Price fixing in the insurance industry might stretch all the way back to the 1980s. This is what informants have told the Competition Commission, which this week raided the offices of eight major insurance companies.
BrightRock Life, Discovery Limited, Hollard, Santam, Momentum, Old Mutual, PPS and FMI, a division of Bidvest Life Limited, are being accused of price fixing and could face criminal charges or be fined if found guilty.
The competition watchdog’s probe was launched in January after the entity received a tip-off. The raids were conducted in Gauteng, KwaZulu-Natal and Western Cape.
According to information at the commission’s disposal, the implicated companies are alleged to have colluded to fix the price of fees for investment products such as retirement annuities, life cover, disability and funeral assistance benefits.
The commission’s spokesman, Sipho Ngwema, said the probe might have to turn back the hands of time.
“According to the allegations, this practice dates back to the 1980s. The allegations that were made to the commission passed the credibility test, hence we had to act. Importantly, the purpose of a search and seizure operation is to gather more information that may substantiate the allegations. This will help the commission determine whether it must refer the matter for prosecution,” he said.
Asked if the watchdog is considering a broader investigation, Ngwema said: “We are focusing on the allegations that have been made so far and we will be guided by what we have retrieved from these companies on the way forward.”
Aeon Investment Management’s chief investment officer Asief Mohamed said speculation is rife that one of the country’s biggest insurers blew the whistle.
“Price fixing was rife during apartheid. The implicated companies have a lot to fear as the Competition Commission would not have raided them without probable course. They are likely to break ranks as the heat turns up,” he said.
An insider at the commission said it was likely that some of the implicated companies might come forward in exchange for leniency.
Advocate Vuyani Ngalwana SC, who served as pension funds adjudicator, said he is amazed at the ease with which “underwriting” insurance companies get away with their manifestly bad business model founded on investment by duress.
“National Treasury, under the stewardship of successive ministers of finance from what is supposed to be a libertarian ruling party, seems to see nothing wrong with this model, while the Financial Services Board [now called the Financial Sector Conduct Authority] can only regulate on the basis of legislation produced largely at the insistence of National Treasury.
“The current ruling party has shown little appetite for tackling the abuse by life companies of their dominance in the retirement fund industry. Life companies or insurance companies that ‘underwrite’ retirement annuity funds do not guarantee, bankroll or finance these funds. Instead, a good argument could be made that retirement annuity funds finance the business of insurance companies.”
He added that ‘underwriting’ insurance companies account for about 80% of market share of underwritten retirement annuity fund investment.
According to Research and Markets, South Africa’s long-term insurance market will grow to $11.9-billion in the next five years.
If found guilty, the commission can request the Competition Tribunal to levy an administrative penalty of 10% of annual turnover – which will amount to millions of rand.
Discovery said, “We uphold all of the principles of the Competition Act and are complying with the commission’s request for data and information related to their investigation, and will continue to cooperate with their industry-wide investigation to the fullest extent possible.”
Old Mutual has also said it will cooperate with the investigation.
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