The Danish Competition Authority has expressed concerns regarding the competition in the private insurance market, particularly in the area of damage insurance. The authority's chair, Christian Schultz, highlighted that the prices for insurance have risen sharply, with the five largest companies accounting for approximately 80% of total revenue in the sector, indicating a high level of market concentration compared to the rest of the EU.

In response to these issues, the Competition Authority is initiating a market investigation to determine whether the pricing behavior of insurance companies is detrimental enough to warrant intervention. This new investigative tool allows the authority to mandate changes in behavior without necessarily violating existing competition laws, provided certain conditions are met.

The analysis revealed that insurance companies earn significantly more from certain customer groups, particularly loyal customers, seniors aged 65 and over, and those with lower educational backgrounds. The additional costs for loyal customers have increased over the past five to ten years, raising concerns about fairness in pricing.

Particular attention is being paid to how companies set prices and terms in their contracts with consumers, especially the annual adjustments that typically align with wage developments. This practice resembles tacit price coordination, which undermines competition and leads to higher prices for loyal customers.

The Competition Authority emphasizes the need to strengthen competition to ensure consumers can access better and more affordable insurance options. With Danish households spending an average of nearly 16,000 kroner annually on damage insurance, the implications for consumer welfare and the economy are significant.

The authority is currently conducting a public consultation until April 29 to gather input on the necessity and scope of the market investigation. This marks the first use of the market investigation tool since its introduction into Danish competition law on July 1, 2024.

Furthermore, the analysis indicates that loyalty payments are prevalent in the insurance sector, where long-term customers contribute more to a company's earnings than new customers, despite having similar risk profiles. The loyalty payment varies significantly among companies, with long-term customers paying an average of 7-8 percentage points more than new customers.

Overall, the findings suggest that the high return on equity for shareholder-owned insurance companies exceeds what would be expected under effective competition, raising concerns about the overall competitiveness of the market.