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Car Insurers Face Major Market Overhaul

The UK’s market regulator, the Competition and Markets Authority (CMA), has warned the insurance industry that it faces a crackdown on some unacceptable industry practices.

One such area is the practice of agreeing exclusive pricing agreements between the big price-comparison websites and major motor insurers. According to the CMA, such contracts are working against competition, preventing those insurers from offering cheaper deals on their policies elsewhere. The CMA has, however, softened an earlier demand that replacement car and repair charges be capped.


Some motoring organisations have criticised the CMA for the time taken to conduct this enquiry into the car insurance industry and the relative inaction from the regulatory body since it has been completed. It is thought that the changes the CMA imposes could cut around £20 per annum from the average car insurance policy, but the AA has questioned whether this sort of saving justified such a long enquiry.


The CMA’s investigation was prompted by a referral from the Office of Fair Trading (OFT) and is separate from the new rules brought in regarding whiplash claims. The motor insurance industry is worth more than £11 billion, and the OFT believes that many of the UK’s 26 million motorists could be paying too much for their car insurance. The CMA research confirmed that the so-called price-parity agreements between insurers and price-comparison websites were responsible for a restriction of competition and an overall increase in the cost of car insurance. The price-comparison websites have rapidly become a major force in the market, and more than 50% of current motor insurance policies are bought on such sites. More than 90% of these policies were priced by using one of the price-parity deals.


These deals have exclusivity clauses that prevent the insurer from offering cheaper policies elsewhere, and the CMA found that this ultimately has the effect of inflating prices. Alasdair Smith, deputy panel chairman of the CMA, said: "These price-parity deals certainly help motorists find a better deal, but we want to bring to an end the clauses which restrict the insurer's right to price its policies differently on other market channels."


The CMA has therefore ordered the industry to stop such practices in a move that has been welcomed by the ABI (Association of British Insurers). The new rules are expected to come into force early in 2015, but the industry and comparison websites do have the right to appeal. The new regulations do not change the practice that means the prices quoted on an insurer’s own website cannot be cheaper than those on a price-comparison site.


The CMA’s report also looked at the way the car insurance industry handles policy add-ons, such as courtesy vehicles and no-claims bonus arrangements. It has recommended to the Financial Conduct Authority that it investigate how insurers tell their customers about these add-ons. Mr Smith explained: "The way the motor insurance industry sells related add-on products within a policy makes it difficult for motorists to obtain best value in a policy. We are going to be requiring insurers to provide clearer information to consumers."


According to the CMA, the area of no-claims protection is extremely difficult, as neither the benefits of the product nor the price are easily understood by customers.


The regulator admitted that it had not found a method of combating the issue of expensive car hire and inflated repair costs charged when a driver is not at fault in the event of an accident. These costs are falsely hiked because the bill is passed on to the insurer of the at-fault driver, so the insurer of the not-at-fault driver has no commercial reason to gain a better deal. According to the CMA, however, tackling these practices would require a change to the law, and the savings of just £3 per annum per policy did not justify such a move. This decision was welcomed by the hire-car body, the Credit Hire Organisation, but the Association of British Insurers condemned it as inaction on behalf of the CMA that would leave motorists out of pocket and inflate the profits of the car-hire companies.

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