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Hibernian Insurance Company Ltd /Bank of Ireland Insurance Services Ltd [1999] IECA 574 (15th November, 1999)

COMPETITION AUTHORITY

Competition Authority Decision of 15 November 1999 relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification No CA/5/99 - Hibernian Insurance Company Limited/Bank of Ireland Insurance Services Limited

Decision No. 574

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Competition Authority Decision of 15 November 1999 relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification No. CA/5/99 - Hibernian Insurance Company Ltd/Bank of Ireland Insurance Services Ltd.

Decision No. 574

Introduction.

1. Joint notification was made by Hibernian Insurance Company Ltd and Bank of Ireland Insurance Services Limited on the 18 June 1999 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 an Agency Agreement between Hibernian Insurance Company Ltd and Bank of Ireland Insurance Services Limited, and an Insurance Services Agreement between Hibernian Insurance Company Limited and Premier Direct Management Limited, a subsidiary of Bank of Ireland Insurance Services Limited.

The Facts

(a) Subject of the Notification

2. The notified arrangements are an “Agency Agreement” between Hibernian Insurance Company Ltd and Bank of Ireland Insurance Services Limited and an “Insurance Services Agreement” (Operating Agreement) between Hibernian Insurance Company Ltd and Premier Direct Management Limited, both dated 23 December 1997. Hibernian wishes BIIS to act as its non-exclusive agent to sell its private motor car insurance policies in Ireland.

(b) The Parties Involved

3. Hibernian Insurance Company Ltd is a wholly-owned subsidiary of Hibernian Group plc and is registered at Haddington Road, Dublin 4. Its principal activities are the transaction of Fire, Accident and Marine insurance business mainly within the Republic of Ireland. Hibernian’s total turnover in Ireland during the financial year ended 31 December 1998 was [ ] while its turnover in respect of private motor insurance services during the same financial year was [ ].

4. Bank of Ireland Insurance Services Limited (BIIS) is involved in the provision of financial services including insurance. Its ultimate parent company is The Governor and Company of the Bank of Ireland, Head Office, Baggot Street, Dublin 2. BIIS’ commission income in Ireland during the financial year ended 31 December 1998 was [ ]. Premier Direct Management Limited (PDM) is a company within the Bank of Ireland Group and is a subsidiary of BIIS.

(c) The Product and the Market

5. According to the parties, there are approximately 714 sellers (i.e. service providers) of motor insurance policies in the Republic of Ireland. These are divided into 14 insurance companies and 700 insurance brokers broking motor policies. Insurance policies can be purchased either directly from an insurer or indirectly through a broker or agent.

Hibernian believes that there are 1.1 million private motor insurance policy holders in Ireland. The total market turnover in Ireland for private motor insurance is approximately [ ]. Hibernian currently underwrites approximately [ ] of the Irish motor insurance market. While insurance/prudential authorisations are needed in order to operate in the market, a number of companies have entered the market in recent years. Entities established in other EU member states can offer services in the Irish market, and tele-sales operations can be established.

The product is available from Hibernian through its brokers and agents, including BIIS. BIIS and Hibernian are not competitors as BIIS and all its connected companies in the Bank of Ireland group do not engage in the insurance activities covered by the arrangement.

The Authority considers that the relevant product is that of motor insurance. The geographic market is at least the State.

(d) The Notified Arrangements

6. This arrangement is (1) for the provision of motor insurance services by BIIS in its capacity as a non-exclusive agent for Hibernian and (2) for the provision of specified insurance services by PDM to Hibernian on an exclusive basis in relation to the provision of motor insurance for preferred risks.

