Competition Law Issues for a Consolidating Insurance Industry 


Fall 2005 - (Lang Michener Competition & Antitrust Brief )

Competition & Antitrust Brief
When at least some of us began to practice, the financial services marketplace was characterized as resting on "four pillars". Those four pillars have come, over time, to be just two pillars. That in itself represents a huge consolidation in a broadly defined financial services marketplace. While banks have acquired other firms, there has not been a great deal of consolidation within the banking sector – thanks primarily to government concern as to the consequences of bank mergers. By contrast, with respect to insurance, and particularly life and health insurance, the industry has significantly consolidated over the last number of years. As of 2003, the five largest life and health insurance companies represented over 60 per cent of the domestic market.1  

That is not to say that Canadian life insurance business is properly characterized as highly concentrated. Indeed, when compared with many other industries operating in Canada it remains unconcentrated, with at least 42 domestic and 53 foreign major companies operating in Canada, and with the Canadian market largely open to the forces of international competition. 

Merger Review

While the life and health insurance marketplace is not heavily concentrated, it is nevertheless sensible for participants in the industry to be aware that, with increased consolidation, particularly in certain areas of the industry, comes increased Competition Act scrutiny. Obviously this is most apparent with respect to proposed mergers. The Competition Act allows the Commissioner of Competition to apply to block or seek the restructuring of mergers if the result would be a likely substantial lessening or prevention of competition. Pursuant to the Competition Bureau's Merger Enforcement Guidelines, whenever a single participant in a relevant marketplace would enjoy a market share above 35 percent, concerns may arise with respect to the unilateral exercise of market power by that firm. Whenever the structure of the industry is such that the top four firms would account for more than 65 percent of the marketplace, and merging firms would represent more than 10 percent of the market, the Merger Enforcement Guidelines note that there may be concern with respect to the interdependent or coordinated exercise of market power. 

In particular, in respect of this theory of interdependence, the Competition Bureau has been more active in recent years in investigating cases where there is concern about such interdependent market power. In the life and health insurance sector – as in many sectors of the Canadian economy – there are many circumstances in which the 65 percent/four firm concentration ratio is exceeded.


In addition to mergers, other competition law issues are becoming increasingly important for the insurance industry to consider. The Competition Bureau has been very active in enforcing the anti-cartel provisions of the Competition Act . While these enforcement activities have not implicated the insurance sector – at least not for many years – this remains a very important compliance issue for insurance companies. They need to be alert to whether the various arrangements they enter into with other insurers – perhaps arrangements which have been ongoing for many years – are still appropriate in the context of modern antitrust enforcement, in Canada and elsewhere. Indeed, because firms may be liable, in Canada, with respect to conduct mandated by their parents elsewhere in the world, even if the antitrust regimes elsewhere in the world are somewhat different, this is a particular concern. For instance, while US antitrust law provides for an exemption with respect to the business of insurance, there is no such exemption under Canadian law. 

Business Conduct

Beyond these two classic antitrust concerns – mergers and cartels – a whole host of other conduct is subject to increasing review. Elliott Spitzer's review of the conduct of certain firms in the insurance industry in the United States has highlighted types of conduct which, while not necessarily antitrust offences, nevertheless put the industry under a magnifying glass, and may well implicate provisions of the Competition Act , such as bid rigging and misleading advertising. Certainly, it would be unrealistic to ignore the impact of these developments or the implications for the level of enforcement scrutiny of the industry in Canada. 


Of course, with increased concentration comes issues with respect to abuse of dominant market position or, as Americans refer to it, monopolization. In certain market areas some firms enjoy a very enviable market presence. Insofar as firms with a large market share take actions which successfully and improperly exclude others – whether through controlling distribution arrangements or other similar means – such conduct can be challenged under the abuse of dominant market position provisions of the Competition Act. As well, participants injured by that conduct, while they cannot directly challenge abuse of dominant market position, can now launch challenges based on exclusive dealing or tied selling type arrangements. 

All of the foregoing suggests a marketplace in which a heightened level of antitrust/competition law sensitivity is appropriate, and where effectively functioning antitrust compliance policies represent not merely a good idea, but in fact a necessity. The insurance business is based on identifying and mitigating risk. Competition law compliance represents an important insurance policy in the current marketplace environment.

1 Canadian Insurance: 2005 Annual Statistical Review, 38