Changes proposed in bid to cut car insurance premiums
The Competition and Markets Authority has suggested a raft of measures that it believes could reduce car insurance premiums and increase competition in the sector.
The Competition and Markets Authority (CMA) has set out measures that it believes could cause a fall in the cost of car insurance, and increase competition in the sector.
These proposals include a cap on courtesy car charges and a ban on price agreements between price comparison websites and insurers.
The CMA has also recommended that the Financial Conduct Authority (FCA) investigates how insurers inform their customers about private motor insurance-related add-on products.
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Research findings
The CMA took over from the Competition Commission at the beginning of April 2014. The Competition Commission published provisional findings of an investigation into competitiveness in the private motor insurance market in December 2013, which the CMA are now following up on.
The findings showed that there was a “significant difference” between the costs incurred by the insurers of at-fault insurers when providing replacement vehicles, and when that courtesy car was provided by others. This discrepancy meant premiums costed more than necessary.
It also found that there was limited information for customers in the sale of add-on products, which made it difficult to compare deals.
Meanwhile, price parity deals between price comparison websites and insurers, where insurers had agreed not to price their policies differently elsewhere, had the effect of “suppressing competition” on price, and were also likely to lead to increased insurance premiums.
The proposed changes
The CMA has called for:
- a cap on the charges passed from insurers to at-fault drivers for the cost of providing a replacement vehicle;
- better information on drivers' rights following an accident;
- a ban on price agreements between comparison sites and insurers;
- better information on the costs and benefits of no-claims bonus protection;
- the FCA to look at how insurers inform customers about motor insurance add-on products.
Alasdair Smith, Chair of the private motor insurance investigation group, said that the changes would “benefit motorists who are currently paying higher premiums as a result of the problems we’ve found”.
The CMA is required to publish its final report on its current investigation by 27th September 2014.
Industry response
James Dalton, Head of Motor Insurance at The Association of British Insurers (ABI), said that “the insurance industry has supported the CMA investigation from the start and we welcome the CMA’s proposals.” The ABI will continue to work with the CMA and FCA to keep premiums down and make sure that insurers deliver the best possible service to UK motorists, he added.
The AA pointed out that Government reviews over the past four years have resulted in “dramatic” premium reductions, and the first quarter of 2014 saw a record fall in prices, according to the AA British Insurance Premium Index.
The CMA’s recommendations could wipe an estimated £20 further off the average premium, said Simon Douglas, director of AA Insurance. But he also said that scope remained to reduce costs further by continuing “to address the high burden” of fraudsters, which was outside the remit of the inquiry.
Andy Watson, CEO of Ageas UK, said that “eradicating all unnecessary cost, coupled with better information for consumers is a good thing” but that the CMA should ensure that cost is not “simply inflated elsewhere in the market” to make up for shortfalls in revenue.
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