Noticias

FNE estimates that distortions in the annuities market have affected between 2,4% and 3,5% the amount of pensions.

Up to 3,5% could improve the amount of an average retirement pension if a series of distortions that exists in the annuities market are corrected.

This is one of the main conclusions of the first market study conducted by the new Market Studies Division of the Fiscalía Nacional Económica (FNE), after the last legal modification made to Chilean competition system. The legal change granted this institution the power to conduct market studies and, when appropriate, make recommendations on regulatory changes to the corresponding authority.

The agency released the final report of this study after submitting a preliminary report for public comment and receiving contribution from 26 entities including insurance companies, academics and intermediaries of the market. The study, which began in May 2017, had the hypothesis that “there are significant distortions in the life annuities market regulated by the D.L. 3500 of 1980, that produce a decrease of the amounts of pensions for the beneficiaries, possibly attributable to a low market intensity of competition”.

In the development of the study, the FNE confirmed its hypothesis and estimated that the aforementioned distortions are related to regulatory problems that cause demand side problems, than in turn, cause competition problems in the market. These problems are attributed to the complexity of the adjudication system, the manner in which information of offers by the companies is presented to retirees, and how the payment of the commission for intermediaries is presented.

With this diagnosis, the FNE present two types of proposals: those that only require amendments of administrative regulation and those that, in addition, require legal modifications. These solutions try to comply with three guiding principles: (1) simplification of the operation of the system; (2) improvement how the information is presented to retirees; and (3) maintain the retiree´s freedom to choose the option they prefer.

In charge of this first market study was the Deputy National Economic Prosecutor, Mario Ybar, who pointed out that the competition problems in markets do not necessarily come from the illegal behavior of the companies, but may also have another origin, such as regulatory issues. Precisely, the faculty to carry out market studies allows the FNE to identify these flaws and propose possible solutions.

“We have a market that has room to improve competition and we are proposing very low cost solutions that deal with the fundamental problems of the sector. What we have seen is that if people had chosen the pension with the best price and had paid a lower amount for the intermediation of the insurance or had not paid for it, their pensions would have improved between 2,4% and 3,5%, equivalent to between US $ 61 million and US $ 99 million annually” Ybar said.