Revamp of car insurance market to benefit consumers
The Competition and Markets Authority (CMA) is to outlaw the practice that allows price comparison websites to tie-in car insurers so they cannot offer their products more cheaply on other online platforms.
In a wide-ranging review of the car insurance market, the CMA said it will also demand better information for consumers on the costs and benefits of "no-claims bonus protection", adding that current practices were restricting competition and leading to higher premiums for customers.
It said it will also urge the regulator - the Financial Conduct Authority - to investigate how consumers are flogged other "add-on" products by insurers.
Alasdair Smith, chairman of the private motor insurance investigation group and CMA deputy panel chairman, 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.
"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 that 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."
He said the way add-on products are sold to customers buying car insurance makes it hard for them 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," Smith added.
The Office of Fair Trading referred the motor insurance market to the Competition Commission (whose responsibilities were transferred to the CMA on 1 April 2014) in September 2012. The CMA continued those investigations, including speaking to 150 insurers and interested parties.
Rob Townend, Aviva's UK General Insurance Claims Director, said: "Aviva is pleased that the CMA has decided to enhance the competitiveness of the UK motor market by banning agreements which restrict insurers from making their products available more cheaply elsewhere.
"However, the CMA's final report lacks any meaningful step change to reform poor market claims practices which would reduce the cost of motor insurance and improve outcomes for Britain's motorists.
"We also believe the CMA should have recommended a comprehensive ban on referral fees, which add around £200 million to premiums. As the CMA decided against this, and did not tackle the issues driving excess cost into motor insurance, we strongly urge the Government and Law Commission to push for further reform of the motor claims market. In addition to looking at the issues around credit hire and referral fees, we are talking to Government about how to best compensate minor, short-term whiplash injuries."
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.