In its investigation, the FCCA did not find evidence that the bonus scheme would significantly restrict competition in the non-life insurance market to the detriment of consumers. However, the tax treatment of bonuses should be amended to make it more neutral with regard to competition.
According to the request for action submitted to the FCCA by the insurance company If in August 2015, OP Cooperative was abusing its dominant position by tying the non-life insurance services provided by the OP Group and the retail bank services provided by individual cooperative banks together through the OP bonus scheme.
OP grants all its owner-customers 0,25% of bonus of the total amount of any banking, investment management and insurance services used. For example, a home loan of EUR 200 000 yields an annual bonus of EUR 500, which can be used for paying for, for example, banking service fees and charges and insurance premiums within the OP Group. In practice, most service fees and charges collected by the bank are relatively small, so a major part of the bonuses are used for insurance premiums. For example, in 2017 the amount of OP bonuses used for non-life insurance premiums was EUR 114 million.
The OP bonus scheme in its present form was largely created in response to changes in the taxation policy in 2011. At that point, OP changed its bonus rules to comply with the Tax Administration’s changed interpretation of the tax treatment of bonuses to continue their exemption from taxes. Before this, it was possible for customers to withdraw the unused bonuses in cash instead of using them to pay service fees and charges for services provided by OP. At that time, a withholding tax on capital income was collected on the bonuses paid in cash by the bank.
The request for action submitted by If claims that, because of the bonus scheme, the actual price of the non-life insurance services provided by OP is lower than the costs incurred by the provision of such services. The FCCA was tasked with investigating whether the OP bonus scheme significantly restricts competition in the non-life insurance market to the detriment of consumers.
The economic analysis did not provide evidence of abuse of dominant market position
OP’s share of the total outstanding amount of home loans granted to Finnish households has risen steadily over the past 10 years, rising from less than 35% to the current level of 40%. The market share of its largest competitor, Nordea is about 29% and that of Danske Bank approximately 11%. In its decision, the FCCA does not take a stand on whether OP is holding a dominant market position in the retail banking or home loan markets.
The FCCA’s economists estimated whether the bonuses paid by OP constitute such a large rebate on non-life insurance policies that it could lead to exclusion of competitors from the non-life insurance market.
The FCCA’s investigations show that the share of customers foreclosed from competitors represents about 1 to 5 per cent of the whole non-life insurance market, calculated on the basis of both the number of customers and total premiums . In its overall assessment, the FCCA concluded that the investigation did not provide evidence of OP bonus scheme having a significant restricting impact on competition on the non-life insurance market. The intervention threshold on abuse of dominant position based on the Competition Act was therefore not exceeded.
The bonus scheme is not without problems from the viewpoint of consumers and competitors
The comparison of the contents and prices of non-life insurance services is difficult for consumers, and the OP bonus scheme makes the price comparison of insurance products even more difficult. It is also challenging to compare home loans with each other, because in addition to comparing the margins offered by the banks, consumers also need to take into consideration the impact of OP bonuses on the total price of the loan.
In 2011, the condition set for the tax exemption of the bonus system was that it was no longer possible to withdraw the bonuses in cash. The taxation rules should be amended to make them neutral with regard to competition. In particular, the taxation of bonuses should not depend on whether customers can withdraw the bonuses in cash or not. Alternatively, it should be reconsidered whether insurance premiums can be equated with service fees and charges in the first place.
The FCCA's decision (in Finnish)
Kirsi Leivo, Director General, tel. +358 (0)29 505 3351
Maarit Taurula, Assistant Director, Head of Department, tel. +358 (0)29 505 3381
Further information about the economic analysis:
Olli Kauppi, Chief Economist, tel. +358 (0)29 505 3394