Irish Competition Authority Decisions

Introduction.

1 Notification was made by Irish Life Assurance plc on 30 September 1992 with a request for a Certificate under Section 4(4) of the Competition Act, 1991 or, in the event of a refusal by the Competition Authority to issue a certificate, a licence under Section 4(2), in respect of a Tied Agency Agreement between Irish Life Assurance plc and First National Building Society (FNBS).

2 The notification concerns a Tied Insurance Agency Agreement whereby the Insurer (Irish Life) appoints FNBS as a tied insurance agent.

3 The notifying party, Irish Life Assurance plc, has its registered offices at Lower Abbey Street, Dublin 1. The company transacts all forms of individual life assurance, group pension schemes, pensions for the self employed, annuities and investment savings. Irish Life’s total assets in 1997 were £6.4bn and its gross premium income was £520m.

4 The First National Building Society has its registered offices at Skehan House, Booterstown, Dublin. The society’s core business is the advancement of loans for mortgages. FNBS and its subsidiaries are also involved in a number of personal financial service areas. Its total assets under management in 1997 amounted to £4,885m. Loans and advances to customers were £2,593m in the same period. In September of this year FNBS changed its status from a building society to a public limited company named First Active plc.

11 Irish Life submits that its sales figures in respect of the products/services affected by this agreement for 1993 was £61.7m. It estimated that First National’s turnover in Irish Life’s products for 1994 was [ ] and that this represented [ ] of the total market for all companies in these services in Ireland. It further submitted that its market share of the life assurance and pensions business has declined in the 1990s. Its market share in the relevant products/services in Ireland has declined from [ ] in 1991 to [ ] in 1994.

12 This notification concerns a draft Tied Agency Agreement whereby the FNBS has agreed to market and sell the insurer’s contracts to the public and to service customers of such contracts. FNBS has acted as the “tied insurance agent” (as defined in the Insurance act 1989) of Irish Life Assurance plc since 1, April 1991. The agreement is of an indefinite duration.

13 FNBS is empowered to act as a tied agent for the sole purpose of a) procuring and endeavouring to procure the completion of proposals to the insurer in respect of the insurer’s products by persons with whom the society deals and b) advising persons with whom the society deals about the insurance products, about the sale of such products and about the exercise of rights conferred or derived from such products.

14 The provisions of the agreement relate for the most part to obliging the Tied Insurance Agent to comply with the requirements imposed on Tied Insurance Agents under the Insurance Act 1989. Other provisions in the agreement relate to maintaining the image and integrity of Irish Life products and the responsibility of Irish Life for acts or omissions of a Tied Insurance Agent.

15 Under the agreement the society must act according to the law in carrying out its functions; bring to the attention of the insurer any breach of the act, the code of conduct for intermediaries or this agreement; not engage any employee in the marketing or sale of the insurer’s products who would be unacceptable to the insurer; ensure that all employees are subject to proper training and supervision; pay promptly all sums due to the insurer by the society or any client of the society; indemnify the insurer and maintain adequate insurance to cover all liability.

16 Under Clause 5.18 FNBS agrees “not to enter into a tied agency agreement or arrangement as defined in S.51(3) of the Insurance Act, with anyone or any entity other than the Insurer.”

17 Clause 6 of the notified agreement relates to commission. It provides that the commission is “subject always to the maximum levels of commission allowable under the current version of the Insurance Industry Federation’s agreement on maximum rates of remuneration for life business.”

18 The insurer may terminate the agreement if the society breaches any provision of the agreement, Act, or code of conduct, or is adjudged insolvent. Each party may terminate the agreement by giving 6 months’ written notice. On termination of the agreement the society agrees to no longer represent itself as a tied agent or intermediary of the insurer, returning all property and stationery of the insurer. The tied agent may not transfer any of its rights under the agreement without the prior consent of the insurer.

19 On termination of the agreement the society also undertakes for a period of one year,

“not to procure directly or indirectly any policy holder of the insurer in respect of which the Society was originally, or at any time, the selling agent, to relinquish, cancel, surrender, discontinue or otherwise dispose of any contract or other business with the insurer or to in any way directly or indirectly approach or solicit any policy holder for such purpose.”

20 Irish Life submits that the agreement has neither the object nor the effect of preventing, restricting or distorting competition in the State. It submits that no clause of the draft agreement enforces absolute territorial protection. Furthermore, there is no restriction on intra-brand competition as the services in question are available from more than one source (brokers, agents, direct sales forces).

21 Irish Life submits that the arrangements contribute to improving the provision of services by extending the availability of Irish Life products to customers of FNBS. Customers of the FNBS are also customers of retail banks operating in the market for life assurance. Irish Life believes that the effect of the agreement is to increase competition and choice for the consumer.

22 Finally, Irish Life submits that the arrangement does not afford the undertakings the possibility of eliminating competition in respect of a substantial part of the services in question. The only restriction on FNBS is to act as a tied agent which they believe is necessary to ensure the improvement in distribution. There is no agreement amounting to absolute territorial protection. The exclusivity of the agreement does not afford Irish Life the opportunity of preventing other life companies from entering or expanding in the relevant market.

