I would like to begin by saying that I am pleased to have this opportunity to talk with you about issues relevant to trade associations under the Competition Act. It is always a pleasure to meet with groups, such as yourselves, who are interested in and committed to advancing their knowledge of competition law.

While I was going to start my talk today by telling some insurance jokes, my colleagues at work warned me that there is no such thing as insurance for people like me who suffer from bad humour. This is actually a win-win situation, as I will spare you my bad jokes and there you go, you just missed out on a deductible. I will also spare you the classic Adam Smith quote regarding trade associations as I witnessed much "merriment and diversion" last evening and did not hear of any conspiracy against the public to raise prices.

Given that it is 7:30, hope your coffee cups are full, and that I have only a limited amount of time, I am going to get right into the thick of things. In my prepared remarks, I am going to begin by briefly providing an overview of the Competition Bureau and the Competition Act, followed by how the Act applies to the activities of trade associations and then note some best practices to facilitate compliance. Although I will be speaking about trade associations in general, I will focus, where possible, on those issues that are of relevance to associations in the property and casualty insurance ("P & C") industry.

The Competition Bureau is an independent agency that contributes to the prosperity of Canadians by protecting and promoting competitive markets and enabling informed consumer choice. While the primary duty of the Bureau is to enforce the Competition Act by investigating allegations of anti-competitive conduct, the Bureau also acts as an advocate for competition by making interventions and submissions to government bodies, conducting examinations into various market sectors, entering into partnership and cooperation agreements with other government departments and agencies, and by liasing with the private sector. The Competition Act is a federal statute that applies to practically all sectors of the Canadian economy and is based on the premise that competition is the best means of ensuring that resources are allocated efficiently, innovation is rewarded, and consumers are offered the widest choice and highest quality of goods and services at the most competitive prices.

I would now like to talk about how competition law applies to trade associations.

Trade associations have been described as consisting of "individuals and corporations with common commercial interests who, under the auspices of the organization, join together to take joint actions that further their commercial or professional goals."¹ Associations perform many beneficial functions for both their members and consumers, and typically their activities do not raise issues under the Competition Act. These activities include keeping association members informed of industry developments, setting standards for products and services, improving the quality and safety of products, and working at improving industry laws. Particular to the insurance industry, for example, it is recognized that associations sometimes share claims information, which allows for more accuracy in predicting costs, which in turn, allows for smaller insurance providers to compete, as well as more competitive risk premiums.

However, given the nature of trade associations is to bring together competitors, competition law concerns sometimes arise. To this end, there are several key provisions of the Competition Act that associations and their members should be aware of.

I'll begin with conspiracies, the number one anti-trust priority for the Bureau. As a criminal offence, conspiracies, or cartels as they are often referred to, are the most serious form of anti-competitive behaviour.

If convicted of a conspiracy offence, companies and individuals face a maximum fine of ten million dollars per count and/or, in the case of individuals, up to five years of incarceration. Examples of agreements among competitors that could raise concerns under the conspiracy provisions of the Act include agreements to fix prices or rig bids; allocate customers or geographic markets; boycott members or non-members who do not abide by association policies; and agreements to restrict production. While price-fixing generally occurs when competitors agree to set prices, such agreements could also take the form of restrictions or guidelines on prices collectively, decided upon by the association, and enshrined in its rules or code of ethics. The Bureau has brought several trade associations to account for conspiracy related offences. A couple prominent examples include:

• In 1988, a prohibition order was made against the Canadian Real Estate Association and nine of its member boards in relation to anti-competitive rules and practices. The court order prohibited the industry from fixing commission rates, restricting advertising, discouraging cooperation with non-members, and controlling the types of real estate brokerage services that could be offered to the public.
  
  
• In 1990 through 1993 the Bureau prosecuted the Nova Scotia Pharmaceutical Society, commonly referred to as PANS, for being a party to an agreement with its members to act collectively vis-à-vis third party insurers regarding direct-pay insurance plans. Although the Bureau ultimately lost this case, it is significant in that it was appealed to the Supreme Court of Canada where important legal principles, regarding our conspiracy provisions, were established.

