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The Competition and Markets Authority (CMA) brings together the Competition Commission (CC) and the competition and certain consumer functions of the OFT. The CMA takes on its full powers and responsibilities on 1 April 2014.

CC seeks to reduce the cost of motor insurance

17 Dec 2013


The Competition Commission’s (CC) provisional findings on the £11 billion private motor insurance market have found that it is not working well for motorists and the CC is now looking at ways to reduce the cost of premiums.


The CC provisionally finds that the complex chain for the settlement of non-fault claims increases the costs of replacement cars and repairs which in turn is passed on to the insurers of at-fault motorists. This results in higher motor insurance premiums for all drivers.

The CC has also found that following an accident too many repairs are not completed to the required standard. Other provisional findings identify problems with the sale of add-on products to consumers and with the contracts between price comparison websites and insurers.

Alasdair Smith, CC Deputy Chairman and chair of the private motor insurance investigation group, said:

‘Our provisional view is 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. These costs are initially borne by the insurers of at-fault drivers, but they feed through into increased car insurance premiums for all drivers.

‘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.

‘We have concerns about the quality of post-accident repairs because too many repairs are substandard.

‘We also find that the way add-on insurance products are sold makes it hard for customers to find the best-value products.

‘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.

‘We are now considering a range of possible measures, some of them far-reaching reforms, to ensure that the market better serves the interests of customers.’

In its provisional findings, the CC has found that:

  • In many cases following an accident the insurer of the ‘non-fault’ driver (or a claims management company) arranges for a replacement car and repair, while the insurer of the ‘at-fault’ driver foots the bill. This separation of control and liability creates a chain of interactions which result in higher costs for replacement cars and for repairs being passed on to at-fault insurers. The CC estimates the extra premium costs to be between £150 million and £200 million a year.
  • Evidence shows that too many accident repairs are not carried out to the required standard.
  • Consumers have limited information about ‘add-on’ insurance products while insurers have a point-of-sale advantage. As a result, it is difficult for consumers to identify the best-value offers in the market and add-ons may be priced too high.
  • The contracts between price comparison websites and insurers can require that individual insurers’ premiums are not offered more cheaply elsewhere The CC considers that some forms of these so-called ‘most favoured nation’ (MFN) clauses may be necessary to ensure that price comparison websites can continue to provide a beneficial service. However, it believes that ‘wide’ clauses requiring the same price across all price comparison websites reduce competition and lead to higher premiums.

The CC has not considered personal injury claims, given recent changes such as the banning of referral fees for such claims and other changes proposed by the Ministry of Justice.

The CC has also published a Notice of possible remedies which outlines measures it could introduce or recommend to improve competition and address the issues it has identified, such as:

  • tackling the problems associated with separation of cost control and liability either by making a driver’s own insurer responsible for providing a replacement vehicle or by giving at-fault insurers greater opportunity to take control over managing claims;
  • caps on the costs of providing a replacement vehicle and on repair costs;
  • compulsory audits of repair quality;
  • better and more comprehensive information for customers when comparing add-ons both on price comparison websites and on insurers’ own websites;
  • a prohibition on ‘wide’ price-parity (or MFN) clauses on price comparison websites; and
  • improving claimants’ understanding of their legal entitlements in the event of an accident.

The CC has gathered evidence from more than 100 parties including multi-party hearings, individual hearings and written submissions. We have also conducted two consumer surveys and commissioned a post-accident repair assessment that was conducted by MSXI.

A summary of the provisional findings and Notice of possible remedies are now available on the private motor insurance home page on the CC’s website along with other information relating to the investigation. The full version of the provisional findings will be published in due course. The CC is required to publish its final report by 27 September 2014—the inquiry timetable (PDF, 28 Kb)  (also available on the website) sets out the remaining stages for the investigation.

Any interested party is invited to respond to the Notice of possible remedies by 17 January 2014 and provisional findings report by 7 February 2014.

To submit evidence, please email pmi@cc.gsi.gov.uk or write to:

Inquiry Manager
Private motor insurance market investigation
Competition Commission
Victoria House
Southampton Row
LONDON
WC1B 4AD

Notes for editors

1. The CC is an independent public body, which carries out investigations into mergers, markets and the regulated industries.

2. The members of the private motor insurance investigation group are: Alasdair Smith (Chairman of the Group and CC Deputy Chairman), Robin Aaronson, Roger Finbow, Stephen Oram, and Anthony Stern.

3. The Office of Fair Trading referred the market to the CC for investigation in September 2012. Under the Enterprise Act 2002, the Office of Fair Trading can make a market investigation reference to the CC if it has reasonable grounds for suspecting that competition for the supply or acquisition of certain goods or services is not working effectively.

4. In its inquiry, the CC is required to decide whether ‘any feature, or combination of features, of each relevant market prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the United Kingdom or a part of the United Kingdom’. If so, then there is an adverse effect on competition and the CC will also consider whether this is resulting in a detrimental effect on customers such as higher prices, lower quality or less choice of goods or services. The CC will then decide whether the CC should introduce remedies to tackle the adverse effect on competition or detrimental effect on customers or whether the CC should recommend action be taken by other bodies to remedy the adverse effects on competition, and if so, what actions or remedies should be taken. If the CC finds that there is no adverse effect on competition, the question of remedies will not arise.

5. The Enterprise Act 2002 requires the CC to consult the main parties on its proposed decisions and it will also publish notice of its provisional findings on the CC website as required by its rules. Full details on the CC’s guidelines for market investigation references (PDF, 2.7 Mb)  are available on the CC website.

6. Enquiries should be directed to Rory Taylor or Siobhan Allen or by ringing 020 7271 0242.