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Motor insurance premiums and services too costly

19 December 2013

The Competition Commission (CC) finds motor insurance premiums and services provided by companies too costly and aims to reduce these costs.

According to the CC, the chain of settlement for non-fault claims is complex and increases the cost of replacement cars and repairs, which is passed on to insurers of at-fault motorists, resulting in higher motor insurance premiums for all drivers. The CC estimates the extra premium costs to be between £150 million and £200 million a year.

The CC also found that following an accident, too many repairs are not completed to the required standard. Problems were also found with the sale of add-on products to consumers and with the contracts between price comparison websites and insurers.

It was found that consumers have limited information about ‘add-on’ insurance products while insurers have a point-of-sale advantage. As a result, it is difficult for consumers to identify the best-value offers in the market and add-ons may be priced too high. Additionally, the contracts between price comparison websites and insurers can require that individual insurers’ premiums are not offered more cheaply elsewhere. 

According to the CC, some forms of these so-called ‘most favoured nation’ (MFN) clauses may be necessary to ensure that price comparison websites can continue to provide a beneficial service; however it also added that ‘wide’ clauses requiring the same price across all price comparison websites reduces competition and leads to higher premiums. 

In order to address the issues raised by the CC’s findings, it has published a Notice of possible remedies outlining measures it could introduce or recommend to improve competition. 

This includes, tackling the problems associated with separation of cost control and liability either by making a driver’s own insurer responsible for providing a replacement vehicle or by giving at-fault insurers greater opportunity to take control over managing claims; caps on the costs of providing a replacement vehicle and on repair costs; compulsory audits of repair quality; better and more comprehensive information for customers when comparing add-ons both on price comparison websites and on insurers’ own websites; a prohibition on ‘wide’ price-parity (or MFN) clauses on price comparison websites; and improving claimants’ understanding of their legal entitlements in the event of an accident. 

The Office of Fair Trading referred the market to the CC for investigation in September 2012. The full version of the provisional findings will be published in due course and the CC is required to publish its final report by 27 September 2014. 

Any interested party can respond to the Notice of possible remedies by 17 January 2014 and provisional findings report by 7 February 2014.

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