Irish Competition Authority Decisions

1. Notification was made of a scheme of registration for life assurance sales persons by the Irish Insurance Federation on 5 October 1995. The notification requested 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).

2. This notification relates to an arrangement concerning the registration of life assurance sales persons in Ireland. It has been established by the Irish Insurance Federation on behalf of its members. The object of the scheme of registration is the putting together of a data base of all people engaged in the sales of life assurance. The sales persons to be included in the scheme include: sales staff who are employees of life assurance companies; independent intermediaries; tied agents; and, any other persons who actively advise members of the public on life assurance contracts.

3. The Irish Insurance Federation is a Professional Association comprised of the major insurers in the State.

4. The market here relates to the market for the sale of life assurance contracts. The Agreement concerns those people who “sell” life assurance. The criterion for testing whether someone “sells” life assurance is whether the person actively engages, advises or assists in the completion of a proposal form on behalf of a member of the public.

5. The number of independent intermediaries, (brokers and agents) and tied-agents working in the life assurance market in Ireland is estimated by the notifying party to be approximately 4,000. In addition, the notifying party estimates that there are approximately 2,000 sales staff directly employed by life assurance companies.

6. The geographical market for the products is Ireland. The notified agreement relates to Ireland only. The Applicant has confirmed that the total market value in the State for the products concerned in 1994 was IR£200 million in new recurring annual premiums and IR£660 million in once-off single premium.

7. There are a few restrictions on entry to the market for life assurance intermediary or selling services. The Investor Compensation Act 1998 requires all intermediaries (brokers and agents) to be a member of an investor compensation scheme. They may not act as intermediaries if, inter alia , they have a criminal conviction relating to their performance of their functions as an intermediary; or if they have been bankrupt, or have a conviction for an offence of fraud or dishonesty, or fail to meet financial obligations to their clients. Beyond these the only restrictions on any person describing themselves as either an agent or broker is that they must be able to offer policies for up to four insurers (for an agent), or five or more insurers (for a broker). An intermediary must have appointments in writing from those insurers whose policies they offer. At the time of notification of the scheme, no formal qualifications were required to sell life assurance in Ireland and there was no industry-wide competency test. However, a competency scheme was introduced by the IIF on 1 May 1998 and details of this are set out in (e) below.

8. This Notification relates to a registration scheme of all people engaged in the sales of life assurance. The stated object of the scheme is to protect investors in these products by making it more difficult for unauthorised persons to sell life assurance contracts.

9. Every life assurance sales contract must specify the registration number of the salesperson who made the sale. Each life company will be responsible for ensuring that it transacts business only through sales people whose names are on the register. Companies must inform their intermediaries that registration is a precondition for trading.

10. Responsibility for registering a salesperson or advising of a cessation of appointments will rest with:

- life assurance companies for their own employees, independent intermediaries (holding brokerage appointments), agents or members of tied agency forces, and

- the principal of independent intermediaries or agents for their own employees or contracted persons.

11. As sales persons take new positions, or existing positions of employment, agency or brokerage are terminated, those responsible for registration are to immediately supply the relevant information for inclusion in the register.

12. In the case of a cessation, the life assurance salesperson must be advised about the information which will be furnished for inclusion on the register and the individual so directed will have the option of furnishing a statement to the Registration Council for inclusion in the register. Likewise, in the case of an agency or brokerage, other companies with which they have similar facilities will be advised, if appropriate. Persons seeking a position of employment/agency or brokerage will be required to give permission to a life company or the principal of a firm to inspect the register and to make any consequent enquiries which he/it thinks appropriate.

13. The registration record of each salesperson shall contain:

(a) registration number;

(b) full name and address and date of birth of the registered salesperson;

(c) qualifications of registered salesperson;

(d) status of salesperson;

(e) registration history with relevant comments, where appropriate, since registered.

14. The provisions of the scheme will not be relevant to the following types of contracts:

- creditor insurance effected for the purpose of insuring the

repayment of a loan, where it is intended that such a contract will be assigned to, or deposited with, the lender and where the term of the loan does not exceed three years;

- term assurance which are affected specifically as an essential part of a loan package (including mortgages);

- contracts which are effected solely as a consequence of a coupon advertisement where no advice with regard to the sale of the contract is involved;

- other contracts which may be exempted from time to time.

15. The registration scheme is managed by a Registration Council. This is a self-regulatory body comprising four nominees from the Irish Insurance Federation and two nominees from the Irish Brokers Association. The cost of operating the scheme is borne by the IIF members. The register is treated as confidential with access available only to those with a right to access or who have the permission of the person in respect of whom the information is being sought.

16. In May 1998 the IIF introduced a competency test for life assurance salespeople. The testing requirement applies to all salespeople otherwise qualified for entry into the register as set out above.

17. The test must be passed by salespeople who are first appointed after the date of introduction of the test within nine months of taking up relevant employment. For existing salespeople, the test must be passed within 12 months of the introduction of the scheme. Certain salespeople are exempted from the requirement to pass the test. These include salespeople with relevant academic qualifications from a suitable institution, such as the Life Insurance Association, Chartered Insurance Institute, Institute of Actuaries, Institute of Pensions Managers, Insurance Institute or Institute of Bankers. Also exempted are salespersons who have completed a suitable internal training programme.

