Incentivising compliance with competition law: could liability insurance be the answer?
Dr Beverley Williamson*
Journal Article
 
European Competition Law Review
 
E.C.L.R. 2021, 42(4), 177-185
 
Subject 
Competition law
 
Other related subjects 
Insurance
 
Keywords 
Competition law; Compliance; Liability insurance
 
*E.C.L.R. 177 “To promote compliance with competition law most effectively, competition authorities need to understand the numerous factors that influence compliance and non-compliance.”1
 
Given the significance of the consequences of breaching competition law it is clear that businesses should take the matter of compliance seriously, yet the available evidence would appear to demonstrate that they do not.2 This is despite the fact that “[b]oth the EU Commission and the Competition and Markets Authority have sought to reinforce the importance of business compliance with competition law and have website material dedicated to this purpose”.3 This article, building upon the work of Tom Tyler4 into what influences individuals, and thereby corporations to comply with the law, looks at the role that competition law specific liability insurance could play in incentivising those legal obedience stimulators that have not yet been effectively targeted.
 
1. Introduction
Various initiatives have been implemented over the years to provide education and awareness to the business community around their obligations to comply with competition law.5 The most recent survey of UK businesses into their understanding of competition law however, found that “businesses were more concerned about compliance with other areas of law, for instance health and safety and employment law”6 than with their obligations under competition law. This is despite the fact that the sanctions, both corporate and individual, “should make businesses … consider the issue of compliance seriously”.7 These sanctions range from administrative fines all the way to incarceration.8 The justification for such a wide spectrum of enforcement action is the variety of motivating factors that cause individuals to obey the law.9 What many of them have in common however, is their reliance upon utilitarian theories of deterrence to define their purpose and scope. Deterrence theory maintains that individuals are rational individuals who can be expected to act in their own welfare maximising interests.10 When the “price” of punishment, therefore, is greater than the anticipated gain from the prohibited action, a person will be deterred from breaking the law.11 Indeed, some have even argued that “effectiveness in the field of the fight against cartels is ultimately about deterrence”.12 This implies a belief that business people will always be motivated to engage in cartels, despite it being against the law, and that only a sufficiently serious sanction (and a believable chance of getting caught) for so doing, will be enough to persuade them not to. Which in turn implies that either company directors and business managers are inherently criminal and thereby must constantly be compelled to obey the law, or that they view cartel agreements as morally neutral and their decisions as to whether or not to engage in them, are largely opportunistic. *E.C.L.R. 178
 
”It is far too simplistic however, and not at all accurate to argue that people only obey the law because they fear the legal consequences if they do not”.13 Voluntary compliance with the law because it is “the right thing to do” is the most important aspect of any legal system. That most people, most of the time, agree to comply with the laws of the land is what allows society to function, and indeed, that most companies, most of the time, agree to comply with the laws on competition is what allows a competitive market to exist.
 
The question therefore becomes, why do otherwise law-abiding citizens become potential criminals when placed in business context, who require the threat of serious legal sanction in order to be persuaded to be law abiding business citizens? And further, how can they be persuaded to apply their usual commitment to the law, to competition law? This article looks at the role that competition law specific liability insurance could play in supplementing the current legislative framework, and working as a mechanism for incentivising compliance through training and normative education. In doing so it will consider whether insurance institutions, through carefully considered competition law specific insurance products, could create a more effective and less adversarial mechanism for incentivising a normative commitment to competition law.
 
2. Liability insurance and its impact upon compliance
”Liability insurance covers individuals and corporations against the risk of being responsible for the costs of accidents borne by other parties and caused (under the law) during the policy period.” 14
 
The driving force behind liability insurance, “what enables it to function—is risk aversion”.15 The uncertainty of potentially large losses is exchanged for the certainty of a small loss, the cost of the insurance premium.16 The imposition of liability for harm caused is a core element of the tort system, which in itself serves a variety of social functions: “among them are deterrence, compensation, punishment, and justice”.17 Liability insurance was therefore created as “a private contract of indemnity”18 to allow the insured to protect themselves against any “loss on account of his individual legal liability”.19 There is, therefore, a potential conflict between the social function of tort law and liability insurance as some argue that it results in
 
”shifting of the costs of harm from tortfeasors to insurance companies and … destroys the incentives tort law generates. The potential tortfeasor relaxes in his efforts to take due care in order to avoid harm and succumbs to the sweet sirens of moral hazard. In this sense, insurance is anathema to a concept of tort law geared towards the production of incentives for efficient behaviour.” 20
 
Nevertheless, and “[f]ortunately for the law of torts, insurance companies doing business in the area of liability insurance have an incentive to contain moral hazard on the part of their clients”.21 Insurance companies, operating in a competitive market, are incentivised to keep their premiums low by controlling their compensation payments.22 Insurance institutions therefore, have sought to develop ways in which they can retain control over their compensation payments.
 
It is with this influence that this article is most concerned. Research has shown that despite “a wide variety of laws pressing on corporations, it is less clear how legal regulations influence corporate”23 behaviour. Further, technical expertise is often required to help organisations “interpret and implement laws in ways that attempt to achieve compliance”.24 As one such intermediary, insurance companies:
 
”play a major role in shaping the content and meaning of laws designed to regulate corporations, how corporations understand law and compliance, and how corporations go about responding to laws.” 25
 
No longer are insurance institutions simply pooling and transferring risk, they are “using their risk management tools and services to influence how corporations comply with the law”.26 This is particularly true in respect of risks which, in general, companies are under-prepared for and therefore, under-compliant for.27 In these areas, “insurance companies play a critical, yet unrecognized, role in assisting organizations in complying”28 with laws and dealing with negative consequences that arise from a breach. In respect of breaches of cyber security and data protection for *E.C.L.R. 179 example, this under-preparation and under-compliance was recognised by the insurance industry who stepped in and began offering cyber insurance (with the associated risk management services).29 Insurance institutions then engage in “loss prevention and education that appears to have more of a public good character [with] some benefits extend[ing] beyond the specific insurer or its policyholders”.30 This research and education function, which is presumably motivated by private benefits to the insurer,31 can also ensure the reduction of frequency and severity of claims, providing society-wide benefits.
 
