(By You Yunting) By reports, recently, National Development and Reform Commission (the “NDRC”) investigated the industry group the Zhejiang Insurance Association and its membership insurers, originated from that the Zhejiang Insurance Association in violation of the Anti-Monopoly Law organized its 23 membership insurers to agree on unified commissions from auto insurance premiums through meetings. The NDRC fined 22 of the insurers a total of RMB 110 million. Today, we will introduce the NDRC’s Punishment Decision on Zhejiang Insurance Association and make some comments.
Introduction to the Case:
Respondent: Zhejiang Insurance Association
Since 2009, Zhejiang Insurance Association organized all insurers in Zhejiang Province to revise the Zhejiang Province Motor Vehicle Insurance Discipline and its implementing rules through meetings and revisions through meetings and revisions, to agree on and carry out on an agreement of fixing commercially motor insurance fees
Based on the aforesaid analysis on illegal facts, the NDRC held that the respondent is in violation of the Anti-Monopoly Law for the following reasons:
- Where goods and services are referred collectively to “Commodity” as regulated in the Anti-Monopoly Law and premium rates for commercial motor vehicle insurance is a price of insurance service, Zhejiang Insurance Association has convened meetings with its membership insurers to reach a monopolistic agreement on a fixing price;
- Upon reaching a monopolistic agreement, Zhejiang Insurance Association asked all insurers reporting its performance and inner acceptance policy, organizing inspections and taking the blame in order to supervise the implementation of the monopolistic agreement;
- Zhejiang Insurance Association arranged all Zhejiang insurers a unified fixed processing fee and a restricted price on agent sales price to eliminate or restrict competition, thus damaging consumers’ interests.
Therefore, Zhejiang Insurance Association violated the Article 16 of the Anti-Monopoly Law, regulating that industry associations shall not make arrangements for operators within their respective industries to engage in the monopolistic practices prohibited by this Chapter, and Article 9 of the Provisions on Anti-price Monopoly, stipulating that “industry associations shall not engage in the following activities: (1) making rules, decisions, notices and etc, to eliminate or restrict price competition; (2)arranging undertakings to reach any price monopoly agreement which is prohibited by this Law; (3) organizing other activities which are reached or implemented by industry associations ”. Thus, the NDRC held that Zhejiang Insurance Association shall be punished in accordance with the law.
Where the NDRC sent the Prior Announcement of Administrative Penalty Decision, the respondent submitted its feedback admitting the existence of aforesaid illegal facts, and held the following: 1. The involved agreement on a unified processing fee of new vehicles and premium vehicles has already been ordered to be ceased by the Price Bureau of Zhejiang Province in 2011; 2. Arranging all insurers to reach an agreement on a fixed or changed processing fees is to protect small and medium-sized insurers, rather than damage consumers’ interests, thus consistent with the Item 3, Paragraph 1, Article 15 of the Anti-Monopoly Law on the stipulation of improving the operation efficiency and competitiveness of small and medium-sized operators.
However, the NDRC decided that: 1. Whether or not the involved monopolistic agreement is ceased to implement could not change the illegal nature that the respondent arranged and reached on a monopolistic price agreement; 2. Setting the maximum standards for the processing fee of commercial motor vehicles is actually to protect insufficient enterprises, unhelpful to improve the operational efficiency and competitiveness of small and medium-sized operators as well as harmful to consumers’ interests. Based on those, the NDRC determined that Article 15 of the Anti-Monopoly Law claimed by the respondent shall not be applied.
In the end, considering that the respondent acted as the arranger, convener and principal agent in reaching the involved monopolistic agreement, pursuant to the Article 46 of the Anti-Monopoly Law on the stipulation that in the case where an industry association violates the provisions of this Law by making arrangements for the Operators within its industry to enter into monopoly agreements, the anti-monopoly law enforcement authorities my impose a fine of no more than RMB 500,000, the NDRC determined to impose a fine of RMB 500,000.
According to Nandu Daily, insiders expressed opposite opinions against NDRC’s punishment that Zhejiang Insurance Association issuing the involved agreement actually is to prevent vicious competition and to standardize market order. The reason is perhaps that only 3 of 49 insurers which engage in motor vehicle insurance in 2013 gained profits but the other 46 insurers were in great losses. A local officer of Insurance Association said that since 2002, vehicle insurance is in loss and continuously vicious price competition has already caused serious problems in this market segmentation.
Upon this, in our view, the aforesaid situation further proves the legitimacy of NDRC’s punishment. There is a so-called 80/20 rule in the market-oriented economy: 80% of profits are gained by 20% of enterprises. On vehicle insurance in the industry of insurance, a market segmentation with full competition, the situation that only 3 listed insurers gained profits and the others were in losses is truly conformed to the rule of market-oriented economy. Seen from the market game, the losses suffered by the other insurers were changed into consumer’s interests through market competition. If consumers’ interests could be protected, shouldn’t it be a normal situation in the market-oriented economy?
Market-oriented market itself connotes survival of the fittest. Even though the industry of vehicle insurance is wholly in great losses, enterprises acting as a market subject shall have a high-level of mobility so that the enterprises in losses shall rethink the market environment and their competition strategy profoundly. If required, price must be rising and also costs shall be cutting out. Any enterprise that can’t undertake the losses may exit this market segmentation and focus on other advantageous market segmentation. This situation is supposed to happen in the market-oriented economy.
What shall the industry association do in the face of whole losses? Zhejiang Insurance Association’s choice is to arrange its membership insurers to reach a fixed price, and thus consumers, the competitor against insurers, would be damaged under unfair competition among insurers’ monopolistic agreements. Where consumer, as an individual, is weaker than unified insurers, insurers’ monopolistic agreements made consumers unfairly spend more payment, triggering governments’ intervention. Worsen, fixing price of a commodity may decrease competition among insurers and make big-sized insurers maintain their domain position, which could jeopardize long-term progress.
Actually, in face of whole losses, more works could be done by the industry association. Pursuant to the Anti-unfair Competition Law, enterprises should not sell its goods at a price below the costs. If the industry association can conduct a survey about the costs of vehicle insurances, the competent authorities could rely on the survey in the crackdown on vicious competition at a price below the costs. This may be a beneficiary preventing vicious competition.