The Bottom Line / Streamlining has hurt competition
Excatly 10 years ago a serious crisis hit Israel's insurance sector: fierce competition was causing companies heavy losses, to the extent that their stability was no longer certain. It is this crisis that gave rise to the cartel that in the late 1990s got confessing senior officers convicted and ousted.
Excatly 10 years ago a serious crisis hit Israel's insurance sector: fierce competition was causing companies heavy losses, to the extent that their stability was no longer certain. It is this crisis that gave rise to the cartel that in the late 1990s got confessing senior officers convicted and ousted. In recent years, the reverse has been happening. The trauma of the cartel and the elimination of several senior executives have caused their successors to shy away from any form of collaboration, for fear they would be accused of violating the antitrust law.
The wild competition of the early 1990s was replaced by cautious competition, based primarily on comprehensive streamlining. All insurance companies have streamlined, especially in auto-insurance. Consequently, suppliers that work with insurance companies have also had to streamline. Agreements with auto-repair shops quote cheaper prices; exclusive contracts with protective device suppliers pushed down the prices; towing agreements were adapted to the larger scope of activity. These steps were designed to cut the insurance companies' costs and furnish clients with a comprehensive policy that spares them hassle.
It now seems that these same streamlining arrangements have led to arrangements that seems to curb competition and may even amount to a violation of the antitrust law.
Last week Ha'aretz unravelled agreements between insurers and windshield installers, a sector in which two companies now reign in duopoly: Auto Glass and Ilan Glass. While the insurance companies sell clients insurance for window breakage, in fact they transfer the risk to these two suppliers. The insurers' commission guarantees them a risk-free profit of tens of millions of shekels a year. The two suppliers also benefit: their control of the field is absolute, since they also operate a hotline that directs callers to one of 35 service stations. This way, Auto Glass and Ilan Glass have the say how many clients go to which station, making their subcontractors completely dependent upon them. Subcontractors are forced to buy their glass from either of the two members of the duopoly, even if they could buy similar products at a cheaper price elsewhere.
Findings in the towing sector also give reason to suspect violations of the antitrust law. The Antitrust Authority is currently reviewing the agreements of eight insurers with Shagrir.
Apparently, the insurance companies have guaranteed Shagrir a client quota. If they fail to meet this quota, they are penalized and forced to pay more. This arrangement, in effect, gives Shagrir (jointly owned by Clal Insurance, Phoenix Insurance and Delek) exclusivity in providing towing services to these insurance companies and makes it difficult for other firms to compete for access to about 70 percent of the automobile insurance market in Israel.
The insurance company executives emphasize that they are being very cautious about any coordination between them in the wake of the cartel trauma. But their economic power obligates them to also take responsibility for what happens in their subsidiary operations and to prevent cartel-like arrangements conducted under their auspices.
Like us on Facebook and get articles directly in your news feed