Some “scholars suggest that insurance can serve as a substitute for regulation and monitor organizational behaviour in ways the government does not”.32 Indeed, it has been noted that insurance companies are more advantageously placed than the State to influence corporate culture on compliance, not simply because of the less adversarial nature of their relationship with those companies, but also due to “information and motivation asymmetries”.33 Liability insurance policies, which are designed to cover first and third party risks
 
”often take the form of private legislation through a wide variety of exclusions and conditions … Insurance companies [therefore] play an important role by shaping policy language and also communicating ideas about what law means to organizations tasked with complying with and implementing various legislative and regulatory mandates.” 34
 
Price differentiation of insurance services helps to influence the behaviour and choices of the insured, and can lead to an organisation becoming “more compliance focused”.35 The insurance company is positioned to require companies to actively take steps to improve its compliance programmes, incentivised by lower premiums.36 “Insurers not only have the incentive, the demand, and the competitive pressure to collect and administer information about risk, but they also have the tools to do so”.37 This is in contrast with “government agencies … [which] have limited resources to monitor and anticipate patterns in the behaviours of sophisticated industries”.38 Rather than being regarded as a replacement for State intervention, “insurance companies can … augment the standard setting and … monitoring currently performed by government. And they do so in ways that may increase overall social welfare”.39
 
Some of the economic literature on the role of insurance in this way, regards it as “antithetical to risk reduction … a party who is insured against a risk has a suboptimal incentive to reduce it”.40 Indeed, “the more and better insurance that is provided against some contingency, the less incentive individuals have to avoid the insured event, because the less they bear the consequences of their actions”.41 Some have even argued that “[i]nsurance creates moral hazard: when someone else pays the tab, the insured will take additional risks and may incur costs deliberately”.42 However, others maintains that:
 
”insurance can reduce and, in some cases, solve, rather than create or exacerbate, moral hazard and related incentive problems. When people create risk to others (or themselves), insurance is the mechanism that converts the concern about the loss or the vague threat of liability into a concrete set of harm-reducing measures. It supplies both the incentive and the know-how that individuals and firms often lack ….” 43
 
Two such mechanisms that the industry has developed are “copayment requirements and deductibles [as a means] to reduce insurance coverage in order to stimulate precaution”.44
 
If the role of insurance institutions is not reliant solely upon consequentialist deterrence theories, but on a genuine, normative re-evaluation of compliance itself, these concerns are arguably less powerful. Further, when pursuing compliance (rather than chasing enforcement) the fact that the insurance company and the policyholder are “on the same side”, means that co-operation could *E.C.L.R. 180 arguably be much more easily achieved. Indeed, some research maintains that it is possible “for insurers to create optimal incentives for care”.45 This would appear to be particularly true in respect of conduct that is generally considered to be morally neutral and therefore,46 the normative commitment to obeying the law may be lower. In this context, individuals, and thereby corporations, are more likely to make instrumentalist decisions as to legal obedience.47 Traditional deterrence theory would postulate that such individuals would therefore be incentivised by the threat of legal sanction. However, research shows that effectiveness of a deterrent is most influenced by the probability of detection.48 Proportionality constraints prevent legislatures from advocating for sanctions that are sufficiently high to mitigate the effect of extremely low detection rates. In these circumstances therefore, State-imposed sanctions are less likely to stimulant legal obedience via deterrence. Therefore, when instrumentalist decision-making is most likely, yet traditional State-enforced behaviour manipulation is incapable of having the desired effect, the insurance institutions could provide the mechanism for ensuring compliance. Initially this would occur via instrumentalist decision-making, by imposing a requirement to engage more meaningfully in compliance training in exchange for lower premiums and better coverage, but eventually, via an internalised normative commitment gained through robust compliance education and training.
 
3. Competition law compliance in the UK
Cartel enforcement in the UK is based largely upon the idea of deterrence. Legislative tools were created to scare potential cartelists into forsaking profitable, but prohibited, conduct because the sanctions permitted would outweigh the benefit of engaging in the conduct. Most of these tools, whether they be administrative fines,49 director disqualification orders50 or even criminal sanctions,51 are based upon the idea that individuals can be deterred from anti-competitive actions by external influences applied by the State in a relatively formulaic way.52 Not all individuals however, require such State-orchestrated manipulation in order to be convinced into legal obedience. Bentham, the “father” of utilitarian deterrence theories, even recognised that “other tutelary motives such as benevolence, religion and honour”53 play a vital role in the decision, whether conscious or not, to obey the law. These other tutelary motives are:
 
”internalised factors that influence an individual’s decision to act in accordance with accepted societal legal rules and standards…[which] amount to a normative commitment to legal obedience based upon what is regarded as morally appropriate.” 54
 
It is thought that such a moralising education occurs in various ways. One such example is the way in which punishment plays “an important part in the socialization process as a teacher of right and wrong”.55 The fact that some behaviour leads to punishment, and some does not, “helps to educate society as to what behaviour is good or bad”.56 The witnessing of transgressors receiving “unpleasant consequences for engaging in proscribed conduct reinforces the message to society and helps the process of internalisation of that lesson”.57 Additionally, the
 
”Informal system of control, whereby close relationships … influence you towards acting in such a way as to meet the normative expectations of the group, has long been considered to be the foundation of social order.” 58
 
In the context of corporate crime, “the organisation therefore, plays an important role in an individual’s normative commitment to obey the law”.59 The “cultural environment of a firm is closely linked to firm-level patterns of non-compliance”.60 Research has shown that in
 
”companies that care less about [ethical conduct], ethically inclined managers may be ordered to engage in misconduct or encouraged to do so by superiors who turn a blind eye to how a goal is accomplished. *E.C.L.R. 181 “ 61
 
Over time this may lead to “norm erosion and in the extreme, an organizational culture that supports illegitimate but expedient practices”.62 Therefore, once a “system of socialization is in place, persons learn the range of expectations of primary group members and comport their behaviour accordingly”’.63 Indeed, in the very well publicised trial of Tom Hayes for his engagement in the manipulation of the LIBOR rate, he testified that the practice of such manipulation was “industry wide”. He stated:
 