(i) The Agency Agreement

7. Under the Agency Agreement, Hibernian appoints BIIS as its non-exclusive agent to sell Hibernian’s private motor car insurance in Ireland. Hibernian reserves the right to refuse to quote for motor cover in respect of any risk. The agreement sets out BIIS’s duties in dealing with Hibernian business. BIIS agrees to refer preferred risks (i.e. the profile of risks which Hibernian wishes to underwrite under the Agreement) to PDM. The agreement contains clauses setting out the business relationship between Hibernian and BIIS. BIIS is not to:

make any representation or incur any liability on Hibernian’s behalf other than under the terms of the agreement;
vary or amend a motor policy on Hibernian’s behalf;
agree, deny or amend any individual claims or pay such claims;
institute legal proceedings in Hibernian’s name.

Any sales and promotional literature which uses Hibernian’s name must be approved by Hibernian. For its part, Hibernian undertakes to provide BIIS with training, comply with all applicable laws, regulations and codes of practice, conduct its business ethically and provide BIIS with such information as it may reasonably require.

8. The Agreement sets out rates of commission which BIIS is entitled to deduct from premiums and the details of payments of premiums by BIIS to Hibernian. It provides for cancellation of insurance where the insured has defaulted on payment. All premiums received by BIIS in respect of motor insurance policies are the property of Hibernian and are held in trust by BIIS for Hibernian until remitted.

9. Under Clause 7 of the Agreement, in certain circumstances and within certain parameters, BIIS may set the Retail Price at which Motor Cover is granted to Insureds based on the Account Price (which is the premium charged by Hibernian for an individual risk at the inception or renewal date specified by the Hibernian Rating tables in force on the relevant date). The Account Price is net of no claims discount but is inclusive of all government levies and charges. [

]

10. Clause 8 relates to rating. Under Clause 8.1, Hibernian agrees to provide to BIIS a rating structure through which a quotation of an Account Price may be calculated based on information relating to a risk inputted in the rating structure. BIIS are to incorporate the rating structure within their quotation system and every quotation of an Account Price is to be based on the rating structure. [

]

11. Clause 12 of the agency agreement acknowledges that each party has a long-established and broad customer base and provides that neither party will seek to restrict the other as regards how or where they may choose to market their business, either during the term of the agreement or thereafter. Under Clause 12.2, information relating to insured parties introduced by BIIS to Hibernian under the terms of the agreement remains the property of BIIS and cannot, without the prior written consent of BIIS, be used by Hibernian other than in relation to motor insurance. However, Hibernian may market its insurance products to persons who have previously been, are currently, or become, customers of Hibernian by some other means, even if they are covered by this agreement.

12. Clause 13 relates to non-solicitation of employees. Clause 13.2 provides that “Neither BIIS nor any company in the BIIS Group shall, during the term of this Agreement and for a period of six (6) months after its termination for any reason, solicit in any way the services or employment of any person who is at the time of termination or at any time in the previous six months, employed exclusively as an employee of Hibernian, unless otherwise agreed in writing by Hibernian.” Clause 13.3 provides for compensation for Hibernian in the event of breaches of Clause 13.2. Similarly, Clause 13.4 prohibits the solicitation of BIIS’s employees by Hibernian, and Clause 13.5 provides for compensation for BIIS in the event of breaches of Clause 13.4.

13. Clause 14 provides that the agreement be terminated by a specific date. It may be extended by mutual agreement. The Agreement provides a mechanism for early termination. [

]

14. [ ] Clause 14.5.1 contains provisions allowing BIIS to terminate the agreement in certain circumstances following good faith negotiations between the parties which would enable the parties to explore the cost, system and distribution channels under the Agreement.

15. Upon termination of the agreement, BIIS is to return to Hibernian within 30 days all marketing materials, summaries and policy documents in its possession. [

]

16. Clause 19 deals with confidentiality provisions. Each party undertakes to keep and maintain all confidential information in the strictest confidence “from the date of execution of this Agreement” and not to disclose it without the prior written consent of the other party. This provision will not apply to information which was already in a party’s possession before it received it from the other party, or to information which comes into the public domain other than through a breach of the Agreement.

