MyEG: From permit renewals to insurance agents

On 6 October 2015, the MyCC issued a proposed decision against MyEG for abusing its dominant position as a provider and manager of online foreign worker permit renewals.  The market that was being harmed was not the permit renewal one however, and instead the market for mandatory insurances foreign workers are legally required to subscribe to.  A proposed decision is akin to the MyCC informing an allegedly infringing party what the case against them is and what penalties the MyCC has in mind.  The party is then given some time to reply. This is the procedure prior to all actual decisions.

How MyEG became dominant

We’ll start with a little back story.

Back in January 2015, MyEG was appointed by the government as the sole operator of online databases for foreign workers.  Following the announcement, MyEG shares surged dramatically.

CIMB Research in a note said that it has raised MyEG’s target price from RM5.28 to RM7.80.

The Star

The fact that MyEG was handed the sole reigns of such a lucrative position was met with much criticism from both politicians and business groups.

The business community is extremely concerned that the government is setting up a bad precedence by compelling all employers into having to deal with a sole private entity on a mandatory basis, and having to pay exorbitant service charges, without the option of an alternative system…

Datuk Low, Secretary General of Chinese Chambers of Commerce.

While Datuk Low was wrong about this being against the Competition Act, he was right that MyEG became a monopoly overnight (which is not in itself illegal).  Business as usual in Malaysia.

MyCC’s case against MyEG

So how did a dominant position in the online permit renewal market lead to the MyCC investigating MyEG for harm in a different market, namely, insurance?  According to competition law principles, a dominant position in one market can be abused at the expense of competition in another related market.

As permit renewals and the subscription of the mandatory insurances come hand in hand, it is clear that the ability to do both is very convenient.  According to the proposed decision, MyEG acted as the agent for RHB Insurance Bhd, which sells the mandatory insurances.  By doing so, it harmed the level of competition in the selling of mandatory insurance policies.

In short, the MyCC’s case is that MyEG is abusing its dominant position as the provider of permit renewals to compete in the insurance selling market, specifically breaching Section 10(2)(d), “applying different conditions to equivalent transactions with other trading parties to the extent that may harm competition.” The ‘other trading parties’ in Section 10(2)(d) for this case refers to other insurance sellers.  By acting as the agent for [only?] RHB, MyEG is effectively excluding other insurance sellers.

Although the proposed decision takes the position that MyEG had harmed competition in the market for selling insurances, its statement that MyEG was itself competing raises the question as to who has been harmed: insurance agents, or insurance underwriters?

That the MyCC is likely also concerned about other the harm on other insurance agents is supported by the fact that besides a fine of RM307,200.00, the proposed decision requires that MyEG comply with the following remedies:

(i) terminate the existing agency agreement and to not enter into agency agreements of a similar nature; and

(ii) provide a gateway for other insurance sellers to compete at the same level.

with a daily penalty of Rm15,000.00 for non-compliance.

Effectively, MyEG must remove itself from acting as an agent for any other insurance underwriters.

After the proposed decision

Strangely, the focus seemed to centre around the fine of RM307,200.00.  Granted, for MyEG, that probably isn’t a very large sum.  In a filing with Bursa, MyEG commented that the fine was unlikely to hurt its earnings.

But what can probably hurt MyEG is if the remedies in the final decision remain the same, thereby MyEG can no longer act as an agent, and earn commissions.

MyEG currently earns RM35 for the FWPR [permit renewal] online transactions services and RM65 commission from selling mandatory foreign workers insurance annually.

CIMB Flash Note

Since the proposed decision, MyEG shares continue to rise.

Note: The facts are a little unclear.  The CIMB report indicates that MyEG works with 2-3 insurance companies, not just RHB.  In the proposed decision, only RHB is mentioned.

In addition, CIMB believes that if MyEG is to open up to all other insurance sellers, 50% would still use MyEG.  This is, of course, provided the first remedy that MyEG exits the insurance agent market does not stand.

Update 5 July 2016: The MyCC has since issued its final decision, fining MyEG a total of RM2,572,200, with the additional remedies of MyEG providing fair and competitive access to other insurance agents, but not disallowing MyEG from competing, as was in the proposed decision. The details in the final decision state that while MyEG did not make it compulsory for insurance buyers to purchase it from them, MyEG did made it more difficult to renew their foreign worker permits by not doing so, essentially creating dissimilar conditions for the same product.

MyEG is appealing the decision.

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Author: Mervyn Lai

Lawyer. Competition Law LLM (Distinction) University of Glasgow.

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