”I acted with complete transparency to my employers. My managers knew, my manager’s manager knew. In some cases, the CEP was aware of it … It was so endemic within the back [at UBS], I just thought … this can’t be a big issue because everybody knows about it.” 64
 
In an interview upon his release from prison, Bryan Allison, one of the Marine Hose Cartel participants, still felt that the “majority of people causing cartels are usually doing it not for personal gain but for their business”,65 and that they do so “because it’s expected of them, because they’ve always done it”.66 Indeed, Allison seemed to find the idea of “grassing people up” as more unethical than the cartel itself.67
 
Whilst these views are anecdotal, they provide a view of the way in which some business people regard their illicit conduct. In the case of Allison, the existence of criminal sanctions in the US, and the creation of the criminal cartel offence in the UK, did little to educate him as to the moral blameworthiness of his actions.68 The organisational environment appears to have played a much more powerful role in his decision to engage in prohibited conduct, and that whilst he has now been educated by his own experiences, “it is clear that the punishment of previous cartelists played no role in that education”.69 Therefore, a framework that places too much emphasis on the compliance stimulators of individual members of the cartel whilst neglecting the overriding culture of the organisational environment, ignores the fact that whilst some degree of self-interest will play a role in the decision to cartelise, crime committed in the context of a corporation “is not reducible to individuals and their characteristics because the individuals and the organization are symbiotic”.70
 
This piece therefore considers a possible alternative stimulus for legal obedience, taking from the growing body of liability insurance scholarship, in which some have argued that “insurance-as-regulation goes beyond deterrence and loss-prevention … Insurance institutions transform the meaning of compliance”.71 This work therefore, will analyse the role that insurance providers play as “regulators” and the impact that this has upon corporate compliance. It will then consider whether insurance institutions, through carefully considered competition specific insurance products, could act as a more effective, and less adversarial means by which the importance of compliance can be communicated to those in a position to materially impact the culture of their organisation.
 
A variety of factors influence an individual’s decision to obey the law. For those who have a normative commitment to legal obedience, all that is required to stimulate that obedience, is awareness of the illegality of the conduct in question. For those who are committed to doing “the right thing”, a belief in the harmfulness of the conduct may also be required. For those who make instrumental decisions, particularly in respect of conduct they regard as morally neutral, an economic incentive either to obey or breach the law is likely to be determinative.72
 
Compliance with competition law is reliant upon a number of things. First, the company must be aware of and understand its legal obligations. Secondly, it must make a decision to comply with those obligations, or at the least decide not to breach them. What induces that decision could be a variety of things from deterrence, to an inherent moral commitment to abiding by the law, to a fear of the reputational damage that could result in being found to have engaged in prohibited conduct. Finally, they must have the expertise, or access to the expertise, to identify their idiosyncratic risk factors, to educate employees, and to take whatever other relevant steps are required to ensure obedience with the law.
 
A 2018 report published by the CMA sought to assess the level of awareness of competition law amongst UK businesses.73 Of those who responded to the survey only 24 per cent said that they knew competition law very or fairly well. *E.C.L.R. 182 74
 
”A further three in five respondents say they are aware but not very well or not at all well (61%). [This means] there has been no change in stated awareness of competition law since 2014 when the percentage saying very or fairly well was also 23%.” 75
 
The report goes on to state that the survey showed that among medium sized businesses there has been a:
 
”significant increase in the proportion stating that they are familiar (net ‘well’) with competition law, from just under two fifths (37%) to over half (52%). Conversely, there has been a significant decrease in awareness among large businesses (250 or more employees), down by 17 percentage points to 40%.”
 
Whilst there have therefore been some positive increases in competition law awareness, despite the now mature competition regime in the UK, overall awareness and by implication, positive steps to ensure compliance, remain low. Indeed, only 6 per cent of respondents had had training sessions in competition law with their organisation in the 12 months prior.76 So despite the significant risks faced by companies who engage in anti-competitive conduct, and the efforts of the CMA to advocate for competition law there remain “disappointing … levels of awareness of and training in competition law [which remain] so low across the business community despite … years of experience and publicity”.77
 
The report went further however and sought to identify the motivators for compliance amongst the respondents. An encouraging 80 per cent felt that compliance was “the right thing to do ethically”.78 This would indicate that there is a high level of normative commitment to ethical conduct in general amongst the business community. In addition, 75 per cent felt motivated to obey the law because “it’s obligatory—it’s the law”.79 This would indicate that again, there are high levels of normative commitment to legal obedience in the business community. It would seem therefore, that should awareness and training regarding competition law be increased, active compliance would so increase.
 
CMA enforcement action shows that certain industries can be considered particularly high risk.80 It is industries such as this therefore, that would arguably most benefit from insurance and the influencing effect of that insurance. In industries where enforcement action is low and understanding of competition law is high, the cost of insurance may be greater than the risk faced, and so demand for additional insurance coverage would likely remain low.
 
4. Competition law liability insurance
Currently the kind of costs incurred as a result of a competition law investigation would be covered by traditional Director and Officers Liability Insurance, however private companies must now carefully review their policies before purchasing “to ensure that they do not limit coverage applicable to antitrust matters”,81 with many containing broad exclusionary clauses “precluding coverage for any loss (including [legal] fees) incurred in connection with antitrust claims”.82 A specific form of competition compliance liability coverage, however, would enable insurance institutions to require a high degree of compliance activity by the policyholder and could include exclusions where such compliance had not been taken seriously, thereby reducing their claim liability to acceptable levels. Liability coverage itself could be limited to defence costs and third party damages, which themselves can be significant, whilst excluding the administrative fine. Further, a pre-requisite of a successful claim pay-out could be an early application for leniency to the relevant authorities which would benefit both the provider and the insured.
 
