Out-Law News 2 min. read

Courtesy cars and price comparison sites targeted by UK motor insurance market competition investigation

Capping the cost of courtesy cars and banning pricing agreements between price comparison websites (PCWs) and insurers are among measures proposed to improve competition in the UK private motor insurance market.

The proposals are contained in a report on provisional remedies by the new Competition and Markets Authority (CMA) after its predecessor, the Competition Commission (CC), found evidence of market practices that increased the cost of motor insurance to consumers. It will now consult on the proposals, which could also affect no-claims bonuses and 'add-on' insurance products, ahead of the expected publication of its final report in September.

"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," said Alasdair Smith, chair of the CMA's private motor insurance investigation group.

"A cap on replacement vehicle costs will reduce the amounts charged to insurers of at-fault drivers, which will cut out some of the inefficiencies in the system and feed through to reduced premiums for all drivers. Through the measures we propose to introduce, we will address the problems that stem from those managing the non-fault accident claim having little or no incentive to keep costs down. There also need to be improvements to the way price comparison websites operate," he said.

In its provisional report, published in December 2013, the CC found evidence of a "significant difference" between the cost to the insurers of at-fault drivers of providing a replacement vehicle themselves and the costs charged to the insurers of at-fault drivers when the replacement vehicle was provided by third parties. It also found evidence of competition problems in relation to post-accident repair quality.

Alongside its report on the "most effective" provisional remedies, the CMA published two working papers looking at these issues in more detail. It found that the provision of replacement vehicles to non-fault claimants cost consumers between £70 million and £180m a year through higher premiums, but that there was insufficient evidence of anti-competitive practices in relation to post-accident repairs. However, it did find that repair quality monitoring tended to rely too much on consumers identifying any defects after the repair had taken place.

The CMA has proposed to tackle this by capping the amount that could be passed to the insurer of the at-fault driver for the cost incurred by the insurer of the non-fault driver of providing a courtesy car. This cap, which would be set by a panel of independent assessors, would "more closely reflect the costs incurred and remove significant inefficiencies", the CMA said. It has ruled out passing responsibility for arranging a courtesy car for the non-fault driver from that driver's own insurer to the insurer of the at-fault driver, as suggested by the CC last year.

It has also proposed banning 'price parity' agreements between PCWs and insurers, which are entered into to stop insurers from making their products available to consumers elsewhere more cheaply. Smith said that although PCWs had "driven insurers to compete more intensely" by helping motorists look for the best deal, these clauses restricted the ability of insurers to price their products differently through other channels.

The CMA has also proposed that insurers provide better information to consumers about their rights following an accident; and about the costs and benefits of no-claims protection, which it said was "often unclear to customers". It could also request that the Financial Conduct Authority (FCA) carry out further work in relation to the way in which insurers inform consumers about add-on products sold alongside the motor insurance policy.

The CMA's investigation into the private motor insurance market has not looked at the effect that personal injury claims have on the cost of products. This issue has been subject to separate investigation and policy measures by the Ministry of Justice, such as the banning of referral fees for these claims.

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