the travel company, and a third operated a similar scheme and, in addition, insisted that, to obtain their low family deposit on holidays, their insurance must be purchased. Falcon, however, have not imposed any such charges in order to keep to the spirit of the undertaking which it gave to the Authority.

52. Section 4(1) of the Competition Act, 1991 prohibits and renders void all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State, or in any part of the State.

53. The term "undertaking" is defined in Section 3(1) of the Competition Act, 1991 as follows:

"a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service".

54. The parties to the arrangement, as notified, Falcon Holidays and Ben McArdle Limited, are both corporate bodies engaged for gain in the provision of holiday travel and insurance services respectively and are, therefore, undertakings as defined in the Competition Act.

55. The agreement as notified was a verbal one between the parties relating to the Winter season 1991/1992, the Summer season 1992, the Winter season 1992/1993, the Summer season 1993 and was intended to operate for the Winter season l993/l994. Even though it was not written, it was still an agreement within the meaning of Section 4(1) of the Act. It is clear from the facts outlined above that the arrangements also form part of a wider practice involving the travel trade generally because most of the other tour operators also insist that their customers take out the particular insurance policy contained in the contracts for the purchase of their holidays. In this decision, however, the Authority is only concerned with the Falcon/McArdle agreement, i.e. the agreement as notified whereby Falcon and McArdle agreed that all Falcon customers were obliged to obtain travel insurance through Ben McArdle Ltd, and its subsequent amendment.

56. The State alone can impose a legal obligation on the public to take out insurance, e.g. motor insurance. Even then the State does not stipulate a particular insurance broker/company but leaves it to the member of the public affected to choose his own insurance broker/company. As mentioned previously the State imposes no obligation on a holidaymaker to take out holiday insurance when going abroad. Falcon and the other tour operators in Ireland do however impose such an obligation on holidaymakers. While this restricts the freedom of choice of consumers as to whether they purchase insurance or not, the Competition Authority does not consider that that restriction offends against Section 4(1) of the Competition Act because it does not prevent, restrict, or distort competition in the markets for holiday insurance or for package holidays. Indeed it seems logical and prudent for Irish holidaymakers going abroad to have adequate travel insurance. The imposition of a requirement to take out insurance implies that a minimum level of cover would have to be specified [3]. This does not mean, however, that a tour operator's particular insurance policy should be imposed on its customers.

57. The arrangements as notified provided that holidaymakers booking Falcon package holidays were obliged to take out the travel insurance agreed between Falcon and McArdle. This was mandatory on the Falcon holidaymaker who had no choice in the matter and who was thus prevented from securing insurance from other sources. This clearly restricted competition in that Falcon customers were prevented from obtaining travel insurance other than from McArdle. Even customers who were satisfied that their private insurance arrangements were adequate to cover them while on holidays abroad were nevertheless obliged to take the Falcon/McArdle insurance policy. The arrangements also affected competition between insurance brokers and between insurers in that they were prevented from selling insurance to Falcon customers. It must be remembered that Falcon is one of the major tour operators in the State with a market share of around 20% of the package holiday market. This represents a significant share of the package holiday insurance market which was effectively foreclosed because Falcon customers were obliged to take the insurance policy offered by McArdle and were precluded from approaching other insurance brokers or insurers. In addition the Authority understands that McArdle had similar arrangements with the two tour operators Corona and Joe Walsh Tours and that in the past both Budget Travel and Abbey Sun had made the McArdle insurance package mandatory for their customers. A large part of the holiday insurance business was therefore provided exclusively by McArdles with the result that other insurance brokers and insurance companies had been virtually excluded from the market. This arrangement also prevented travel agents from selling travel insurance as they had done in the past. The Falcon/McArdle agreement, as notified, therefore, offended against Section 4(1) of the Act.

58. In the Authority's view Falcon is perfectly entitled to offer its holiday insurance package to its customers provided it is made clear that there is no compulsion on the customer to take that particular insurance policy. This does not offend against Section 4(1) of the Act.

59. The Authority appreciates that Falcon, in selecting McArdle as its insurance broker, was in effect appointing an agent to arrange travel insurance cover for its customers and on Falcon's behalf. This, in itself, cannot be considered to be anti-competitive any more than the selection of an insurance intermediary for any other purpose could be so considered. This does not offend against Section 4(1).