The previous section showed that whilst there is the desire amongst a high percentage of the business community to comply with competition law, currently there is a lack of awareness and understanding inhibiting their ability to do so. Lack of awareness of the obligations of competition law implicitly means a lack of understanding of the type of conduct that may put them at risk. Therefore, even naturally risk-averse individuals, and thereby organisations, may inadvertently be exposing themselves to risks that they would, if informed of, otherwise avoid. It is this section of the business community for whom the insurance institutions could arguably best function as a supplement to the existing legislative framework. Additionally, competition law liability insurance could be well placed to fulfil the crucial educative and moralising role within companies run by individuals who (incorrectly) view anti-competitive conduct as morally neutral.
 
In respect of cartel conduct attempts have been made to calculate the probability of detection, with that risk being calculated as low as 13 per cent,83 with others *E.C.L.R. 183 placing that probability between 15 per cent and 20 per cent.84 These calculations, however, represent an aggregated probability of detection across all industries. In industries that see a higher enforcement record, for example construction,85 it could be the case that the probability of detection, and the proliferation of anti-competitive conduct, is actually higher. If the research mentioned above is accurate, however, it would appear that the proliferation of anti-competitive conduct in the construction industry is not because of a particularly high concentration of delinquent individuals in construction firms, but because of a lack of awareness and education regarding competition law, and a culture of engaging, even unknowingly, in anti-competitive conduct. The OECD found that in general, the reasons for non-compliance
 
”fall into three categories:
•	The degree to which the target group knows of and comprehends the rules.
•	The degree to which the target group is willing to comply—either because of economic incentives, positive attitude arising from a sense of good citizenship, acceptance of the policy goals, or pressure from enforcement activities.
•	The degree to which the target group is able to comply with the rules.”
  86
 
Further, there is a “common assumption … that the target group will be aware of, and understand how to comply with a rule when it is published”.87 The empirical evidence in respect of competition law, however, would appear to demonstrate otherwise, and when
 
”an environment of normative support for misconduct is created it is arguably unlikely that the enforcement actions of the relevant authorities will have an appreciable effect, either as an educator or moraliser, or indeed as a deterrent…”.88
 
In these circumstances, the compliance-inducing influence of the insurance industry may be one of only a few mechanisms with any real chance of altering the culture of the organisation, resulting in a compliant positive response. Another way in which compliance could be supported is via incentives created within the legislative framework and implemented by the competition authorities themselves. The most obvious of which would be to reward robust compliance programmes through fine reduction schemes.89 Such reward schemes could act in a complementary way to liability insurance (which would not indemnify the policyholder against the fine) but could provide evidence of a vigorous compliance programme which would need to be a pre-requisite for any reduction.
 
Further, given that “insurance thrives on statistical predictability”90 the low detection levels of cartel conduct would arguably make it appealing to the insurance industry, and the high potential sanctions may make it an appealing product to the company. The aggregated risk to the insurer remains relatively low, despite the individual risk to the insured being relatively high. In addition, compliance programmes represent relatively “cheap risk-reduction measures”91 that policyholders can be mandated to engage in should they wish to reduce their premiums. The proximity of the relationship between the insurer and the insured allows for risks, and thereby deterrence, to be more effectively communicated to the potential wrongdoer. Further, “commercial parties buying liability insurance may not realize how their expected costs would be reduced by taking simple precautions—until their insurer prices it”.92 In doing so, “insurers perform a regulatory function that public regulators rarely do: they ‘educate’ their insured on how to avoid and reduce risks”.93 And in the context of competition law in particular, they may be educating their insured about the very existence of risk for the first time. It is this educative function, far more that the deterrence one, that could make the creation of competition compliance insurance so crucial to a real and impactful culture of compliance across all industries.
 
Liability insurance comes in a variety of forms, and indeed competition compliance liability insurance could not only cover the policyholder for costs arising from the conduct of their own employees (defence costs and third *E.C.L.R. 184 party damages claims) but could potentially provide coverage for any losses that they incur as a result of the anti-competition actions of other organisations with which they do business. As is typical with other forms of corporate insurance coverage, for example, Directors and Officers Liability Insurance, the design of the insurance contract would be critical to the success of the coverage.94 This is particularly true in the context of competition specific insurance because of the importance of leniency programmes to effective competition law enforcement. Typically, leniency programmes require that undertakings be first, or one of the first, to come forward to the competition authorities with information in order to benefit from the fullest form of corporate and individual immunity. Those who fail to do so, but who later become subject to an investigation, risk an unmitigated fine of up to 10 per cent of worldwide turnover, a criminal investigation and the disqualification of their directors. Provisions of any liability insurance could require an early approach to the relevant authority, and indeed could seek to limit their liability for claims should such steps not be taken.
 
Insurance providers would be perfectly placed to require that companies seeking coverage implement, maintain and review robust compliance programmes that include annual training for their employees, and that would make early detection of any prohibited conduct more likely. This would be a form of loss prevention service that is considered one of the “five main tools that almost all insurers use to one degree or another”.95 As the prevalence of competition compliance insurance increased, insurance institutions would then be able to collect significant amounts of data on harms and claims, which would place them at an “advantage over their insureds in identifying the best ways to reduce the risk of loss”.96 In addition, this would enable the policyholders to outsource the task, and a degree of the costs, of developing a robust and cutting-edge compliance programme which is particularly important for small business, for whom “the burden of assimilating and complying with many complex and technical rules can … undermine confidence in regulators and the regulatory structure”.97 For larger organisations who are more likely able to internalise the costs of such measures, an independent external review of those processes by an insurance provider, with associated consequences for failing to ensure robust compliance structures, would overcome the “perverse incentives”98 that some have argued exist where companies are not held liable for their anti-competitive conduct.
 
Another means by which insurers “regulate losses ex post is by helping mitigate covered losses”.99 Contractual provisions “require insureds to take all reasonable steps to mitigate losses or else forfeit coverage”.100 In the context of competition law, that could include compelling full and complete co-operation with the CMA, and perhaps even the removal of implicated persons.
 