(ii) The Insurance Services Agreement

17. Under the Insurance Services Agreement, Hibernian engages Premier Direct Management Ltd. as its agent to provide insurance services on an exclusive basis in relation to Hibernian’s private motor car insurance business for Preferred Risks. The agreement contains limitations on PDM’s powers. PDM must not:

make any representation about Hibernian’s business which is outside the terms of the Insurance Services Agreement;
incur any liability on Hibernian’s behalf which is outside the terms of the agreement;
vary, amend or terminate on Hibernian’s behalf any Motor Policy or other Hibernian contract unless Hibernian expressly requests it to do so;
institute or engage in any legal proceedings or action on Hibernian’s behalf;
use advertising, promotional or sales literature concerning Hibernian which Hibernian has not supplied or approved; or
agree, deny or commute claims relating to Hibernian.

18. Under Clause 4 of the Insurance Services Agreement, PDM is to provide certain services (the review of proposal forms, dealing with telephone requests for immediate private motor car insurance cover, notifying proposers on behalf of Hibernian of rejection of proposals for motor cover, and the performance of various other administrative tasks) to Hibernian in respect of all business introduced to Hibernian by BIIS under the Insurance Services Agreement. All these services are to be provided subject to Hibernian’s underwriting principles and to the terms of the Agreement itself.

19. Clause 7 (Records) provides that PDM shall prepare and maintain full and proper transaction records and make them available to Hibernian. Clause 8 deals with PDM remuneration. [

]

20. Clause 12.2 provides that “Neither PDM nor any company in the PDM Group shall, during the term of this Agreement and for a period of six (6) months after its termination for any reason, solicit in any way the services or employment of any person who is at the time of termination or at any time in the previous six months, employed exclusively as an employee of Hibernian, unless otherwise agreed in writing by Hibernian.” Clause 12.3 provides for compensation for Hibernian in the event of breaches of Clause 12.2. Clause 12.4 provides for non-solicitation of PDM employees by Hibernian for the term of the agreement and for six months after its termination, and clause 12.5 provides for compensation for PDM in the event of breaches of clause 12.4. These clauses are similar to clauses 13.2 to 13.5 in the Agency Agreement.

21. Clause 14 provides for termination of the Agreement by a specific date. There are provisions for early termination similar to those contained in Clause 14 of the Agency Agreement (with the exception that there is no clause analogous to clause 14.5.1 in the Agency Agreement), [

] e.g. if either party enters into liquidation, receivership or examinership, etc. The agreement may also be terminated forthwith if the BIIS agreement (the agency agreement) is terminated in accordance with its terms for any reason. Upon termination, PDM is to return promptly to Hibernian copies of all data relating to the Insurance Services provide pursuant to the Insurance Services Agreement in PDM’s possession or under its control at that time. [

]

22. Clause 19 deals with confidentiality provisions. Each party undertakes to keep and maintain all confidential information in the strictest confidence “from the date of execution of this Agreement” and not to disclose it without the prior written consent of the other party. This provision will not apply to information which was already in a party’s possession before it received it from the other party, or to information which comes into the public domain other than through a breach of the Agreement.

(e) Submission of the Parties

Arguments in support of issuing a certificate

23. The parties submit that the arrangements do not prevent, restrict, or distort competition in the market given that there are alternative suppliers of motor car insurance both in terms of other insurers and brokers. Moreover, the arrangement contained no provisions that either directly or indirectly fixed purchase prices, selling prices or trading conditions in a way that would prevent restrict or distort competition. Although BIIS is entitled to set the retail price, the premium is set by Hibernian. Hibernian submits that this is indispensable given that it is bearing the risk.

24. According to the parties competition in the provision of this type of insurance service is facilitated given that the arrangement is a non-exclusive one allowing BIIS the freedom to switch to another agency agreement. Although PDM is required to provide motor insurance services in the “preferred risks” category on an exclusive basis, this does not unduly limit the agency market given that there are many undertakings in the market who can offer similar types of services both directly and indirectly. Finally the parties submit that this arrangement does not contain any provisions that makes the conclusion of the arrangement subject to the acceptance of supplementary obligations which have no connection with he subject of such arrangements.

