CMA acts to reduce motor insurance costs
Measures to increase competition in the car insurance market and reduce the cost of premiums for drivers have been published by the Competition & Markets Authority.
The announcement came as the CMA released the final report of its investigation, conducted by an independent panel of members, into the private motor insurance market.
The measures include:
- a ban on agreements between price comparison websites and insurers which stop insurers from making their products available more cheaply on other online platforms;
- better information for consumers on the costs and benefits of no-claims bonus protection;
- a recommendation that the Financial Conduct Authority (FCA) looks at how insurers inform consumers about other products sold as add-ons to car insurance policies.
The CMA found that some contracts between price comparison websites and motor insurers prohibit insurers from making their products available more cheaply on other online platforms, which has the effect of restricting competition and leading to higher car insurance premiums overall.
Further, limited provision of information in the sale of add-on products to consumers makes it difficult for consumers to compare the costs and benefits of these products, with the sale of no-claims bonus protection giving rise to particular concerns.
The CMA has however admitted defeat in tackling industry practices over the provision of temporary replacement cars for not-at-fault drivers. It found that "cost separation" between the different insurers or claims management companies involved, combined with various practices in the industry, cause inefficiencies in the supply chain, leading to higher car insurance premiums, and in particular that the amount which at-fault insurers have to pay for temporary replacement cars is significantly more than the cost of provision – but concluded that there is no effective and proportionate remedy.
After investigating several possible options, such as having the not-at-fault driver’s insurance cover the cost of the replacement car, or capping the amount which could be recovered from an at-fault insurer, it found that these remedies would require a significant change in the law, which was not warranted since the problem caused an increase in the average premium of only £3 per year.
The CMA is, however, encouraging a reconsideration of the benchmarks used when making awards for damages in non-fault temporary replacement vehicle claims, as those currently used "appear both artificial and high", along with encouraging insurers to consider more readily providing insurance cover for a replacement car when their customer is not at fault, and the wider use of bilateral agreements and electronic solutions to bring down the costs of handling claims.
Alasdair Smith, chairman of the private motor insurance investigation group, said: "Reluctantly we have had to conclude that we cannot see an effective way of addressing this problem fully short of a fundamental change in the law and, whilst this problem does increase premiums for motorists, the extent of the problem is not as high as was at first envisaged and does not warrant such a radical measure. However, we do wish to challenge the benchmarks typically used in awards for non-fault replacement cars, which do not reflect the cost of the services provided and which we think should be lower."
The Association of British Insurers responded that the report was "the culmination of three years' work and has cost taxpayers millions of pounds. The fact that it fails to do anything to halt the excessive costs of replacement vehicles... will be a bitter pill to swallow for honest motorists".