5. Conclusions
Ensuring obedience of competition laws is critical to the protection of competition and of consumers. “Enforcement cannot substitute for low levels of voluntary compliance. In the longer-term, widespread non-compliance will undermine respect for the rule of law”.101 In the context of competition law, however, otherwise law abiding individuals appear more at ease with engaging in prohibited conduct. The traditional mechanisms for encouraging a normative commitment to the law are not having a significant impact in the context of anti-competitive conduct, and arguably do not adequately engage with understanding how organisations are structured and make decisions. It is therefore time to start considering alternative mechanisms for communicating deterrence and providing a moralising education to those in positions of influence the corporate conduct within which they operate. “An important criterion for the success of regulatory form is whether regulatory systems accomplish their policy objectives”.102 If the objectives of competition law and policy in the UK have been to not only deter conduct but to effectively advocate for compliance, the impacts have been disappointing, and “a growing body of anecdotes and studies from OECD countries suggests that inadequate compliance underlies many”103 regulatory policy failures.
 
Liability insurance as a compliance motivator, as with many of the legislative tools currently available, is predicated primarily upon deterrence. The main difference between State-imposed deterrent tools, however, and those employed by insurance institutions is one of proximity. The effectiveness of the legislative mechanisms created for the purpose of deterring conduct are inhibited by various factors, including low detection rates and low levels of awareness and/or understanding of the law. Liability insurance by contrast, allows risk, a *E.C.L.R. 185 critical component of credible deterrence threats, to be communicated directly to the potential wrongdoer by their insurer who themselves are incentivised to “encourage [the] insured to take precautions”.104
 
There is another, and this piece would argue, potentially more valuable function that competition compliance insurance could fulfil, and that is of educator. Firms cannot be deterred by legal threats they are unaware of or by sanctions that appear too remote to be relevant to them. Individuals often feel no real compulsion to resist lucrative conduct that they regard as morally neutral. Insurance providers are able to educate their policyholders as to the legal threats that they face, but also the harm and moral wrongfulness of the conduct itself. Through robust compliance training (mandated for lower insurance premiums) the harms of anti-competitive conduct to the market, to consumers, but also to policyholders themselves can be articulated, regularly and repeatedly, to those in positions of corporate culture influence. Further, insurance providers would also be able to not only contractually require risk-reducing behaviour, but also to monitor it—a function that no State regulator would be able to fulfil. “Regulation-through-insurance is a notion that has been widely recognised in the literature … [and] has demonstrated the potential for insurers to create optimal incentives for care”.105 It is time to recognise the role it could play incentivising compliance with competition law.
 
Dr Beverley Williamson

Footnotes
	
1
	OECD, “Promoting Compliance with Competition Law” 30 August 2012, Directorate for Financial and Enterprise Affairs: Competition Committee, DAFCOMP (2011)20. Available at http://www.oecd.org/daf/competition/Promotingcompliancewithcompetitionlaw2011.pdf [Accessed 11 September 2020].
	
2
	Barry J. Rodger, “Competition Law Compliance: The CMA 2015 Study, Compliance Rationales and the Need for Increased Compliance Professionalism and Education” (2015) 36(10) E.C.L.R. 423.
	
3
	Competition and Markets Authority Blog, “Competition law compliance”. Available at https://competitionandmarkets.blog.gov.uk/category/competition-law-compliance/ [Accessed 9 February 2021]; European Commission, “Compliance with competition rules: what’s in it for business?” Available at https://ec.europa.eu/competition/antitrust/compliance/index_en.html [Accessed 9 February 2021].
	
4
	Tom Tyler, Why People Obey the Law (Princeton University Press: 1990).
	
5
	For a more detailed discussion see Rodger, “Competition Law Compliance: The CMA 2015 Study, Compliance Rationales and the Need for Increased Compliance Professionalism and Education” (2015) 36(10) E.C.L.R. 423.
	
6
	Rodger, “Competition Law Compliance: The CMA 2015 Study, Compliance Rationales and the Need for Increased Compliance Professionalism and Education” (2015) 36(10) E.C.L.R. 423.
	
7
	Rodger, “Competition Law Compliance: The CMA 2015 Study, Compliance Rationales and the Need for Increased Compliance Professionalism and Education” (2015) 36(10) E.C.L.R. 423.
	
8
	The Competition Act 1998 provides for administrative fines of up to 10 per cent of worldwide annual turnover, and Enterprise Act 2013 s.188 provides for up to five years in prison for individuals found guilty of engaging in cartels.
	
9
	Tyler, Why People Obey the Law (1990). See also, OECD, DAFCOMP (2011)20) (Directorate for Financial and Enterprise Affairs: Competition Committee, 30 August 2012), http://www.oecd.org/daf/competition/Promotingcompliancewithcompetitionlaw2011.pdf [Accessed 29 January 2021], “Drivers of compliance include: financial penalties, director disqualification orders, criminal sanctions, fear of damage to corporate or individual reputation, morality and a strong culture of compliance”.
	
10
	Gary Becker, “Crime and Punishment: An Economic Approach” (1968) 76 Journal of Political Economy 169.
	
11
	Becker, “Crime and Punishment: An Economic Approach” (1968) 76 Journal of Political Economy 169.
	
12
	Olivier Guersent, “The Fight Against Secret Horizontal Agreements in the EC Competition Policy” in Barry Hawk (ed), Annual Proceedings of the Fordham Corporate Law Institute (NY: Juris Publishing Inc, 2003).
	
13
	Beverley Williamson, “Analysing the Place of the Criminal Cartel Offence within the Regulatory Landscape of Anti-Cartel Enforcement in the UK: more change needed?” (2019) PhD Thesis, Newcastle University, p.73.
	
14
	Ralph A. Winter, “The Liability Insurance Market” (1991) 5(3) Journal of Economic Perspective 115.
	
15
	Kenneth S. Abraham, “Risk Aversion, Insurance Insurance, and the Limits of Regulation” (2015) 5(3) UC Irvine Law Review 513.
	
16
	Abraham, “Risk Aversion, Insurance Insurance, and the Limits of Regulation” (2015) 5(3) UC Irvine Law Review 513.
	
17
	Nicholas A. Ashford and Robert F. Stone, “Liability Innovation, and Safety in the Chemical Industry” in Peter W. Huber and Robert E. Litan (eds), The Liability Maze: The Impact of Liability Law on Safety and Innovation (Washington: Brookings Institution Press, 2010), p.369.
	
