Car Insurance: Better Rules, Better Premiums?

The Competition and Markets Authority (CMA) has published new rules in an attempt to further reduce the cost of premiums in the UK’s £11 billion private motor insurance market. This was due to a study that commenced in 2012, following a referral from the Office of Fair Trading (OFT).

One of the key rulings, from the competition watchdog, is banning deals between price comparison websites and insurers, that stop insurers from making their products available cheaper elsewhere online, resulting in the price of insurance increasing for consumers.

Head_On_CollisionAlasdair Smith, Chairman of the private motor insurance investigation group at the CMA, 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 needs 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 site channels.
“We expect this to lead to greater competition between price comparison websites.”

The CMA also wants better information for consumers on the benefits and costs of their no-claims bonus protection.

However, it “reluctantly” ruled out a cap on replacement car and repair charges, although the average car insurance premium has increased because of this by £3 per year.

Premiums increase because the insurer of a driver, who was not to blame in an accident, arranges for a replacement car or repair, but the at-fault driver’s insurer foots the bill.

The CMA advised that addressing the issue would require a “fundamental change in the law” and that its research found the extent of the problem not as high as first envisaged. Therefore, to summarise, “It does not warrant such a radical measure.”

This has resulted in some criticism for “inaction” following the inquiry.

The Association of British Insurers (ABI) advised that it was “bad news for consumers” and that the watchdog had “ducked” the issue.

James Dalton, Head of the ABI’s motor insurance, advised, “Today’s CMA report is the culmination of three years of work and has cost taxpayers millions of pounds”.
“The fact that it fails to do anything to address the excessive cost of replacement vehicles – a problem that the CMA itself identified – will be a bitter pill to swallow for honest motorists.”

The British Insurance Brokers’ Association (BIBA) commented on the report, describing it as a “mixed bag.”

However, the AA went on to advise that the planned changes could actually reduce premiums by about £20 a year.

The measures follow wider efforts to reduce the cost to drivers, of personal injury claims and fraud, with premiums falling 19% in the last year alone, to a four-year low.