Major relief to state insurers; Compat cuts penalty to Rs 2 cr

In a major relief to four state- run insurers, Competition Appellate Tribunal today slashed the Rs 671 crore penalty imposed on them by CCI to a mere Rs 2 crore, saying the burden of fine will be transferred to public as these entities are owned by the government.
The Competition Commission, in July 2015, had slapped the penalty on National Insurance, New India Assurance, Oriental Insurance and United India Insurance for cartelisation and indulging in anti-competitive practices.
These companies had manipulated the bidding process initiated by the Government of Kerala for selecting insurance service provider for Rashtriya Swasthya Bima Yojna (RSBY).

Compat agreed that appellants should suffer the penal consequences as law was breached and the legal conclusive presumption is that there was an appreciable adverse effect on competition. It recognised however that the burden of penalty will ultimately be transferred to the public as the appellants are owned by the Government.
"The appellants who were public sector companies, in their zeal to participate in a Government sponsored Health Insurance Scheme benefiting the poor, ignored prudence and the restraints of the competition law. Such conduct cannot constitute an aggravating circumstance.
"We also recognise that the burden of penalty will ultimately be transferred to public, as the appellants are owned by the Government. We, therefore consider it appropriate that penalty be restricted to 1 per cent of the relevant turnover," Compat said in an order.

Reducing the quantum of fine, Compat said that penalty has to be calculated with reference to the gross premium received by the insurance companies as insurance provider under RSBY scheme and penalty for each of the appellants will be a proportion of their share in such premium.
However, CCI had imposed the penalty on the insurance companies based on 2 per cent of the average turnover of the last three financial years.
Now, Compat has imposed has a penalty of Rs 1.56 crore on United India Insurance, Rs 20 lakh each on New India Assurance and National Insurance and Rs 4 lakh on Oriental Insurance.