Fair trade regulator CCI today slapped Rs 671 crore penalty on four state-run insurance companies — National Insurance, New India Assurance, Oriental Insurance and United India Insurance — for cartelisation and indulging in anti-competitive practices.
Competition Commission has imposed a penalty of Rs 251.07 crore on New India Assurance, Rs 162.8 crore on National Insurance, Rs 156.62 crore on United India Insurance and Rs 100.56 crore on Oriental Insurance, respectively.
The order follows a probe by CCI into charges of cartelisation by the four public sector insurance companies “in rigging the bids submitted in response to the tenders floated by the Government of Kerala for selecting insurance service provider for Rashtriya Swasthya Bima Yojna (RSBY)”.
CCI began looking into the matter following an anonymous information received by it against the four general insurers.
It was alleged in the anonymous information that these four rigged the tender floated by the Government of Kerala on November 18, 2009 for selecting insurance service provider for implementation of the ‘Rashtriya Swasthya Bima Yojna’ for the year 2010-11.
It was also alleged that they formed a cartel and quoted higher premium rates in response to the tender.
CCI said its investigating arm, Director General, conducted a detailed investigation into the actions of the four insurers relating to the tenders issued by the Kerala government in the years 2010-11, 2011-12 and 2012-13 for the implementation of RSBY and Comprehensive Health Insurance Scheme (CHIS).
The probe concluded that the four companies colluded with each other and manipulated the tendering process initiated by the Kerala government.
In its 24-page order asking the four companies to pay the penalty within two months, CCI said it “is of the considered opinion that the aforementioned conducts of OPs have resulted in manipulation of the bidding process initiated by the Government of Kerala in contravention of the provisions of… (relevant sections of the Competition) Act.
“Resultantly, the Commission directs Opposite Parties (the four insurers) to cease and desist from indulging in practices which have been found to be anti-competitive,” CCI said, while adding that the case was also fit for imposition of a penalty.
CCI said the case relates to bid rigging in public procurement for social welfare schemes, the beneficiaries of which are BPL families. “Commission holds collective, anti-competitive conducts of OPs affecting the state of Kerala and beneficiaries of RSBY and CHIS schemes, that is, BPL and other poor families to be aggravating circumstances,” CCI said.
“The Commission also considers the peculiarities of the insurance sector which include importance of insurer’s solvency for the consumers as mitigating circumstance.
“After duly considering the aggravating and mitigating circumstances, the Commission finds it appropriate to impose a penalty on OPs at the rate of 2 per cent of their average turnover of the last three financial years based on the financial statements filed by them,” it added.
CCI can impose a penalty of up to 10 per cent of the average three-year turnover of a company.
In cases of cartelisation, the CCI can impose upon each such cartel participant, a penalty of up to three times of its profit for each year of continuance of the anti-competitive agreement or 10 per cent of its turnover for each year of continuance of such agreement, whichever is higher.
CCI said in the present case “it is clearly borne out from the case records that the OPs were holding meetings prior to submission of bids in response to the tenders issued by the Government of Kerala for the implementation of RSBY and CHIS schemes.
“This, when viewed together with the past practice in relation to the RSBY/CHIS tender dated December 8, 2009 and the bidding pattern exhibited by OPs in relation to the subsequent tenders, singularly point to the only conclusion that the bidders were acting pursuant to an anti-competitive agreement to manipulate the tendering process initiated by the Government of Kerala.”