18
	James Flemming Jr., “Accident Liability Reconsidered: The Impact of Liability Insurance” (1948) 57(4) The Yale Law Journal 549.
	
19
	Flemming Jr., “Accident Liability Reconsidered: The Impact of Liability Insurance” (1948) 57(4) The Yale Law Journal 549.
	
20
	Gerhard Wagner, “Tort Law and Liability Insurance” (2006) 31 The Geneva Papers on Risk and Insurance—Issues and Practice 277.
	
21
	Wagner, “Tort Law and Liability Insurance” (2006) 31 The Geneva Papers on Risk and Insurance—Issues and Practice 277.
	
22
	Wagner, “Tort Law and Liability Insurance” (2006) 31 The Geneva Papers on Risk and Insurance—Issues and Practice 277.
	
23
	Shauhin A. Talesh, “Insurance Companies as Corporate Regulators: The Good, The Bad, and The Ugly” (2017) 66(2) De Paul Law Review 463.
	
24
	Talesh, “Insurance Companies as Corporate Regulators: The Good, The Bad, and The Ugly” (2017) 66(2) De Paul Law Review 463.
	
25
	Talesh, “Insurance Companies as Corporate Regulators: The Good, The Bad, and The Ugly” (2017) 66(2) De Paul Law Review 463.
	
26
	Talesh, “Insurance Companies as Corporate Regulators: The Good, The Bad, and The Ugly” (2017) 66(2) De Paul Law Review 463.
	
27
	Talesh, “Insurance Companies as Corporate Regulators: The Good, The Bad, and The Ugly” (2017) 66(2) De Paul Law Review 463.
	
28
	Shauhin A. Talesh, “Data Breach, Privacy, and Cyber Insurance: How Insurance Companies Act as ‘Compliance Managers’ for Businesses” (2018) 43(2) Law & Society Inquiry 417.
	
29
	Talesh, “Data Breach, Privacy, and Cyber Insurance: How Insurance Companies Act as ‘Compliance Managers’ for Businesses” (2018) 43(2) Law & Society Inquiry 417.
	
30
	Tom Baker and Rick Swedloff, “Regulation by Liability Insurance: From Auto to Lawyers Professional Liability” (2013) 60 UCLA. L. Rev. 442. See also Omri Ben-Shahar and Kyle D. Logue, “Outsourcing Regulation: How Insurance Reduces Moral Hazard” (2012) 11(2) Michigan Law Review 197.
	
31
	Baker and Swedloff, “Regulation by Liability Insurance: From Auto to Lawyers Professional Liability” (2013) 60 UCLA. L. Rev. 442. For example, “brand recognition, customer loyalty, or preferential treatment from their regulators. Or perhaps these activities identify them at the cutting edge of loss prevention, attraction loss-prevention-minded customer who are low risk …”.
	
32
	Ben-Shahar and Logue, “Outsourcing Regulation: How Insurance Reduces Moral Hazard” (2012) 11(2) Michigan Law Review 197.
	
33
	Ben-Shahar and Logue, “Outsourcing Regulation: How Insurance Reduces Moral Hazard” (2012) 11(2) Michigan Law Review 197.
	
34
	Talesh, “Data Breach, Privacy, and Cyber Insurance: How Insurance Companies Act as ‘Compliance Managers’ for Businesses” (2018) 43(2) Law & Society Inquiry 417.
	
35
	Talesh, “Data Breach, Privacy, and Cyber Insurance: How Insurance Companies Act as ‘Compliance Managers’ for Businesses” (2018) 43(2) Law & Society Inquiry 417.
	
36
	Talesh, “Data Breach, Privacy, and Cyber Insurance: How Insurance Companies Act as ‘Compliance Managers’ for Businesses” (2018) 43(2) Law & Society Inquiry 417.
	
37
	Talesh, “Data Breach, Privacy, and Cyber Insurance: How Insurance Companies Act as ‘Compliance Managers’ for Businesses” (2018) 43(2) Law & Society Inquiry 417.
	
38
	Ben-Shahar and Logue, “Outsourcing Regulation: How Insurance Reduces Moral Hazard” (2012) 11(2) Michigan Law Review 197.
	
39
	Ben-Shahar and Logue, “Outsourcing Regulation: How Insurance Reduces Moral Hazard” (2012) 11(2) Michigan Law Review 197.
	
40
	Ben-Shahar and Logue, “Outsourcing Regulation: How Insurance Reduces Moral Hazard” (2012) 11(2) Michigan Law Review 197.
	
41
	Joseph Stiglitz, “Risk, Incentives, and Insurance: The Pure Theory of Moral Hazard” (1983) 8(26) The Geneva Papers on Risk and Insurance 4.
	
42
	Judge Frank Easterbrook, Burden-Meeks v Welch 319 F.3d 897 (2003), quoted in Omri Ben-Shahar and Kyle D. Logue, “How Insurance Substitutes for Regulation: Through private contracting, insurers monitor safety in ways that government can’t” (2013) 36(1) Regulation 36.
	
43
	Ben-Shahar and Logue, “How Insurance Substitutes for Regulation: Through private contracting, insurers monitor safety in ways that government can’t” (2013) 36(1) Regulation 36.
	
44
	Ben-Shahar and Logue, “How Insurance Substitutes for Regulation: Through private contracting, insurers monitor safety in ways that government can’t” (2013) 36(1) Regulation 36.
	
45
	Steven Shavell, “Minimum Asset Requirements and Compulsory Liability Insurance as Solutions to the Judgement-Proof Problem” (2005) 36 The RAND Journal of Economics 63. See also, Steven Shavell, “On Liability and Insurance” (1982) 13 Bell Journal of Economics 120; Steven Shavell, “On the Social Function and Regulation of Liability Insurance” (2000) 25 Geneva Papers on Risk and Insurance 166.
	
46
	See Ben-Shahar and Logue, “Outsourcing Regulation: How Insurance Reduces Moral Hazard” (2012) 11(2) Michigan Law Review 197.
	
