Cheaper car insurance premiums likely in shake up of ‘restrictive’ deals between insurers and price comparison sites

24th September 2014

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Car insurance premiums should fall as the competition authorities ban exclusive agreements between car insurers and online price comparison sites.

The Competition and Markets Authority is banning restrictive agreements which stop insurers from making their products available more cheaply on other online platforms.

The regulator is also demanding that better information is made available to consumers about the costs and benefits of no-claims bonus protection.

The CMA is also asking its sister regulator 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 following findings by the Competition and Markets Authority

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 survey found that the way different insurers interact to offer post accident services following a claim also pushes claims higher though only by around £3 a year.

The CMA 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 and the party which pays for those services, 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 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.

Alasdair Smith, chairman of the private motor insurance investigation group and CMA deputy panel chairman, says: “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.”

However some insurers have attacked the failure to bring in stronger measures surrounding replacement vehicles.

Andy Watson, CEO, Ageas UK says: “Today’s report is massively disappointing. The amount of time, money and effort invested in this investigation over an extended period of time raised the expectation of meaningful change, but the report has failed to deliver.  By not tackling excessive costs and charges for replacement vehicles now, the CMA has missed a big opportunity to prevent these practices and charges escalating in the future.  This could lead to higher premiums and is really bad news for consumers.”

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