In addition to these domestic examples, other anti-trust agencies have uncovered and taken action against conspiracies in the insurance industry. In Italy, a cartel involving insurance companies was cracked whereby the companies involved were exchanging strategic information, which made it possible for them to set car insurance premiums at a higher level than that which would have otherwise prevailed.² In Germany, a conspiracy involving companies in the industrial property insurance market was uncovered, where, through meetings held by the respective insurance association, the companies agreed not to compete on premium and deductible rates, as well as to raise these rates.³ In Peru, enforcement action was taken against insurance companies that were sharing actuarial information and agreeing on premiums with respect to auto insurance⁴.

Another criminal offence under the Act is price maintenance. This offence involves conduct where a person attempts to influence upward the price at which another person supplies or advertises a product. In the context of associations, the use of inducements or sanctions to encourage or require members to follow fee schedules could constitute price-maintenance. So, too, might a refusal to accept known "discounters" as members of the association. Pressure by an association to discourage publishers or other media from accepting advertising that contains low prices could also be considered price-maintenance.

Of interest to the P&C industry, the Bureau, just last year, settled a price maintenance and conspiracy case involving six auto body repair shops and their association in Fort McMurray, Alberta, where the insurance industry was a victim. Under a binding court order, the auto body shops were required to change their conduct regarding the setting of labour rates, and prohibited from agreeing or communicating with each other on prices. The auto body shops were also required to publish a corrective notice in the local newspaper.

I will now briefly go over restrictive trade practices, which are civil matters subject to review before the Competition Tribunal.

The most common forms of restrictive trade practices include refusal to supply, exclusive dealing, tied-selling, market restriction, and the abuse of a dominant market position. However, the determination of a business practice's competitive impact typically requires a case-by-case analysis as such practices can lead to pro, anti, or neutrally competitive outcomes. Regarding trade associations, restricting access to markets or certain services that their members rely on could contravene the restrictive trade practices provisions. Likewise, the setting of standards in such a way as to impede market entry or restrict association membership could also raise issues.

Finally, there are those offences related to misleading representations and deceptive marketing, which are a class of practices that, depending on the facts of the case at hand, can be reviewed either criminally or civilly. Accordingly, associations and their members must ensure that they do not knowingly or recklessly make representations that are false or misleading.

While discussing the various provisions of the Competition Act, I have given some examples of how each relates to the activities of trade associations. I would now like to mention some recommended best practices that promote compliance with the Act.

Information sharing is a very relevant association activity to the P&C industry. To this end, information sharing may facilitate collusion if:⁵

• it includes information on actual prices charged or what prices or commissions will be in the future;
  
  
• the information facilitates the division of the market between insurers;
  
  
• the information is not available on fair and non-discriminatory terms to all insurers; or
  
  
• the institutional arrangements supporting the sharing of information act as a vehicle for the formation of wider agreements.

Other forms of information sharing to be mindful of include those that relate to:

• costs;
• sales and volume of production;
• credit or trading terms;
• promotional allowances;
• discounts or rebates to customers;
• customer information; and
• business or strategic plans and marketing.

The Bureau understands the beneficial role that information sharing plays in the insurance industry, realizing that the market works much more efficiently and competitively when certain information is freely available. Accordingly, the Competition Act allows for certain types of information to be shared in certain circumstances, provided that competition isn't significantly lessened as a result⁶. Most relevant to the insurance industry, such information includes the exchange of statistics and credit information. However, when sharing or gathering information, it is important to make sure that the information is sufficiently aggregated and collected by an independent firm so that the anonymity of individual members and their data is preserved.

With respect to association meetings, it is best to avoid commercially sensitive topics such as pricing, costs, market allocation, production, and market shares. The discussion of discounts, payment terms, business strategy, bidding tactics and allocation of markets are also topics that should be avoided.

As for trade association membership, issues could be raised if membership requirements impair a firm or person's ability to compete, or if a potential member is excluded as a result of non-adherence to certain pricing policies implemented by the association. It is also best that an association's board of directors include more than just competitors.