47
	Tyler, Why People Obey the Law (1990).
	
48
	Caron Beaton-Wells and Christine Parker, “Justifying criminal sanctions for cartel conduct: a hard case” (2013) 1(1) Journal of Antitrust Enforcement 198.
	
49
	See the Competition Act 1998.
	
50
	Company Directors Disqualification Act 1986 s.9A.
	
51
	Enterprise Act 2013 s.188.
	
52
	Williamson, “Analysing the place of the Criminal Cartel Offence within the Regulatory Landscape of Anti-cartel Enforcement in the UK: more change needed?” (April 2019) PhD Thesis, Newcastle University, p.73.
	
53
	Jeremy Bentham, An Introduction to the Principles of Morals and Legislation (London: W. Pickering, 1823), p.399.
	
54
	Williamson, “Analysing the place of the Criminal Cartel Offence within the Regulatory Landscape of Anti-cartel Enforcement in the UK: more change needed?” (April 2019), p.73.
	
55
	Franklin Zimring and Gordon Hawkins, Deterrence: The Legal Threat in Crime Control (Chicago: University of Chicago Press, 1973).
	
56
	Williamson, “Analysing the place of the Criminal Cartel Offence within the Regulatory Landscape of Anti-cartel Enforcement in the UK: more change needed?” (April 2019), p.7.
	
57
	Williamson, “Analysing the place of the Criminal Cartel Offence within the Regulatory Landscape of Anti-cartel Enforcement in the UK: more change needed?” (April 2019), p.7.
	
58
	Cass R. Stein, Why Nudge? The Politics of Libertarian Paternalism (New Haven: Yale University Press, 2014), p.194.
	
59
	Williamson, “Analysing the place of the Criminal Cartel Offence within the Regulatory Landscape of Anti-cartel Enforcement in the UK: more change needed?” (April 2019), p.77.
	
60
	Sally S. Simpson and Nicole Leeper Piquero, “Low Self-Control, Organizational Theory and Corporate Crime” (2002) 36 Law & Society Review 509.
	
61
	Simpson and Leeper Piquero, “Low Self-Control, Organizational Theory and Corporate Crime” (2002) 36 Law & Society Review 509.
	
62
	Simpson and Leeper Piquero, “Low Self-Control, Organizational Theory and Corporate Crime” (2002) 36 Law & Society Review 509.
	
63
	Stein, Why Nudge? The Politics of Libertarian Paternalism (2014), p.194.
	
64
	Erika Kelton, “Everybody Does it: Convicted UBS Libor ‘Ringmaster’ Tells It Like It Is On Wall Street” (7 August 2015) forbes.com, https://www.forbes.com/sites/erikakelton/2015/08/07/everybody-does-it-convicted-ubs-libor-ringmaster-tells-it-like-it-is-on-wall-street/#748caee634b5 [Accessed 29 January 2021].
	
65
	Michael O’Kane, “Does prison work for cartelists?—The view from behind bars: An Interview of Bryan Allison by Michael O’Kane” (2011) 56(2) The Antitrust Bulletin 483.
	
66
	O’Kane, “Does prison work for cartelists?—The view from behind bars: An Interview of Bryan Allison by Michael O’Kane” (2011) 56(2) The Antitrust Bulletin 483.
	
67
	O’Kane, “Does prison work for cartelists?—The view from behind bars: An Interview of Bryan Allison by Michael O’Kane” (2011) 56(2) The Antitrust Bulletin 483.
	
68
	He also attributes his blasé attitude to the fact that he was an “at arm’s length” participant in the cartel as a result of the part played by Peter Whittle as the cartel coordinator. Wagner, “Tort Law and Liability Insurance” (2006) 31 The Geneva Papers on Risk and Insurance—Issues and Practice 277.
	
69
	Williamson, “Analysing the place of the Criminal Cartel Offence within the Regulatory Landscape of Anti-cartel Enforcement in the UK: more change needed?” (April 2019) PhD Thesis, Newcastle University, p.78.
	
70
	Simpson and Leeper Piquero, “Low Self-Control, Organizational Theory and Corporate Crime” (2002) 36 Law & Society Review 509.
	
71
	Talesh, “Insurance Companies as Corporate Regulators: The Good, The Bad, and The Ugly” (2017) 66(2) De Paul Law Review 463.
	
72
	This is classic utilitarianism as first articulated by Bentham in An Introduction to the Principles of Morals and Legislation (1823).
	
73
	ICM Unlimited, “Competition law research 2018: A report by ICM on behalf of the Competition and Markets Authority” (2018), https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/750149/icm_unlimited_cma_competition_law_research_2018.pdf [Accessed 29 January 2021].
	
74
	ICM Unlimited, “Competition law research 2018: A report by ICM on behalf of the Competition and Markets Authority”, p.18.
	
75
	ICM Unlimited, “Competition law research 2018: A report by ICM on behalf of the Competition and Markets Authority”, p.19. The survey also found however, “there has been a significant change in the proportion of businesses that have ‘never heard of competition law.’ Compared to 2014 when a fifth (20%) had never heard of competition law, this year only 16% were unaware of its existence or did not know”.
	
76
	ICM Unlimited, “Competition law research 2018: A report by ICM on behalf of the Competition and Markets Authority”.
	
77
	Rodger, “Competition Law Compliance: The CMA 2015 Study, Compliance Rationales and the Need for Increased Compliance Professionalism and Education” (2015) 36(10) E.C.L.R. 423.
	
78
	ICM Unlimited, “Competition law research 2018: A report by ICM on behalf of the Competition and Markets Authority”, p.32.
	
79
	ICM Unlimited, “Competition law research 2018: A report by ICM on behalf of the Competition and Markets Authority”, p.33.
	
80
	CMA enforcement is particularly high in the construction industry and the pharmaceuticals industry, for example. For a list of CMA cases, see “Competition and Markets Authority Cases” available at https://www.gov.uk/cma-cases [Accessed 29 January 2021].
	
81
	Sarah Downey, Amanda Wait and Lorelie Masters, “Optimizing Antitrust Coverage in Private Companies D&O Policies” (December 2018) huntonak.com, https://www.huntonak.com/images/content/5/5/v2/55411/Private-Co-D-O-Antitrust-Article-12-2018.pdf [Accessed 29 January 2021].
	