Arguments in support of the grant of a licence

25. The notifying parties made arguments in support of the grant of a licence. As these are not considered relevant to the decision, they are not reproduced here.

The Assessment

(a) Section 4(1)

26. 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.

(b) The Undertakings

27. Section 3(1) of the Competition Act defines an undertaking as ‘a person, being an individual, a body corporate or an unincorporated body engaged for gain in the production, supply or distribution of goods or the provision of a service.’ Hibernian is engaged for gain in the provision of motor insurance and is an undertaking. Bank of Ireland Insurance Services and its subsidiary, Premier Direct Management Ltd., are engaged for gain in the provision of certain services in relation to (inter alia) motor insurance and are undertakings. The agreements are agreements between undertakings and have effect within the State.

(c) Applicability of Section 4(1).

(i) The Agency Agreement

28. The agreement between Hibernian and BIIS is described as an “Agency Agreement”. As noted in its decision on the Conoco Consignee Agreement [1], the Authority considers that the question of agency is quite complex, and that each case must be examined on its own merits in relation to the Competition Act, in the light of certain general considerations. The fact that an agreement is described as “agency” is not conclusive. The Authority is concerned with whether the relationship between the two parties is such that one of them may be termed a “commercial agent” of the other. It is not intended that the views of the Authority about whether a person is a commercial agent or not should have any implications for the legal relationship between the parties.

29. In the Conoco decision, the Authority stated its view that “... a commercial agent is a self-employed intermediary between the principal and a purchaser or seller. The commercial agent concludes the sale or purchase of goods and services on behalf of the principal, on a continuing basis. The commercial agent is an auxiliary organ, forming an integral part of the principal's business, and is bound to carry out the instructions of the principal, and his position is similar to that of an employee. Being integrated into the principal's business, the commercial agent can undertake no autonomous commercial behaviour, under the agreement, and certain restrictions on him are fundamental to the relationship. The Authority considers that profits or losses essentially accrue to the principal and not to the commercial agent.”

30. In the case of the Hibernian/BIIS agreement, the situation is slightly complicated by the fact that BIIS has a certain latitude, within strictly defined boundaries, to vary prices (unlike the case of the Conoco agreement where Conoco set prices). The ability of BIIS to vary prices is limited by Clauses 7 and 14.5.1. Essentially, Hibernian sets an account price for an individual risk, according to a rating table. [

] Clause 14.5.1 contains provisions allowing BIIS to terminate the agreement in certain circumstances following good faith negotiations between the parties which would enable the parties to explore the cost, system and distribution channels under the Agreement.

31. In certain circumstances, the fact that BIIS is (to some degree) free to set its own prices would be sufficient to convince the Authority that the relationship is not one of true agency. Other factors in this case, however, are also significant. It is Hibernian which can decide whether to quote or not in respect of any risk. BIIS may not vary or amend a motor policy, or agree, deny, amend or pay any claims. The use by BIIS of Hibernian’s name is strictly controlled. BIIS does not have title to premiums it receives in respect of motor insurance policies, but holds them in trust for Hibernian and is paid a commission. The entire risk of the motor insurance business is assumed by Hibernian, and while BIIS has some commercial latitude in setting the retail price, it will still be paid its commission unless it deviates from the terms of the agreement. Taking into account the total relationship between Hibernian and BIIS, therefore, the Authority considers that BIIS, in selling Hibernian insurance products, is an auxiliary organ, forming an integral part of Hibernian’s business, and it concludes that it can be considered to be a commercial agent.

32. The Authority considers that undertakings are entitled to decide how to operate their distribution systems, and, in particular, to appoint commercial agents to sell their goods on their behalf. Suppliers of motor insurance are free to choose to sell their products directly through their own sales organisations, through brokers, or through exclusive or non-exclusive agents. Since the commercial agent is an auxiliary organ, similar to an employee, the agreement between a principal and a commercial agent does not, in principle, offend against Section 4(1) of the Competition Act. In the present case, the Authority has concluded that BIIS is a commercial agent. It considers that the agreement between Hibernian and BIIS, insofar as it creates a relationship between the principal and a commercial agent, does not offend against Section 4(1).

