CMA finalises changes for car insurance
The CMA has published measures it expects to increase competition in the car insurance market and reduce the cost of premiums for drivers.
The measures are included in 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
These measures are in response to the Competition and Markets Authority (CMA) finding that:
some price parity clauses in contracts between price comparison websites and motor insurers prohibit insurers from making their products available more cheaply on other online platforms, with the effect of restricting competition and leading to higher car insurance premiums overall
the limited provision of information in the sale of motor insurance 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 also found that ‘cost separation’ between the party which typically manages the provision of post-accident services to claimants who are not at fault in an accident (eg the claimant’s insurer or a claims management company) and the party which pays for those services (ie the insurer of the at-fault driver), in combination with various practices in the industry, cause inefficiencies in the supply chain, leading to higher car insurance premiums. In particular, it found that the amount which at-fault insurers have to pay for temporary replacement cars provided to not-at-fault claimants is significantly more than the cost of providing these services.
However, having looked closely at possible remedies to address the problem, the CMA has concluded that there is no effective and proportionate remedy. The CMA investigated 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, but 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 some action by those with the ability to make the market work better within the existing legal framework. This includes a reconsideration of the benchmarks used when making awards for damages in non-fault temporary replacement vehicle claims as the benchmarks used currently appear both artificial and high. It is also encouraging insurers to consider more readily providing insurance cover for a replacement car when their customer is not at fault in an accident, whilst ensuring that claimants’ legal rights are preserved; and encouraging both insurers and the providers of vehicles to consider 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 and CMA Deputy Panel Chairman, said:
There are over 25 million privately registered cars in the UK and we think these changes will benefit motorists who are currently paying higher premiums as a result of the problems we’ve found.
There need to be improvements to the way price comparison websites operate. They certainly help motorists look for the best deal, and this in turn has led insurers to compete more intensely, but we want to see an end to clauses which restrict an insurer’s ability to price its products differently on different online channels. We expect this to lead to greater competition between price comparison websites.
The way motor-insurance-related add-on products are sold makes it hard for customers to obtain the best value. There are particular problems in relation to no-claims-bonus protection, where both the price of this product and its benefits are often unclear to consumers, and we are requiring insurers to provide much better information. We would also like the FCA, as part of its ongoing work on insurance add-ons, to consider how drivers could be better informed in making their choices.
We have looked very hard at resolving the problem with the cost of post-accident services to drivers who are not at fault in an accident, in particular temporary replacement cars. 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.