The new Competition and Markets Authority (CMA) has outlined its proposals to increase competition and cut premiums in the car insurance market.
The car insurance market was referred to the CMA’s predecessor, the Competition Commission (CC), by the Office of Fair Trading in May 2012 for practices by insurers that have added £200 million per year to motorists’ premiums overall.
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Costs of repairs and replacement vehicles
The main problem identified by the OFT is that the insurer of a ‘not-at-fault’ driver involved in an accident can inflate the cost of providing repairs and replacement vehicles for the ‘at-fault’ driver’s insurer.
The CMA estimates the cost of this practice for consumers to be between £70 million and £180 million.
In its initial findings released in December 2013, the CC also suggested contracts between car insurers and price comparison sites were pushing up costs. And it criticised ambiguous selling tactics for ‘add-on’ products, such as breakdown cover and courtesy cars.
CMA proposes sweeping changes
The CMA has now proposed:
- A cap on the costs passed on to the ‘at-fault’ driver’s insurer for providing a replacement vehicle to the ‘not-at fault’ driver
- A ban on price parity agreements between price comparison sites and insurers which prevent insurers from selling their products elsewhere more cheaply
- Better information for consumers about their rights after an accident
- Better information for consumers about the cost and benefits of no-claims bonus protection
- A recommendation that the regulator, the Financial Conduct Authority, looks at insurers’ practices for selling other car insurance add-ons
Which? calls for greater transparency
Which? executive director Richard Lloyd said: ‘It’s good to see action to improve the car insurance market. Drivers need better information to put pressure on insurers to keep prices competitive. Insurers should be upfront about what customers paid previously so they can see if their premium has increased and encourage them to shop around for a better deal.’
James Dalton, head of motor for the Association of British Insurers, said: ‘The insurance industry has supported the CMA investigation from the start and we welcome the CMA’s proposals which, if implemented, will help to reduce some of the unnecessary costs that insurers face and help lower premiums for motorists.’
The CMA will consult on the proposals before publishing its final decision in September.