FTC seeks fair market for adjusters

Customers seeking car or home valuations are often limited to choosing from a pre-approved list of valuators provided by insurance firms or banks.

The Fair Trading Commission, FTC, believes this restriction reduces consumer choice and stifles competition. The FTC recommends that entities self-regulate based on its guidelines.

“We do not propose that the FTC should implement regulations. Rather, the FTC should provide guidance on the nature and scope of the regulations,” said FTC head David Miller in response to Financial Gleaner queries regarding its position paper issued last week.

These exclusive lists of preferred providers, often referred to as ‘panels,’ are commonly used by commercial banks, insurance companies, and mortgage banks, according to the FTC.

“While the FTC is aware that there is legitimate business justification for the practice, it also acknowledges that the use of ‘panels’ by businesses with a large customer base may create a distinct competitive advantage for preferred providers over excluded providers,” the FTC stated in its position paper on the ‘Exclusive Use of Valuation Panels’ released on its website on June 27.

The exclusion of certain valuators becomes more evident when some are located near financial providers, raising concerns about potential unethical behaviour. However, the FTC described panels as a response to market frictions arising from asymmetric information. Financial providers have undisclosed reasons for creating these lists, but the FTC emphasised the need for transparency and noted that these lists could expose companies to “competition law enforcement actions”.

“To ensure that empanelment procedures are conducive to competition, the FTC proposes that businesses establish unambiguous, comprehensive, and transparent regulations and eligibility criteria for service providers seeking inclusion in these panels,” the FTC stated.

The FTC suggests that businesses should provide clear reasons to applicants if they are rejected from the panel. Additionally, a mechanism should be established to inform previously rejected applicants of any new opportunities that may arise, ensuring equitable access for all qualified service providers. The FTC also recommends that businesses conduct a thorough review of their panel of service providers at least once every five years.

“During this review, current panel members may be required to reapply, providing an opportunity for reassessment of their qualifications and performance. Moreover, previously rejected service providers, as well as new applicants, should be permitted to apply for inclusion in the panel,” stated the FTC.

This periodic review mechanism promotes market dynamism, prevents monopolistic tendencies, and ensures that the pool of service providers remains diverse and competitive over time, the fair trade watchdog said.

“Hence, it is the responsibility of the FTC to strike the right balance to ensure that the use of panels does not unduly lessen competition,” it added.

steven.jackson@gleanerjm.com