The UK Competition and Markets Authority has today set out the changes it proposes to make in the private motor insurance market to increase competition and reduce the cost of premiums for UK motorists.

The proposed measures include:

• A cap on the charges passed to the insurer of an at-fault driver in an accident for the cost of providing a replacement vehicle to the non-fault driver, to more closely reflect the costs incurred and remove significant inefficiencies.
• Better information for consumers about their rights following an accident.
• A ban on price parity agreements between price comparison websites and insurers which stop insurers from making their products available to consumers elsewhere more cheaply.
• Better information for consumers on the costs and benefits of no-claims bonus protection.

The Competition and Markets Authority (CMA), which took over from the Competition Commission (CC) at the start of April 2014, will now consult on these measures before publishing the final decision of its independent group of members in September 2014.

In December 2013, the CC’s provisional findings report found that there was a significant difference between the costs incurred by at-fault insurers in providing a replacement vehicle and the costs charged to the at-fault insurer when the replacement vehicle was provided by others. The CC found that this difference had the effect ultimately of increasing the cost of private motor insurance to consumers.

At the time of its provisional findings report, the CC published a notice of possible remedies outlining potential measures in response to these problems and, following detailed discussions with a range of industry groups, the CMA has now identified what it considers will be the most effective actions to improve the market for motorists. Alasdair Smith, Chair of the private motor insurance investigation group and CMA Deputy Panel Chair, 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.”

The CMA has also published two working papers. The first contains a revised estimate of the costs to consumers which flow from the inefficiencies arising from the separation of cost liability and cost control in relation to the management of non-fault claims, estimated at between £70 million and £180 million per year.

The second working paper presents a revised assessment of the quality of post-accident repairs. The CMA concludes that there is insufficient evidence of a problem in relation to competition with post-accident repair quality for it to intervene. Nevertheless, it observes that it is still concerned about the arrangements of many insurers for monitoring repair quality which appear to rely too much upon consumers identifying repair deficiencies.

In effect the CMA has concluded that although it has concerns about insurers putting cost pressures on repairers leading to lower repair quality it found insufficient evidence of this to take further action. This will disappoint many repairers who had hoped that the report may take action to stop the repair cost squeeze on insurance work in the UK market.

There was some more positive news for non insurance approved repairers on the question of free consumer choice. The CMA has recommended that all drivers will be given a statement of consumer rights both with their policy and when making a claim. The recommended wording of this standard document includes the following statements; 

“You can choose to have your vehicle repaired by a repairer of your choice or by a repairer appointed by the company handling your claim.”

“You can require that replacement parts made by the original manufacturer
are used in the repair.”

It is also proposed that drivers would receive a Frequently Asked Questions sheet when making a claim and this would include;

“Can I choose who repairs my vehicle? If so, will I incur additional costs over and above my motor insurance policy excess if I do so.”

These measures should go some way to making drivers aware of their free choice of repairer after an accident.

Although these recommendations only apply to the UK market it would be hoped that as most of the UK insurance companies are also operating in Ireland any standard practices introduced after the September report may also apply here.