Competition & Markets Authority
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CMA finalises changes for car insurance

The CMA has today 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.


Notes for editors

  1. The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law. From 1 April 2014 it took over the functions of the Competition Commission (CC) and the competition and certain consumer functions of the Office of Fair Trading (OFT), pursuant to the Enterprise and Regulatory Reform Act 2013.
  2. The OFT referred the private motor insurance market to the CC for investigation in September 2012, and the CMA took over this case from the CC at the start of April 2014.
  3. The members of the private motor insurance investigation group were:Alasdair Smith (Chairman of the Group and CMA Deputy Panel Chairman), Robin AaronsonRoger FinbowStephen Oram and Anthony Stern.
  4. The CMA’s investigation into private motor insurance focused on issues related to competition. The CMA did not consider personal injury claims in its investigation as the Ministry of Justice had recently made significant changes in this area, including the banning of referral fees for injury claims, and was considering other changes.
  5. The CMA gathered evidence from more than 150 parties, including through multi-party hearings, individual hearings and written submissions. It also commissioned 2 consumer surveys, some focus-group market research and a post-accident repair assessment.
  6. The final report and all other information on the investigation are now available on the private motor insurance case page.
  7. All the CMA’s functions in market investigations are performed by inquiry groups chosen from the CMA’s panel members. In such investigations, the appointed inquiry group are the decision-makers.
  8. The CMA’s panel members come from a variety of backgrounds, including economics, law, accountancy and/or business. The membership of an inquiry group usually reflects a mix of expertise and experience (including industry experience).
  9. Enquiries should be directed to or by ringing 020 3738 6798 or 020 3738 6460.
  10. For information on the CMA see our homepage, or follow us on Twitter@CMAgovukFlickr and LinkedIn. For CMA case updates sign up to our daily email alerts
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