Car insurance Updated:
There's no doubt that cheaper car insurance premiums would be welcomed with open arms by all motorists. A recent investigation by the Competition and Markets Authority (CMA) aimed to do just that, with measures designed to increase competition and reduce premiums being announced yesterday.
The investigation, carried out by an independent panel, discovered several areas where competition was being impeded and inefficiencies were causing artificially high prices.
A prime problem uncovered by the investigation was the "unclear" information provided to consumers during the sale of add-ons, such as no-claims bonus protection, which makes it more difficult for consumers to compare products. The CMA also criticised the existence of price parity contracts between some price comparison websites and insurers. These contracts essentially limit an insurer's ability to offer lower prices on different websites, thereby reducing competition and increasing car insurance premiums overall.
As a result, the CMA has recommended measures that tackle these key areas. To address the information gaps, it advocates the provision of more detailed information to the consumer about the costs and benefits of any add-on products. In addition, the CMA has also called for an investigation by the Financial Conduct Authority (FCA) into how insurers sell add-ons to ensure that consumers are being given all the details they need.
It also proposes that there is a ban on agreements between price comparison websites and insurers so that websites are encouraged to compete among one-another.
However, there was one area for which the CMA could find no solution. During the investigation, the panel raised the issue of 'cost separation' between the party that manages claims from motorists who are not at fault and the party handling the payment to that claimant. It was particularly critical of the high costs paid by at-fault insurers for temporary replacement cars, which were found to be artificially high.
Several options were reviewed to address this problem, such as capping the amount paid for a replacement vehicle or having the not-at-fault insurer providing the car, but such measures would require a change in the law.
Alasdair Smith, deputy panel chairman of the CMA, commented: "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 had to conclude that we cannot see an effective way of addressing this problem fully short of a fundamental change in the law and, while this problem does increase premiums… [it] does not warrant such a radical measure."
After hearing the outcome of the investigation, Graeme Trudgill, executive director of the British Insurance Brokers' Association (BIBA), largely agreed with the findings of the CMA, in particular the decision not to change the law: "The CMA has made a sensible decision in not proceeding with some potential remedies regarding making the innocent driver's insurer pay for their own temporary vehicle." He added that he also backed the call for clearer information to be given on add-on products, pledging to "raise awareness of the CMA's new wording" with members.
Steve White, BIBA's chief executive, also lauded the findings of the investigation. "We are pleased that the CMA listened to our concerns and are outlawing anti-competitive 'wide' most favoured nation (MFN) parity clauses as these are detrimental to customers," he said, however, he was also concerned that some of the measures do not go far enough to tackle anti-competition.
Hopefully, what this means is that car insurance premiums will start to reduce due to an increase in competition and clearer information, which will slim down your annual insurance costs. In the meantime, however, you can start trimming your car insurance bills now by shopping around. If your insurance is up for renewal, take some time to suss out the market and get some quotes using our insurance comparison tool.
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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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