60. While the Authority is only concerned with the notified agreement between Falcon and McArdle, it appears that almost all tour operators in the State operated a scheme of mandatory travel insurance. This made it feasible for Falcon to operate their particular scheme. Furthermore, the December 1990 agreement between the Retail Council and Tour Operators Council of ITAA (para. 17) specified that over the following two years, only the insurance policies arranged by the tour operators would be sold with their package holidays. As a result, holidaymakers were left with little or no choice in the selection of travel insurance. Even though the agreement referred to was rejected at the AGM of ITAA in November 1991 in favour of giving consumers a choice, this agreement continued to operate until recently as far as the Authority is aware.

61. Under Section 4(2), the Competition Authority may grant a licence in the case of any agreement or category of agreements which, 'having regard to all relevant market conditions, contributes to improving the production of goods or provision of services or to promoting technical or economic progress, while allowing customers a fair share of the resulting benefit and which does not -

(i) impose on the undertakings concerned terms which are not indispensable to the attainment of those objectives;

(ii) afford undertakings the possibility of eliminating competition in respect of a substantial part of the products or services in question.'

62. In order to qualify for a licence under the Competition Act, therefore, a notified agreement must satisfy all four criteria stipulated above. In the opinion of the Authority, the arrangements as notified did not fulfil at least two of the conditions provided for in Section 4(2).

63. The effect of the arrangements was to ensure that Falcon customers were provided with adequate travel insurance and this was of benefit to them. It must be shown, however, that the requirement to take the insurance offered by Falcon was indispensable to secure these benefits. In the view of the Authority there is no reason why such benefits could not be obtained were consumers free to make their own travel insurance arrangements. It is highly relevant that Falcon customers booking holidays in Northern Ireland and in Britain have the option of taking Falcon's pre-arranged insurance policy or making alternative arrangements (see paras 22 to 25 above). The arrangements contained in the agreement as notified cannot, therefore, be regarded as indispensable.

64. As mentioned in para 57, the arrangements notified eliminated competition in relation to the holiday insurance which Falcon holidaymakers could take out. Furthermore, the Authority notes that the practice operated by Falcon was widespread throughout the Irish travel industry. In view of this it has to be concluded that the practice incorporated in the agreement as notified afforded the undertakings the possibility of eliminating competition in respect of a substantial part of the services in question (package holiday insurance).

65. By letter dated 8 November l993, Falcon agreed to discontinue the arrangements which were the subject of the original agreement as notified and from 1 December l993 to give their customers the option of taking the Falcon/McArdle pre- arranged holiday insurance policy or making alternative arrangements for holiday insurance. Falcon had sought a licence for the original Falcon/McArdle agreement but confirmed to the Authority that a certificate for the amended arrangements would be acceptable to them. In the Authority's opinion, the amended arrangements would not offend against Section 4(1) of the Act. Neither would the arrangement whereby from

l December l993, onwards, Falcon customers may have to sign an undertaking that they will organise their own holiday insurance cover, offend against Section 4(1) of the Act.

66. Falcon has discontinued the notified arrangements and allows its customers freedom to choose its policy or some alternative policy, and it has not instituted an administrative or other fee in the event of an alternative being chosen. The Authority is aware that some tour operators have imposed, or are proposing to impose, a fee if an alternative to the operator's own insurance policy is chosen, or have introduced other measures in an attempt to ensure that their insurance policy is sold. The Authority is concerned that such fees and measures may be an attempt to frustrate its intention of ensuring greater freedom of choice for customers in the area of holiday insurance, and may deny customers potential savings from selecting an alternative. The Authority would not have accepted such arrangements if they had been proposed by Falcon.

67. Falcon Leisure Group (Overseas) Limited trading as Falcon Holidays and Ben McArdle Limited are undertakings within the meaning of Section 3(1) of the Competition Act and the arrangements between them on package holiday insurance constitute an agreement between undertakings. By letter of 8 November l993, Falcon agreed that from l December l993, they would discontinue the arrangements under which it was mandatory on their customers to take the Falcon/McArdle pre-arranged holiday insurance policy and give their customers the option of taking that policy or of making alternative holiday insurance arrangements. In the Authority's opinion, the amended arrangements which have operated since l December l993, do not offend against Section 4(1) of the Act.

68. The Competition Authority has issued the following certificate:

The Competition Authority certifies that in its opinion, on the basis of the facts in its possession, the agreement between Falcon Leisure Group (Overseas) Limited trading as Falcon Holidays and Ben McArdle Limited, on package holiday insurance (Notification No. CA/31/92E), notified under Section 7 of the Competition Act on 28 May, l992 and amended by letter of 8 November l993, does not offend against Section 4(1) of the Competition Act, l99l.

For the Competition Authority

Des Wall

Member

4 February 1994

- Any claim arising from travel or holiday arrangements made against the advice of any medical practitioner.

- Any claim arising consequent upon pregnancy within two months of the expected date of delivery.