On Apr. 1, DEN CMP stated it is considering investigation of insurers.
DEN CMP stated it is considering initiating market investigation for non-life insurers.
Follows DEN CMP analysis of the market for non-life insurance for private individuals which found a number of indications that competition can be strengthened.
The investigation will allow intervention against non-life insurers if number of conditions met and, until Apr. 29, 2025, public can provide input on need and scope.
Market Investigation
If market investigation is initiated, it is expected to include the insurance companies' setting of premiums and other terms in their policies and the like, including specifically that the non-life insurance companies index-regulate their insurance premiums.
Norm on annual price adjustment helps to limit competition, giving non-life insurers common reference, so everyone increases prices for existing customers at same rate.
Firstly, the norm thereby reduces uncertainty about competitors' pricing strategies.
Secondly, the norm implies that customers do not necessarily react to price increases because increases are a contractual condition that is not notified on an ongoing basis.
This is the first time the market investigation tool has been used since it was introduced in the Competition Act with effect from Jul. 1, 2024.
Differences in Customer Prices
Loyalty payments are widespread in the insurance industry which means that an existing customer contributes more to earnings than a new one, even if the two customers have the same insurance company and expected claims costs.
The size of the loyalty payment varies considerably from company to company.
On average, customer of 10 yrs pays 7-8% more for insurance than a new customer.
However, the additional payment is at a lower level in Denmark than in the UK.
Also, analysis shows customers over 65 years of age, customers whose longest education is 9th grade, and customers who have low financial literacy contribute more to the insurance companies' earnings than other customers with the same risk profile.
Indications of Less Efficient Competition
Shareholder-owned insurance companies' return on equity is at a somewhat higher level than an estimate of the return that can be expected under effective competition.
Furthermore, shareholder-owned companies are on average run more efficiently than the customer-owned companies, and there are quite large differences in efficiency, noting that this may also be an expression of less well-functioning competition.
High return on equity is, among other things, a consequence of the fact that insurance prices in Denmark have increased significantly more than the costs of claim coverage.
Insurance prices in Denmark have increased 10% more than in EU since mid-1990s and home and contents insurance has risen 45% more than in EU during same period.
This primarily reflects large price increases up to 2010 and must also be seen in light of the fact that earnings in the industry were unsustainably low in the early 2000s.
Concentration of insurance market in Denmark higher than comparable EU countries.
Thus, the five largest companies accounted for approximately 80 percent of the total revenue from the sale of non-life insurance to private individuals in 2023.
At the same time, the market shares between the companies are relatively stable.
Danes' spending on non-life insurance constitutes large and growing part of their private finances with each household spending on average almost 16k kroner per year.
Non-life insurance thus accounts for 4.4 percent of a household's total spending.
On Apr. 1, 2025, DEN FP responded to DEN CMP's analysis of market, see #249265.
