FCCA report: Room for competition in transport sector insurance

According to a study by the Finnish Competition and Consumer Authority (FCCA), competition concerning insurance required by companies operating in the transport sector could function better. Few businesses go into the trouble finding the best insurance deals, and are generally reluctant to switch insurance companies, although a tender process could result in significant cost savings.

The FCCA has investigated phenomena related to the operation of the insurance market by looking at transport companies’ insurance experiences of insurance and insuring.  The goal was to form an understanding of how well competition is functioning in terms of transport companies’ obligatory and voluntary insurance policies. Functional competition is particularly important in sectors that have significant effects on the national economy, such as the insurance sector, as they affect the operating conditions of small and medium-sized companies.

The material of the study was collected by sending a Taloustutkimus letter survey to 4,000 companies operating in the transport sector. A total of 377 responses were received, of which 372 survey forms were accepted for analysis.

One of the prerequisites of functioning competition for customers to be able to choose the service provider they prefer. In the insurance sector, customers’ choice is often limited by the fact that insurance companies tend to sell policies  as packages. As a result, customers often take out all of their policies from a single company. A total of 83% of the companies that took the survey had purchased their statutory traffic and accident insurance and voluntary vehicle insurance from the same company.
Packaging may discourage competition, but can also be beneficial from the customer’s viewpoint. The survey respondents justified their centralised insurance by good price reductions and the facility of running their errands. In their experience, a “one stop” service saves time and effort.

The functioning of competition also depends on how easy customers find it to request tenders from insurance companies and to switch service providers. The study suggests that transport companies have not yet fully harvested the benefits they could get by requesting tenders. Only one in three tender processes were launched on the company’s own initiative. The majority of respondents found tender processes difficult. They also had trouble understanding offers and pricing.

Among the survey respondents, three in four companies had requested insurance tenders at some point, but only 40% of the respondents requested insurance tenders at least once every three years. Furthermore, a tender process did not necessarily result in a change of insurance company. More than 70% of respondents did not change their insurance at all after tendering, or stayed with their existing insurance provider and only changed the contents of their insurance. Slightly less than 40% of all survey respondents had never switched insurance companies.

The goal of tendering and switches of insurance company was to generate savings and acquire better insurance coverage. Almost one in two companies that had switched insurance companies estimated that this move had reduced their insurance premiums by at least 10%. The choice of insurance company is however also affected by good customer service and a desire to take out policies from a single company. The respondents’ willingness to tendering were decreased by their worry of higher insurance costs but also unwillingness to lose a familiar customer service contact, and the time and effort needed for comparison and negotiations.

The survey did not reveal any actual barriers to competition. However, as the results suggested that the market could function better, the FCCA will keep monitoring the insurance market.

The functioning of the insurance market – insurance experiences among companies in the transport sector (in Finnish)

Further information: Mika Saastamoinen, Senior Research Officer (the execution and results of the survey), tel. +358 29 505 3652, Tom Björkroth, Senior Adviser, (the insurance market and its competitive conditions), tel. +358 29 505 3350