The Insurance Council of Australia (ICA) has rejected the Competition Policy Review’s recommendation on misuse of market power.

The review, led by Ian Harper, says the Competition and Consumer Act should be reframed to prohibit a corporation that has substantial market power from engaging in conduct that might substantially reduce competition.

It proposes an “effects test” to ensure this step does not inadvertently prevent genuine competition.

A court would have to consider whether the conduct could enhance efficiency, innovation, product quality or price, plus the extent to which competition might be reduced.

ICA remains strongly opposed to the effects test because of the difficulty in distinguishing between competitive and anti-competitive conduct, the council says in a submission to Treasury on the review’s final report.

“The proposal is likely to have a strong chilling impact on competition as companies seek to avoid lengthy and/or expensive litigation battles and repeated clearance or authorisation requests.”

ICA says any action by dominant businesses could mean they are accused of reducing competition.

Although businesses can apply to the Australian Competition and Consumer Commission for approval, this authorisation could take up to six months.

ICA says it supports the review’s recommendations as they apply to statutory insurance schemes.

If governments wish to be insurers of personal injury risk, they should compete on a level playing field with general insurers, it says.