A watchdog will set out today what steps it proposes to take to improve competition in the £11 billion private motor insurance market.
Last December, the Competition Commission said that competition is not working well for motorists and that “many” drivers of the UK’s 25 million privately-registered cars are footing the bill for unnecessary costs incurred during the claims process following an accident.
The Competition and Markets Authority (CMA), which superseded the Commission earlier this year, has taken on its caseload and will today outline the measures which it proposes to include in its final report, to be published later this year.
The Commission said previously that it was considering “far-reaching” reforms to ensure that the market serves consumers’ interests better.
It found that the “complex chain” of claim costs following an accident collectively inflates premiums by as much as £200 million a year.
In many cases following an accident, the insurer of the “non-fault” driver arranges for a replacement car and repair, while the insurer of the “at-fault” driver foots the bill.
It is this separation of control and liability which ramps up the bill, the Commission found. It said there is “insufficient incentive” for insurers to keep the costs down.
While the costs are initially faced by the insurers of at-fault drivers, they eventually feed through into extra premium costs for all motorists.
The Commission suggested last December that a possible remedy could be to give the insurers of at-fault drivers a greater opportunity to take control of managing claims.
Other possible remedies which have previously been mooted include capping the cost of providing replacement vehicles and carrying out repairs and also compulsory audits of repair quality, after the Commission found that too many repairs are not up to standard.
Further problems were found with sales of add-on insurance products to consumers, with the Commission finding it is hard for consumers to work out the best-value offers in the market.
It also highlighted concerns that contracts between price comparison websites and insurers can require that an individual insurer’s premiums are not offered more cheaply elsewhere.
James Dalton, head of motor for the Association of British Insurers (ABI), said last December: ”As an industry we remain absolutely committed to improving the car insurance market for hard-pressed motorists.
”We asked for the commission’s inquiry into the market to help insurers continue the work we are already undertaking to remove costs that unnecessarily drive up car insurance premiums.”
The market was referred for a competition probe by the Office of Fair Trading (OFT) in 2012, after it found that: “The insurers of at-fault drivers appear to have little control over the bills they must pay, and this may be leading to higher costs for them and ultimately higher premiums for motorists.”