India: CCI Penalises 4 Public Sector Insurance Companies For Cartelisation

In an order dated 10 July 2015, the Competition Commission of India (CCI) has found a cartel among certain public sector insurance companies in India and has imposed a penalty at the rate of 2 per cent of their average turnover of the last 3 financial years, aggregating to INR 671.05 crore (USD 105.83 million approx.). The CCI had taken up the matter suo moto pursuant to anonymous information received by it against National Insurance Company Limited (NICL) [INR 162.80 crore (USD 25.67 million approx.)], New India Assurance Company Limited (NIACL) [INR 251.07 crore (USD 39.60 million approx.)], Oriental Insurance Company Limited (OICL) [INR 100.56 crore (USD 15.86 million approx.)] and United India Insurance Company Limited (UIICL) [INR 156.62 crore (USD 24.70 million approx.)] (NICL, NIACL, OICL and UIICL have been collectively referred to as Insurance Companies)

The information (filed anonymously with the CCI) related to alleged 'bid rigging' by the Insurance Companies, in the tender floated by the Government of Kerala on 18 November 2009 for selecting the insurance service provider for implementation of the 'Rashtriya Swasthya Bima Yojana' (RSBY) (Tender). The Tender is intended as public procurement for social welfare schemes for families below the 'poverty line'.

Under the Competition Act, 2002 (Act), 'bid rigging' refers to any agreement, between enterprises or persons engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding.

The anonymous information, based on which the CCI conducted its investigation, included a copy of the minutes of the 'Inter Company Coordination Committee' (ICCC) meeting dated 7 December 2009 (Minutes), where officials of the Insurance Companies allegedly agreed on a business sharing model in relation to the tender. This piece of evidence (in addition to certain internal notes from two of the companies) seemed to have clinched the case against the Insurance Companies.

The CCI found that:

The Insurance Companies did not constitute a single economic entity

The Insurance Companies argued that since each of them was wholly owned by the Government of India and controlled and managed through the Department of Financial Services in the Ministry of Finance, they constituted a single economic entity and that therefore, an allegation of cartelisation was unsustainable against them.

The CCI held that the Insurance Companies did not constitute a single economic entity because the regulatory intent of the Government of India with regard to the Insurance Companies was for them to act independently and to compete with the private operators in the insurance sector to offer better services to consumers. Further, each of the Insurance Companies had placed separate bids in response to the Tender and all decisions with regard to the bids were taken internally at company level without any ex ante approval of or ex post notification to the Ministry of Finance.

The conduct of the Insurance Companies amounted to 'bid rigging' and resulted in the contravention of Section 3(1) read with Section 3(3)(d) of the Act

The CCI found from the Minutes, the authenticity of which was admitted and confirmed by each of the Insurance Companies, that the winner of the Tender was pre-decided by the Insurance Companies and that the Insurance Companies has agreed to share the business resulting from the Tender among them in an agreed ratio.

Further, the CCI found that the proposed arrangement as per the Minutes did indeed determine the Insurance Companies' bidding and that as had been agreed, UIICL quoted the lowest price among the Insurance Companies.

The CCI also found, and it remained undisputed, that UIICL, in order to annually raise the premium price, terminated its contract with the Government of Kerala and forced re-tendering in the subsequent years 2011-12 and 2012-13. Both times, all four of the Insurance Companies, among others, submitted bids for the tenders and UIICL's price bid was found to be the lowest among the technically qualified bidders. The contract was thus re-awarded to UIICL in 2011-12 and 2012-13 at the raised premium priced demanded by it. The CCI observes that in both these years, UIICL entered into business sharing arrangements with NICL and NIACL.

The CCI also found that the Insurance Companies had failed to provide any plausible justification to explain the significant rise in premium rates. From internal office notes of UIICL and OICL (how the CCI came to procure these internal notes that constitute direct evidence of the companies' intention has not been mentioned in the Order), which indicated that the UIICL had contemplated jointly quoting higher premiums with the other Insurance Companies and that OICL had participated in joint meetings of the Insurance Companies, the CCI concluded that the Insurance Companies were cartelising to fix higher insurance premium rates.  The CCI confirmed this conclusion based on a statement from representatives of Reliance General Insurance Company Limited (RGICL), the awardee of the tender for the year 2014-15 at premium rates significantly lower than those quoted by the Insurance Companies, that RGICL was not incurring any losses for providing health insurance services under the RSBY scheme at the lower premium rates.

The CCI has ordered that the Insurance Companies cease and desist from such anti-competitive practices.

As concerns the penalty, the fact that the anti-competitive conduct adversely affected below-poverty-line and other poor families was an aggravating circumstance. The mitigating factor was the peculiarities of the insurance sector and the importance of an insurer's solvency for consumers.

This order is significant in respect of the standard of evidence that the CCI based its conclusions on. In several previous instances, the CCI has found conduct to be anti-competitive based on purely circumstantial evidence, this order sets a good precedent for a higher standard of proof. There is also something to be said for the fact that the CCI acted, of its own accord, taking cognizance of an anonymous complaint.

The Order also reflects the CCI's commitment to its purpose, quite irrespective of whether the anti-competitive conduct is attributable to private sector companies or companies in the public sector, in which the Government holds a stake. It is perhaps a wakeup call to public sector undertakings and their imminent need for appropriate compliance programmes.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

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