23 On 10 December 1998, the Authority issued a Statement of Objections to the notifying party indicating its intention to refuse to issue a certificate or grant a licence to the notified arrangements because these arrangements required that the parties adhere to the Insurance Industry Federation agreement on maximum rates of remuneration for life business. By letter dated 14 January, the notifying party stated that it no longer adhered to the IIF agreement and it was fully aware of its obligation not to do so. Accordingly, on 16 February 1999, Irish Life Assurance plc. issued a letter to First Active plc. (formally First National Building Society) stating that “ on 5 February 1998, Decision No. 495 of the Competition Authority found the Irish Insurance Federation’s Agreement on Maximum Rates of Remuneration for Life Business (the IIF Agreement) to be anti-competitive and in contravention with Section 4(1) of the Competition Act, 1991 and that it did not satisfy the conditions of Section 4(2). In the interests of ensuring that both of our organisations can demonstrate compliance with the Authority’s ruling, we confirm that Irish Life will not enforce any provisions relating to the maximum levels of commission payable under IIF Commissions Agreement and waives any rights relating to such provisions”.

24 Section 4(1) of the Competition Act, 1991, as amended, states that “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 goods or services in the State or in any part of the State are prohibited and void.”

25 Section 3(1) of the Competition Act defines an undertaking as “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.”

26 The parties to the agreement are Irish Life Assurance plc and FNBS. Irish Life Assurance plc is involved in the transaction of life assurance and pension business in Ireland and the provision of investment management services. It is also involved in other areas of personal financial services. Irish Life , therefore, is an undertaking within the meaning of Section 3(1) of the Competition Act. FNBS is also an undertaking engaged in the provision of a service associated with the same goods, i.e. the distribution of life and pension products in the State. The Agreement is an agreement between undertakings having effect within the State.

27 The agreement creates an agent-principal relationship between FNBS and Irish Life plc. The Authority considers that FNBS is an intermediary between Irish Life and the purchasers of life assurance and pension schemes. It concludes the sale of products on behalf of Irish Life. The Authority considers that FNBS is an auxiliary organ forming an integral part of Irish Life’s distribution business, and it concludes that FNBS can be considered to be a commercial agent of Irish Life.

28 The Authority has stated in the Conoco consignee agreement [2] that the relationship of principal and agent does not in itself contravene section 4(1), and that certain restrictions which are necessary to that relationship also do not offend. The arrangement is such that FNBS as a tied agent for Irish Life must “refer all proposals of insurance to the undertaking with whom he has made or entered in to the agreement or arrangement.” As such, FNBS is prevented from selling the products of other life offices. The Authority takes the view that the “exclusivity” of the agreement does not prevent other life offices from distributing their life and pension products through other intermediaries (agents, brokers and tied agents) or their direct sales forces. Moreover, there is nothing in the agreement that prevents FNBS from entering the market directly or becoming the tied insurance agent of another insurer. FNBS may switch to another life office with 6 months notice. The Authority considers, therefore, that the agreement between Irish Life and FNBS, insofar as it creates an exclusive agency relationship between the principal and the commercial agent, does not contravene Section 4(1).

29 Even though the basic arrangement of commercial agency may not contravene Section 4(1), certain clauses in the agreement might occasionally do so. Clause 8.3 of the agreement precludes FNBS from procuring any policy holder of the insurer in respect of which the Society was the selling agent for a period of one year after the termination of the agreement. During the term of the agreement the special relationship of the agent and principal means that the agent is wholly integrated into the distribution system of the principal and is privy to the principal’s affairs, with contacts with the principal’s customers which could enable him to compete unfairly with his principal or the agent who succeeds him. The EU Directive on Commercial Agents provides for a maximum post term non-compete clause of 2 years from termination. As the provisions of this clause are restricted to clients of which FNBS is agent and for a period of one year only, the Authority considers that this clause does not contravene Section 4(1).

30 Clause 6 provides that commission shall be “subject always to the maximum levels of commission allowable under the current applicable version of the Insurance Industry Federation’s Agreement on maximum rates of remuneration for life business” (“the IIF Agreement”).

34 The Competition Authority considers that Irish Life Assurance plc and FNBS are undertakings and that the Tied Agency Agreement is an agreement between undertakings. In the opinion of the Authority, the agreement as amended by letter of waiver dated 16 February 1999 does not contravene Section 4(1) of the Competition Act, 1991, as amended.

[1] For a comprehensive overview of the life assurance market, see Competition Authority Decision No 495 of 8 February 1998 (Irish Insurance Federation agreement on maximum rates of remuneration for life business)

[2] Decision No. 286 of 25 February 1994

[3] See footnote one

[4] The views of the Authority on price fixing and the recommendation of prices by a trade association are set out in detail in Decision No. 335. The Irish Stock Exchange Rules on Government Gilts.