ECN Brief

Latvia | Car insurance market in Latvia requires significant adjustments

Latvia | Car insurance market in Latvia requires significant adjustments

The extensive regulation and excessive disclosure of financial and performance indicators have made the compulsory civil liability insurance of owners of motor vehicles (MTPLI) market exceedingly transparent. This allows the insurance companies to keep up with the pursuits of their competitors very easily and make economically unjustified derogations from their pricing policy. As the MTPLI is mandatory for the owners of motor vehicles to participate in the road traffic, the Competition Council of Latvia (the CC) encourages the responsible authorities to implement significant adjustments.

In the market study, the CC learned what factors have contributed to the significant rise in prices in 2017 and whether the market participants have engaged in prohibited agreement. The market study shows that the average range of MTPLI premium increase for each insurance company is different. However, not every company can justify it by the economic situation and the individual MTPLI financial indicators.

The CC found that the competitors in the MTPLI market have free access to specific commercial information, which is an uncharacteristic feature of competitive markets and provides benefits and explanation of the MTPLI market trends to the market players rather than the consumers. It makes the MTPLI system excessively transparent and allows the insurance companies to monitor the market and adapt to the activity of their competitors.

One of the most important factors contributing to the market transparency identified by the CC is the MTPLI information system the insurance companies use in their daily work, including for making insurance premium offers. Also, a note must be made of the MTPLI price calculators, which serve for the convenience of customers and should be supported in general, however, at the same time they create a high risk as an uncontrolled and automated way of accessing individual data that allows the insurance companies and brokers to obtain information about the competitors' offers, including price trends, which gives rise to adaptation and concerted activity.

The CC believes that a risk of prohibited agreements and conflict of interest is also promoted by the fact that two organizations - Motor Insurers' Bureau of Latvia (MIBL) and the Latvian Insurers Association (LIA) - with conflicting objectives, namely, to protect the interests of the consumers and business interests, are managed by the same person. In addition, although several authorities maintain the MTPLI system - MIBL, LIA and the Financial and Capital Market Commission (FCMC) - their unreasonably frequently published reports on the financial performance of each insurance company makes it easy to keep track of the competitors' market position and make decisions about what actions to take in the market.

The adaptation is also promoted by the public comments of the MIBL and the insurance companies regarding the expected price increase. The CC has repeatedly made critical remarks regarding this type of price signalling and indicates that the CC may initiate an investigation on violation of competition without a prior warning in similar cases in the future.

The market participants who act in a transparent market can predict the activity of the potential competitors to a certain degree. In such markets, the competitors may not directly agree on disclosing their plans, as they are interdependent, and there are ways to keep up with the competitors' activities.

To address the identified problems and the market transparency that adversely affects the competition and harms the consumers, the CC calls on the authorities in charge to make significant adjustments. The authority has prepared concrete proposals to the Ministry of Finance, the FCMC and the MIBL. Taking into consideration that MTPLI is a mandatory statutory requirement for each owner of a mechanical transport vehicle, the CC proposes, among other things, to the Ministry of Finance to assess the possibility to set the upper limit of MTPLI insurance premium offers to protect the consumers from excessive price increases in the future.

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