Trade associations, and particularly professional associations, often disseminate fee guidelines. However, as fee guidelines risk facilitating collusion, they remain a source of unease for the Bureau. An acceptable fee guideline is one that is issued merely for information purposes, without raising any intention or expectation that the member will adopt the guideline.

On the issue of disciplinary practices, associations should avoid sanctions or forms of coercion aimed at forcing members to obey recommendations that may have an anti-competitive effect. However, sanctions that are implemented for legitimate purposes, such as for the failure to meet safety standards would not raise any concerns.

The last set of best practices I will discuss relate to self-regulation and voluntary codes of conduct.

Many trade associations put in place rules and regulations by which their members must abide. While such regulations are intended to protect consumers and to ensure standards of service, they may be problematic if they affect fees charged, advertising, allowable business structures and types or location of practice. Overall, an association's regulations should be related to a legitimate purpose, impartial, and neither favour nor constrain the ability of particular market participants to compete in the market.

Associations may also put in place voluntary codes of conduct. Such codes of conduct are generally beneficial, but like rules and regulations, they should not speak to prices that members charge for services, mandate levels or types of services, restrict member advertising, or otherwise restrict competition in any way.

Finally, if there is any doubt about whether or not a proposed trade association activity may violate the Act, legal advice should be sought, or alternatively, a binding written opinion can be requested from the Bureau for a fee.

While I have just reviewed best practices concerning several areas of interest to associations, I would like to emphasize that the best practice of all is prevention. Accordingly, I would encourage all associations and their members to put in place a corporate compliance program. The primary objectives of an effective compliance program include informing the association and its members about the Competition Act, identifying the boundaries of permissible conduct, and encouraging pro-competitive activities. For further information, I would encourage you to see our draft Bulletin on Corporate Compliance Programs on our website⁷.

Related to compliance programs is the issue of self reporting illegal activity. Trade associations, sometimes uncover activity that raises concern under the Act, and as a result, management must determine how to address the situation. To this end, the Bureau has two programs: Immunity⁸ and Leniency⁹, which make it advantageous to self-report wrongful conduct rather than wait for possible later detection.

The Bureau's Immunity Program, which is available for criminal offences under the Act, ensures that the first person to report illegal activity will receive a recommendation of non-prosecution from the Bureau in return for the person's cooperation with the Bureau's investigation and any subsequent prosecution. On the other hand, a recommendation of lenient treatment is available for parties who are not the first-in to self-report illegal conduct, but who are willing to cooperate.

This concludes my talk today. In parting, I would like to stress that the Bureau is well aware that trade associations, and particularly those in the insurance industry, perform many beneficial functions for both their members and consumers at large and their activities typically do not raise issues under the Act. While I hope that my words today provided some important insights, I would like to bring to your attention that the Bureau will be publishing a draft bulletin on trade associations in a few months. I would ask that you look out for this bulletin on our website, take the time to read it, and pass on any comments you might have.

Thank you very much for allowing me the opportunity to speak with you today. I would be happy to take any questions.

¹Source: American Bar Association, Section of Antitrust Law, Antitrust and Trade Associations: How Trade Regulations Apply to Trade and Professional Associations, 1996, p.2.

² For more information, see: Online
http://www.agcm.it

³For more information, see: Online:
http://www.bundeskartellamt.de/wEnglisch/News/Archiv/ArchivNews2005/2005_09_15.php

⁴For more information, see: Online
http://www.oecd.org/dataoecd/40/42/36017863.pdf

⁵See: OECD, Competition Issues Arising in the Insurance Industry, (Paris: OECD, September 2001) at 3. online:
http://www.oecd.org/dataoecd/29/9/1890501.pdf

⁶See section 45(3) of the Act.

⁷Online:
http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/02618.html

⁸Competition Bureau, Information Bulletin: Immunity Program Under the Competition Act, 2007, available online at:
www.competitionbureau.gc.ca

⁹The Competition Bureau's Draft Information Bulletin on Sentencing and Leniency in Cartel Cases, is in the process of public consultation until July 25, 2008. It is available online at:
www.competitionbureau.gc.ca