The Commission for the Promotion and Defense of Competition –a decentralized body that reports to the Ministry of Economy and Finance– considers that there is merit in starting a more in-depth investigation into the conditions imposed on credit takers for contracting life insurance on debit balances and to commercial relations between creditors, insurers and consumers.
The The MEF commission addressed the issue after a prior consultation carried out by the Central Bank of Uruguay (BCU). Subsequently, the monetary authority provided new data, which included the contracts signed between grantors of consumer loans and insurance companies, in addition to a report prepared by the Department of Financial Studies of the Superintendency of Financial Services detailing the characteristics of the collections of the life insurance associated with consumer loans.
The commission considered it opportune to access this information to carry out an analysis of the behaviors described and evaluate their impact on the competition and on the consumers of these credits.
In that sense, a economist adviser of the Competition Commission analyzed the BCU information related to life insurance by debit balance. Although the technician considered that balance insurance “is not comparable with other life insurance on the market (…) prices charged by financial institutions for himhe life insurance by debit balance is, in any case, much higher than the costs of existing life insurance in the marketwhich can be purchased individually”.
Currently, almost 100% of consumer loans, real estate loans and those granted via credit cards are associated with contracting life insurance for debit balance.
“The adviser Economist questions the reasons for the commercial practice by which lenders obtain a commission for brokerage from insurance companies”says a passage from the recital of the resolution of the MEF Competition Commission.
On the other hand also questions “the transparency of the information provided by banks and credit administrators to customers refering to Magnitude of premiums collected at the time of taking out life insurance due to debit balance“.
The commission’s legal advisor also found objections about the operation of that market. “The agent –bank entity– obtains an economic advantage by way of brokerage commission or retrocommissionwhere of the amount paid by the client or consumer to the insurer a certain percentage returns to the bank”, maintains its opinion.
On the other hand, it considered that, according to the Central Bank reports and previous technical reports, “The clients or consumers of the product in question do not have enough information when contracting said life insurance, which does not seem to be a transparent practice“.
Thus, the resolution warns that “both the economist adviser and the legal adviser indicate that elements for the possible configuration of some prohibited practice foreseen by article 4 of Law 18,159” of Promotion and Defense of the Competition. Likewise, it clarifies that the information collected “does not allow a complete conclusion that the conduct carried out by the lenders in the consumer credit market and the insurers participating in the contracting of life insurance on debit balances constitute a prohibited practice”.
To do this, it should first consider “what is the relevant market” in which it carries out this activity, something that has not yet been carried out by the Commission for the Promotion and Defense of Competition. “To analyze a possible practice of abuse of a dominant position, one must first assess whether the company has a position of dominance in the relevant market,” he explains.
In any case, “given the information asymmetry in these marketsand the magnitude of the premiums collected at the time of contracting life insurance for debit balancethe commission considers that there are arguments that can justify an evaluation of the current regulation linked to the operation of the sector, the magnitude of the total premium charged to users, the magnitude of the premiums for brokerage or retrocessions and the transparency of the information that the participating companies provide to their clients”.
With this context, the Competition Commission decided to “give an answer” to the query formulated by the Central Bank of Uruguay. The resolution is signed by commissioners Daniel Ferrés and Alejandra Giuffra.
