Competition Council (CP) market research on the cooperation of insurance companies with insurance intermediaries OCTA found that the presence of insurance brokers in the market promotes competition between insurance companies, ensuring not only price but also quality competition.
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At the same time, insurance brokers also make a significant contribution to customer awareness so that they can receive the most appropriate and advantageous MTPL policy offer for the client’s interests.
Most insurance companies use the services of insurance distributors – ie insurance brokers and insurance agents, according to KP. The activity of insurance brokers in the market facilitates the possibility for clients to compare the offers provided by specific insurers and ensures full presentation of information about a product or service in an easily comprehensible and transparent way.
The CC has concluded that customers who compare the prices of an insurance product and negotiate or change the insurer if necessary, get a better deal than those who do not perform an analysis and do not compare prices. If insurance intermediaries were not involved in the sale of MTPL insurance policies, consumer mobility could decrease, which would mean that consumers would most likely choose to continue long-term cooperation in purchasing MTPL policies with one insurance company, which could increase policy prices.
In the market research, the CC found that insurers and brokers are not considered competitors, as brokers sell MTPL policies on behalf of insurers. At the same time, it is important to emphasize that the role of the insurance broker in the MTPL distribution market is not to act in the interests of the insurer, but to represent the interests of MTPL buyers. Thus, brokers are more considered as clients’ trustees and act in their interests, looking for the most advantageous and appropriate offer for the client. However, it is reasonable to expect that the issue of financing is resolved between the insurer and the broker, because the institute of brokerage activities was introduced directly as a result of the asymmetry of information existing in the market, which is compensated by the presence of brokers in the market. Insurers also pay commissions to insurance brokers, as they provide insurers with an important outlet for selling insurance services to customers.
In order to promote fair competition, the insurer must provide insurance brokers with an equally competitive offer for the offer to customers, which the customer would receive if he approached the insurer directly with a wish to purchase a policy. Otherwise, a situation arises where insurers, by offering a significantly lower policy price in their direct sales channels, hinder the activities of brokers in a particular market segment, although the regulatory framework provides for the need for insurance brokers to operate in the market.
In order to ensure the continued operation of insurance brokers as important and necessary market participants, the most appropriate solution would be to include narrower price parity conditions (MFN) in the agreement with insurance brokers. This means that insurance companies’ products must not be marketed cheaper than they are traded with insurance brokers. This would provide customers with the most favorable price for the insurance product in question and the application of such conditions would justify a restriction of competition, taking into account the benefits for customers and consumers. The study revealed that in the current market situation, brokers are not able to put enough pressure on insurers to be able to include such conditions in mutual cooperation agreements. The CC considers that a discussion on the implementation of such a cooperation model is needed within the specific market, and invites the parties to consider the findings of the KP study.