The private motor insurance market "is not working well for motorists", the Competition Commission (CC) has found, with price comparison websites singled out as partly to blame.
All drivers have experienced higher motor insurance premiums as a result of the "complex chain for the settlement of non-fault claims", which increases the costs of replacement cars and repairs, said the CC.
"In most cases, the party managing the accident claim (typically a non-fault insurer or intermediary) is not the party liable to pay the costs of the claim. There is insufficient incentive for insurers to keep costs down even though they are themselves on the receiving end of the problem," explained Alasdair Smith, chair of the CC's private motor insurance investigation group.
Non-fault claims occur when the insurer is able to recover the cost of the claim from another party.
Deals between price comparison sites and the insurers were identified as a further cause for concern.
"Price comparison websites lead to increased competition to the benefit of motorists, but clauses requiring the same price to be offered for an insurer's product across the market reduce competition," said Smith.
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He added that the CC is also concerned "about the quality of post-accident repairs because too many repairs are substandard" and that the sale of "add-on products" to premiums "makes it hard for customers to find the best-value products".
The Commission is now considering a range of "far-reaching reforms" to ensure that the market better serves customers.
One proposed change to the way insurers deal with price comparison sites could involve a ban on the so-called ‘most favoured nation' (MFN) clause in contracts that prevent comparison sites displaying cheaper deals than the insurer advertises directly.
Simon Douglas, director of AA Insurance, welcomed the CC's view of the price comparison site market and its criticism of the ‘most favoured nation' clauses but added a note of caution with regards to a blanket ban.
"Many insurers listed on price comparison sites will strip out benefits from their policies and increase excesses, in order to offer the lowest possible premium. Such benefits might include legal protection, windscreen cover, hire provision in the event of an accident or cover while driving outside the UK - and are then sold as add-ons to the customer.
"This can lead to confusion over whether a policy offers value for money. But, price comparison sites do on the whole, increase competition and help to keep premiums in check."