33. Even though the basic arrangement of commercial agency might not offend against Section 4(1), certain clauses in the agreement might occasionally do so. In this case, were the relationship not one of commercial agency, the requirement that BIIS price within the parameters set by Hibernian would be likely to offend against Section 4(1). However, since BIIS is considered to be an auxiliary organ, similar to an employee, this provision does not offend against Section 4(1).

34. The agreement (Clause 13) restricts each company from soliciting the employees of the other during the term of the agreement and for six months thereafter. The restriction also extends to those who were employed in the company during the previous six months. The Authority considers that a post-termination non-solicit clause is analogous to a post-termination non-compete clause. The EU Directive on Commercial Agents provides for a maximum post-term non-compete clause of 2 years from termination. In its decision on Cerestar/Betco [2] the Authority took the view that a one year post-termination non-compete clause arose from the basic arrangement between Cerestar and Betco and did not contravene Section 4(1). The Authority considers that the provisions of clause 13 are reasonable and do not contravene Section 4(1).

35. Clause 14 [

] The Authority considers that this provision is no more than is required to protect the legitimate interests of the parties, is therefore not restrictive of competition and does not contravene Section 4(1).

36. Clause 19 requires each party to keep and maintain all confidential information in the strictest confidence, for an unlimited period of time. The Authority considers that a restriction on the use or disclosure of confidential information for an unlimited period of time would not normally contravene Section 4(1). The exception would be where, for example, technical know-how was involved. The Authority considers that the issue of technical know-how does not arise in this case and that Clause 19 does not contravene Section 4(1).

37. The Authority has therefore concluded that the Agency Agreement does not have as its 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 and does not therefore contravene Section 4(1).

(ii) The Insurance Services Agreement

38. Under this agreement, Hibernian engages Premier Direct Management to provide insurance services in relation to Hibernian’s motor car insurance business for Preferred Risks, in return for certain financial remuneration. The basic arrangement is a straightforward commercial agreement and, in the opinion of the Authority, does not contravene Section 4(1). Clause 12 contains restrictions on the solicitation of employees identical to those contained in Clause 13 of the Agency Agreement. For the reasons given in Paragraph 34, above, the Authority considers that these restrictions do not contravene Section 4(1). Similarly, the agreement contains restrictions on [

] and confidentiality clauses. For the reasons given in Paragraphs 35 and 36, above, the Authority considers that these clauses do not contravene Section 4(1).

39. The Authority has therefore concluded that the Agency Agreement does not have as its 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 and does not therefore contravene Section 4(1).

(d) The Decision

40 In the Authority’s opinion, Hibernian Insurance Company Ltd., Bank of Ireland Insurance Services Ltd. and Premier Direct Management Ltd. are undertakings within the meaning of Section 3(1) of the Competition Act, 1991, as amended, and the notified agreements are agreements between undertakings. In the Authority’s opinion, the notified agreements do not have the object or effect of preventing, restricting or distorting competition and thus do not contravene Section 4(1) of the Competition Act.

The Certificate

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 Agency Agreement dated 23 December 1997 between Hibernian Insurance Company Ltd. and Bank of Ireland Insurance Services Ltd. and the Insurance Services Agreement dated 23 December 1997 between Hibernian Insurance Company Ltd. and Premier Direct Management Ltd., notified under Section 7 of the Competition Act on 18 June 1999 (notification no. CA/5/99) do not contravene Section 4(1) of the Competition Act, 1991, as amended.

For the Competition Authority,

Isolde Goggin

Member

15 November 1999

[1] Decision No. 286 of 25 February 1994

[2] Decision No. 374 of 21 November 1994 - Cerestar UK Ltd/ Betco Marketing Ltd.