Violation of the Fair Trade Law by Automobile Companies' Establishing Insurance Agencies to Monopolize Automobile Insurance Market
Chinese Taipei
Case:
Violation of the Fair Trade Law by Automobile Companies' Establishing Insurance Agencies to Monopolize Automobile Insurance Market
Key Words:
insurance agency, automobile insurance, solicitation of automobile insurance
Reference:
Fair Trade Commission Decisions of June 7, 1995 (the 191st Commission Meeting); and June 28, 1995 (the 194th Commission Meeting); Disposition (85) Kung Erh Tzu No. 04945; Disposition (85) Kung Chu Tzu No. 068 Disposition
Industry:
Other Insurance Industry (6790)
Relevant Laws:
Article 19(vi) and Article 24 of the Fair Trade Law
Summary:
1. The present case arose when automobile companies with well-known brands established their own insurance agency companies to solicit insurance for their brands of automobiles, and when the two restricted the insurance companies from competing against them, i.e., the latter may not solicit insurance business from the buyers within three (3) years, through non-competition agreements. In addition, repair shops associated with the auto companies maintained discriminatory practice when providing services for those automobiles whose insurances were not purchased from the automobile companies' insurance agency. Also, insurance companies which did not follow the auto companies' policy in paying claims or pricing parts would receive discriminatory treatment when the auto companies placed the following auto insurances.
2. History of auto insurance solicitation:
(1) Before the auto companies established their own insurance agencies, auto insurance polices were mostly solicited by auto dealers, maintenance shops, or repair shops. Since these entities or persons were not insurance companies or agencies registered in accordance with the Insurance Law, their acts of solicitation seemed to be in violation of the Insurance Law. Further, due to the varying qualities of these persons, there were several cases of embezzling customers' premiums, charging additional premiums, etc. Such acts were detrimental to the interest of the insurance policy holders.
(2) The above situation continued until 1982, when He Feng Enterprise of Nissan Motors established their insurance agency and signed agreements with insurance companies to solicit, on the latter's behalf, auto insurance for the Nissan automobiles. Other automobile companies followed suit. Within a few years, several automobile companies established, either through individual shareholding or direct re-investment, their own insurance agencies to solicit policies for the automobiles sold by their affiliated automobile companies. As a result, major domestic automobile companies have all established their own insurance agencies in recent years.
(3) Investigation showed that after the above measures were adopted around the island, prices of automobile spare parts have risen continuously; the amount of the claims were also controlled by the automobile companies. Data provided by the Department of Insurance under the Ministry of Finance and those complied by the Fair Trade Commission showed that the rate of losses and insurance premiums have increased in recent years. Considering the insurance market for small vehicles, the insurance agencies established by the automobile companies have solicited NT$13 billion insurance policies, accounting for 37.5% of the total automobile policies. In 1992 and 1993, the insurance agencies established by the automobile companies solicited a majority of the insurance policies, ranging from 56% to 96% depending on the vehicle brand. Obviously enjoying significant market positions, these insurance agencies almost gained total control over the insurance business of new automobile. They also tend to affect the fair competition among property insurance companies, ordinary insurance agencies, and insurance brokers, leading to the distortion of insurance system.
3. In short, local auto insurance business had, in the past, relied on auto companies' illegal solicitation. Auto companies' establishment of insurance agencies was a legalization of the above practice; their legitimate goals were to provide integrated services for buyers, to compete for the buyers' next choice of automobiles, and to earn the associated profits (such as insurance premiums). However, since the insurance agencies were formed by the automobile companies, they were in fact operating in the interest of the automobile companies or the repair shops although they were supposed to act on behalf of the insurance companies. This greatly affected the price of spare parts, scope of compensation, and premium adjustments. Not only were the ordinary insurance agencies discriminated against in the automobile insurance business, competition in the automobile insurance market was also adversely affected. The situation seemed to worsen each year.
4. With respect to the improper acts of the auto companies in establishing insurance agencies, this Commission hereby issues the following decisions and implementing measures:
(1) Where an auto company, either through a legal person or individual shareholder, invests in insurance agencies, and where there is a risk of market control that will adversely affect the insurance business, this Commission will discuss with the Ministry of Finance and formulate corrective actions.
(2) Where an auto company sales representative also acts as an insurance salesman, thus threatening the normal development of the insurance market, this Commission will actively coordinate with the Ministry of Finance to formulate and implement corrective actions.
(3) The existing insurance contracts and current practice, which restrict insurance companies from soliciting insurance policies within the first three years of new automobiles, threaten market competition and are in violation of Article 19(vi) of the Fair Trade Law. This Commission will jointly formulate corrective plans together with the Ministry of Finance.
(4) Where an auto company or insurance agency improperly discriminate among insurance companies that tends to impede fair competition, such acts violate Article 19(2) of the Fair Trade Law. The Commission will jointly formulate corrective programs together with the Ministry of Finance.
(5) The Pei Tu Automotive Corporation has formulated a contract within which its customers agree not to purchase insurance policies from a third party. Such acts affect auto owners( right to warranty, and obviously have the intent of securing business through improper means; they infringes upon the rights and privileges of the auto owners in respect of the insurance policy, the guaranteed benefits, and the purchase of spare parts. Such acts adversely affect the order of trade and are in violation of Article 24 of the Law.
Summarized by Lo, Mei-hsia
Supervised by Yang, Chia-chun
Appendix:
Pei Tu Automotive Corporation's Uniform Invoice Number: 20938188
＠: For information of translation, click here
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