82
	Downey, Wait and Masters, “Optimizing Antitrust Coverage in Private Companies D&O Policies”.
	
83
	Emmanuel Combe, Constance Monnier and Renaud Legal, “Cartels: The Probability of Getting Caught in the European Union” (20 September 2007) ssrn.com, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1015061 [Accessed 29 January 2021].
	
84
	Peter L. Ormosi, “A Tip of the Iceberg? The Probability of Catching Cartels” (2014) 29(4) Journal of Applied Econometrics 549.
	
85
	In 2019 the CMA secured director disqualifications, criminal sanctions and a combined total of £43 million in fines against construction firms engaged in anti-competitive conduct.
	
86
	OECD, “Reducing the Risk of Policy Failure: Challenges for Regulatory Compliance” (2000), p.7, https://www.oecd.org/gov/regulatory-policy/46466287.pdf [Accessed 29 January 2021].
	
87
	OECD, “Reducing the Risk of Policy Failure: Challenges for Regulatory Compliance”, p.7.
	
88
	Williamson, “Analysing the place of the Criminal Cartel Offence within the Regulatory Landscape of Anti-cartel Enforcement in the UK: more change needed?” (April 2019) PhD Thesis, Newcastle University, p.79.
	
89
	The UK Competition and Markets Authority have stated that they may be willing to apply a reduction of up to 10 per cent if an undertaking can show that their compliance activities demonstrate “that adequate steps, appropriate to the size of the business concerned, have been taken to achieve a clear and unambiguous commitment to competition law compliance throughout the undertaking”. See CMA, “CMA’s guidance as to the appropriate amount of a penalty” CMA73 (18 April 2018), https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/700576/final_guidance_penalties.pdf [Accessed 29 January 2021]. Having previously implemented such a scheme for many years, in 2017 the French Competition Authority (L’Autorite de la Concurrence) repealed the 2012 Framework Document and stated that it would no longer award a reduction in fines for commitments to implement compliance programmes. See Clifford Chance, “Competition Compliance in France” (June 2019), https://www.lexology.com/library/detail.aspx?g=3b9729b5-fcee-429a-9c50-cfc5d300c764 [Accessed 29 January 2021]. For a fuller discussion of rewards for competition compliance programmes, see Wouter P.J. Wils, “Antitrust Compliance Programmes and Optimal Antitrust Enforcement” (2013) 1(1) Journal of Antitrust Enforcement 52; Damian Geradin, “Antitrust Compliance Programmes and Optimal Antitrust Enforcement: A Reply to Wouter Wils” (2013) 1(2) Journal of Antitrust Enforcement 325.
	
90
	Abraham, “Risk Aversion, Insurance Insurance, and the Limits of Regulation” (2015) 5(3) UC Irvine Law Review 513.
	
91
	Ben-Shahar and Logue, “How Insurance Substitutes for Regulation: Through private contracting, insurers monitor safety in ways that government can’t” (2013) 36(1) Regulation 36.
	
92
	Ben-Shahar and Logue, “How Insurance Substitutes for Regulation: Through private contracting, insurers monitor safety in ways that government can’t” (2013) 36(1) Regulation 36.
	
93
	Ben-Shahar and Logue, “How Insurance Substitutes for Regulation: Through private contracting, insurers monitor safety in ways that government can’t” (2013) 36(1) Regulation 36.
	
94
	For example, “the total amount of coverage that [DOI] are willing to provide is much less than the potential damages that could be awarded in securities class action involving egregious fraud. As a result, [DOI] protects public companies from what might be thought of as ordinary run-of-the-mill securities fraud but leaves them exposed to really serious cases”. Baker and Swedloff, “Regulation by Liability Insurance: From Auto to Lawyers Professional Liability” (2013) 60 UCLA. L. Rev. 442.
	
95
	Baker and Swedloff, “Regulation by Liability Insurance: From Auto to Lawyers Professional Liability” (2013) 60 UCLA. L. Rev. 442. The others are “risk-based pricing, underwriting, insurance contract design [and] claims management”.
	
96
	Baker and Swedloff, “Regulation by Liability Insurance: From Auto to Lawyers Professional Liability” (2013) 60 UCLA. L. Rev. 442.
	
97
	OECD, “Reducing the Risk of Policy Failure: Challenges for Regulatory Compliance”, p.8.
	
98
	Wouter P.J. Wils maintains, in the context of competition authorities rewarding competition compliance programmes, that “serious incentive problems would result. Because companies benefit from antitrust infringements engaged in by their employees, companies would have an incentive to encourage violations”. See Wils, “Antitrust Compliance Programmes and Optimal Antitrust Enforcement” (2013) 1(1) Journal of Antitrust Enforcement 52.
	
99
	Wils, “Antitrust Compliance Programmes and Optimal Antitrust Enforcement” (2013) 1(1) Journal of Antitrust Enforcement 52.
	
100
	Wils, “Antitrust Compliance Programmes and Optimal Antitrust Enforcement” (2013) 1(1) Journal of Antitrust Enforcement 52.
	
101
	OECD, “Reducing the Risk of Policy Failure: Challenges for Regulatory Compliance”, p.8.
	
102
	OECD, “Reducing the Risk of Policy Failure: Challenges for Regulatory Compliance”, p.8.
	
103
	OECD, “Reducing the Risk of Policy Failure: Challenges for Regulatory Compliance”, p.8.
	
104
	OECD, “Reducing the Risk of Policy Failure: Challenges for Regulatory Compliance”, p.8.
	
105
	Ben-Shahar and Logue, “Outsourcing Regulation: How Insurance Reduces Moral Hazard” (2012) 11(2) Michigan Law Review 197. See also Shavell, “Minimum Asset requirements and Compulsory Liability Insurance as Solution to the Judgment-Proof Problem” (2005) 36 RAND Journal of Economics 63; Shavell, “On the Social Function and Regulation of Liability Insurance” (2005) 25 Geneva Papers on Risk and Insurance 166.