Major insurance companies raided due to suspected collusion

FIFI PETERS: South African long-term insurance companies could be in hot water if the accusations of the Competition Commission against them are above board. The major long-term insurance companies had and will have their offices across the country raided by the commission, [which] believes that these companies have been fixing the prices of things like funeral plans or funeral cover, disability cover, chronic medication cover, and investment-related products like retirement annuities. We know when companies fix prices they get excessive profits.

Read: CompCom raids eight major insurance companies

We’ve got Sipho Ngwema, the head of communications at the Competition Commission, for more. Sipho, thanks so much for your time. A really troubling story in this environment – if true – that companies are being opportunistic, especially on products that are so necessary and important for one’s wellbeing.

Nonetheless, your investigation into the long-term insurance sector started in January 2021. We were still fighting the pandemic pretty strongly at that time. I’m not sure – it was either the third or the fourth wave at that time. But what did you find from that investigation that has led you to raid or to move on a raid on these companies?

SIPHO NGWEMA: Good evening, Fifi, good evening to the listeners, and thanks for having us on the programme.

The Commissioner of the Competition Commission Tembinkosi Bonakele, launched the investigation in January 2021. This was after the commission received information that seems to be a breach of the Competition Act with regard to the companies that we raided today. The information suggests that there may have been collusion, which led to price-fixing among these companies, on a variety of long-term life products.

That sharing of information, which is in breach of the Competition Act, is [what] led us to then raid these companies – eight of them today, five in Gauteng, two in Western Cape and one in KwaZulu-Natal – looking for more information that may substantiate those allegations.

At this point we are still gathering evidence that may support us in regard to the information that we have already. It seems to suggest that there may have been price-fixing among these companies. So we are collating documents, collating data that is available, even in electronic instruments, which can assist us in furthering that investigation, based on the allegations that we have received.

FIFI PETERS: As to the companies in question, we’re talking about BrightRock, Discovery, FMI, Hollard Insurance, Momentum, Old Mutual [Insure], Professional Provident Society (PPS), and Sanlam. I think that it is important – for some of our listeners who don’t know exactly who the eight are – for us to name them.

The raid happened today. How did it go? And these companies, did they comply, were they forthcoming with the information that you took from their offices?

SIPHO NGWEMA: The raids are continuing. So far I haven’t received any information that there may have been difficulties with regard to gaining access or accessing the documents that we were looking for with regard to the various companies that you mentioned in all those eight sites. However, we would be able to get all the information in there, whether or not everything went smoothly everywhere, once everyone is done, when we are doing a debriefing. However, as we collate information as we go along, there seems to be nothing so far that suggests that there’s been any resistance or any hindrance of the law-enforcement action that was taking place today.

I think that that is good, because we have been allowed to make sure that we continue with our mandate in terms of the act, and we are allowed to continue with our investigation. We hope that is going to be the situation going forward, because at this point I must add, and I want to emphasise, that

we are still gathering evidence and, if after we have sifted through that information, [we hope to be] able to ascertain whether or not indeed the allegations that we have right now can be substantiated.

FIFI PETERS: How long possibly will the raids continue for?

SIPHO NGWEMA: It depends, as I said, on the amount of information that they are getting, on the amount of documentation that they must go through. We’ll receive information as the night goes along, and we should be able to know probably later into the night whether or not we should be able to continue tomorrow. But for now the operation is still going on. Our official *** that information in order for us to be able to make sure that it is properly prepared in a document that is able to be taken to our head office so that we can go through it and continue with the investigation.

FIFI PETERS: Based on the information that you have – of which you are clearly strongly convicted that you have a case against these insurance companies – exactly what do you think they did here? In terms of the prices that consumers are paying for funeral cover and disability cover and chronic medical cover and retirement annuities, what do you think these companies did and how much more in terms of price have we had to pay as a result of their alleged misbehaviour?

SIPHO NGWEMA: Yes, indeed, Fifi. Look, the information that we have has passed the credibility test, and this is why we took the action that we took today.

And currently it seems with regard to the information that we have, that these companies shared information and fixed prices of long-term insurance products in terms of risk-related products, and other fees of investment products – and they were able therefore to adjust prices of their existing products and other new insurance products. And the products that we’re talking about, I think you briefly mentioned them, just in terms of the long-term insurance market, they’re offering  as you know investments and risk-related insurance products.

In this particular instance, the information that we have is that there was collusion in regard to life cover, funeral cover, disability cover, dreaded disease and chronic medical condition covers, as well as other investment-related products like retirement annuities.

It seems these companies therefore adjusted their prices. They then among themselves fixed the price. And in the end part of the challenge – and this is why we have this mandate in the Competition Commission – is that there was virtually no competition.

When there is competition, prices can go down and that is passed on to the consumer and the consumer is able to have a choice in the market. You have better quality and better prices.

But when these people do this and they all look the same, it’s very difficult for a consumer to get a better price because they have among themselves agreed on a particular price.

So this is the allegation that we are investigating – and if it happened, it means therefore that the consumer in this particular instance was disadvantaged, there was breach of the law. But of course, as I said, we are now gathering that information and we will see in the end whether or not indeed there was a breach and [if] therefore anyone has to be prosecuted.

FIFI PETERS: Again, because if indeed it happened, it won’t be for the first time that it’s happening. We saw it with bread. We saw it with tyres, certain medicines related to HIV. The banks are also accused of doing funny things with the rand. It keeps happening. I’m wondering what signals this is sending to the commission [regarding] whether the penalties that you put in place on these companies who are found to break competition laws are actually working, if this keeps happening again.

SIPHO NGWEMA: Fifi, I know that there’s a lot of criticism with regard to the penalties that are imposed on these companies, or some of the agreements that we reach with those who have in one way or the other admitted to have taken part in this. However we, as the commission, we as the officials of the commission, don’t make the laws, we enforce them. We get the lawyers. We can’t impose that which is not prescribed in the law.

Parliament makes the laws and they think that, with regard to these particular offenses, these are the parameters in terms of fines that need to be imposed.

Therefore the tribunal or anyone in the competition authority cannot do far beyond what the law prescribes.

It is the duty of those who make the laws and those who make the policies to sharpen those instruments. So there’s very little that we can do with regard to the imposition of fines or any other kind of punishment. All we have to do, as we have the law, we have to work within what we have been given by those who make the law.

FIFI PETERS: All right. Sipho, thanks so much for that. We will be following that story with you. Keep us updated, please. Sipho Ngwema is the head of communications at the Competition Commission.