18. The subject matter of the test is the foundation course of the Life Insurance Association (LIA). By the end of the year, it is expected that the foundation course will be Financial Planning Certificate I. The test is independently administered and the results verified by the LIA and the IIF. 1150 salespeople passed the test in the first year after its commencement.

19. The notifying party contends that the register does not in any way prevent, restrict or distort competition. The register will essentially be used as a database to maintain information about those who sell life assurance. There are no restrictions on who can be registered and the information on the database will only be available to those salespersons in respect of their own entry on the register, and those who have their permission to inspect the entry.

20. The stated objectives of the scheme are to provide protection for investors in life assurance by contributing to the establishment and maintenance of sales standards and to advance and safeguard both the standing of those who sell life assurance and the integrity of the industry as a whole. The notifying party argues that these objectives cannot be construed as anti-competitive. By using this scheme, the Irish Insurance Federation states that it is attempting to set and maintain standards within the industry.

21. It is submitted that the arrangement will have no effect on competition as it is intended merely to provide a way of standardising information about life assurance salespeople.

22. As to the competency test, the IIF submits that it is designed to ensure that salespeople have sufficient knowledge to sell the relevant products and that this will be to the benefit of customers who rely on advice from the salespeople. The IIF also point out that the competency scheme is consistent with the European Commission's Recommendation of 18 December 1991 on insurance intermediaries which states that all insurance intermediaries should have the requisite knowledge and ability. The IIF notes that competency testing of life assurance salespeople takes place in the UK and other European states.

23. The notifying party submitted arguments in favour of the request for the granting of a licence. These arguments are not repeated here as in the opinion of the Authority the agreement qualifies for the granting of a certificate.

24. Section 4(1) of the Competition Act, 1991 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 trade 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, 1991 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.” The Irish Insurance Federation is a body of persons engaged for gain in the sale of insurance products in the State and it and its constituents are undertakings. The scheme can therefore be viewed as a decision by an association of undertakings. The scheme has effect within the State.

26. The notified arrangement is a system of registration for life assurance sales persons in Ireland. It is administered by the Irish Insurance Federation on behalf of insurance companies. Essentially, it is a database of all people engaged in the sales of life assurance. Part IV of the Insurance Act, 1989 regulates insurance intermediaries while Section 50 specifically relates to a register for intermediaries, as follows:

“Every undertaking shall keep a register of all its appointed insurance intermediaries at its principal office in the State. The said register of the appointed intermediaries shall be open to public inspection at reasonable times during normal working hours”

27. The Authority considers that the setting up of this register by the IIF centralises, standardises and expands the register required of undertakings by the Insurance Act, 1989. Moreover, it believes that the arrangement as it applies to intermediaries and others involved in the selling of life assurance contracts does not prevent, restrict or distort competition within the meaning of Section 4(1). The register here is to include persons qualified under law to sell life assurance contracts. Therefore, the register can not be characterised as a barrier to entry. A centrally controlled system of registration may increase efficiency and transparency in the market by reducing information and searching costs and by making it more difficult for unauthorised persons to conduct business. In the opinion of the Authority, therefore, the scheme of registration for life assurance sales people by the Irish Insurance Federation does not contravene Section 4(1) of the Competition Act.

28. The introduction of competency testing by the IIF in May 1998 raises different issues than those presented by the register as originally notified. As has been noted by the Authority in Association of Optometrists (Dec. No. 16) and again in Institute of Chartered Accountants (Dec. No. 520) attempts by professional bodies to limit entry according to perceived future demand for services would be considered to be restrictions on competition and therefore prohibited by Section 4(1) of the Competition Act.

29. However, in relation to the competency testing introduced here, the Authority is of the view that it does not restrict competition. The competency test is not the exclusive route of entry for life assurance salespeople. A large number of other academic qualifications will entitle someone to enter into the profession along with accredited training provided by an employer. In addition, the relevance of the subject matter of the test along with its administration by an independent body suggests that it is less likely to be used as a tool to artificially restrict entry into the field. Finally, the Authority is mindful of the policy concerns reflected in the Commission Recommendation on insurance intermediaries. There, the Commission recommends that member states or recognised professional bodies establish standards of professional competence for insurance intermediaries for purposes of consumer protection. The IIF test carries out that recommendation and, in the view of the Authority, does not restrict competition.

30. In the Authority’s opinion, the Irish Insurance Federation is an association of undertakings within the meaning of Section 3(1) of the Competition Act, 1991, as amended, and the notified agreement is a decision of an association of undertakings having effect within the State. In the Authority’s opinion, the notified agreement between members of the Irish Insurance Federation does not prevent, restrict or distort competition and thus does not contravene against Section 4(1) of the Competition Act.

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the Scheme of Registration notified under Section 7 of the Competition Act on 5 October 1995 (Notification No. CA/35/95) does not contravene Section 4(1) of the Competition Act, 1991, as amended.

For the Competition Authority,

William Prasifka

Member

31 August 1999.