UK car insurance market faces shake up. Premiums to drop?

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A lengthy investigation by the Competition and Markets Authority (CMA – the UK competition regulator) in to pricing deals between motor insurers and price comparison websites has now reported and stated that their exclusive deals are to be banned.  As a result of their investigation, the CMA has reported that such deals prevented insurers from making the same car insurance product available more cheaply elsewhere, thus often duping customers in to thinking that they have got the best deal possible, when they could have found the same cover elsewhere for a lower price if such deals didn’t exist.  However, in the same report, the CMA have decided against carrying forward a cap on replacement car and vehicle repair charges, which is a switch in stance as it had previously gone on record stating that it had favoured such a move.

The personal injury compensation claims sector will react with interest to this report as we’ve long been accused of responsibility for car insurance customers having to pay over the odds for car insurance. Insurers say we encourage road traffic accident compensation and claims for whiplash.  Thankfully, it seems that this report has found further evidence to counter the compensation culture myth that blames all the ills in the world of insurance at the foot of the compensation claims industry.  But now it seems that the insurers were willing to allow people to pay over-inflated prices in the interests of their own revenue streams.

Reacting to the announcements in the report, the AA has suggested that outlawing such exclusive agreements could reduce car insurance premiums by about £20 a year, although they have asked if such a long inquiry could be justified given it would make such a small difference to premiums.

Comparison Sites

To complete the report, the CMA studied the private motor insurance market, which is estimated to be worth a staggering £11bn per year since 2012.  This happened after a request for them to do so by the Office of Fair Trading (OFT). It is important to state that this inquiry is separate from recent changes made to personal injury compensation claims regarding claims for whiplash compensation and that personal injury compensation has nothing to do with the view of this report that the CMA believes a large proportion of the 26 million private motorists driving on the roads of the UK pay over-inflated prices for their insurance.

The extensive report states that it found most “price parity” deals between insurers and price comparison websites restricted competition and had a definite link to higher car insurance premiums as a result.  It is interesting to note that the demand for the best deal that comes from all consumers has led to more than 50% of car insurance sales being made through price comparison websites.  The CMA report states that as much as 90% of the sales were priced on the basis of price parity exclusive deals where the agreements between the insurers and the comparison website prevent the insurers from selling the same insurance policy at a cheaper price anywhere else.  The knock on effect of this was that it eventually raises the rate of the insurance premium people pay for their car insurance

In support of the comparison websites, the CMA state that they felt that comparison sites are helping people looking for car insurance to try and get the best deal, but that the clauses agreed with insurers restricted the ability of consumers to find the best deal.  It seems that the CMA feels that an end to such clauses will better enable motor insurance customers to properly check for the best deal available to them.  Hopefully, this will all be sorted in the favour of the motorist shortly as the CMA has issued an order that the price parity exclusive agreements should end by early 2015.  Although the changes have been largely welcomed by the Association of British Insurers (ABI), there could be a delay to the implementation if any appeal is made by insurance companies operating within the UK.

Courtesy cars

Courtesy cars – an issue that has been a problem within the UK car insurance sector for long time.  Anyone making a claim for personal injury compensation after suffering injuries in a road traffic accident will know what a troublesome issue obtaining a courtesy car can be.  With this in mind, the CMA also investigated this issue, but more regarding the costs charged rather than the availability of them to claimants.

The CMA report has decided against implementing a cap on charges for such products and their use at this time, but has asked the UK’s financial regulator, the Financial Conduct Authority (FCA), to investigate this matter, particularly how insurers advised consumers about add-on products to car insurance policies, their cost and how they are available if you are unfortunate enough to be involved in a road traffic accident.

The CMA rightly found that insurers make it difficult for people purchasing or comparing car insurance policies to work out what the best value for them is as motor insurance-related add-on products are sold in ways that are not always clear or easy to understand.

Relating to claims for road traffic accident compensation, the CMA report could not find a suitable way to change the problematic issue caused by high car hire or repair costs incurred by insurers in claims for the non-fault party in a claim after a road traffic accident. Car insurance premiums have increased dramatically over the years because insurers of a non-fault driver in an accident are allowed to organise a replacement car or vehicle repair during a claim, but charge the at-fault driver’s insurers for the costs.  This completely flies in the face of the blame for insurance premium rises being the fault of people making claims for injury compensation after a car accident.  All insurers take their chance to charge other insurers high costs for providing replacement cars, storing crashed vehicles or making repairs.  The costs that they charge are way over market rates and have clearly been a cash cow for the insurance sector.

The British Insurance Brokers’ Association (BIBA) has responded to this report as saying that the contents and outcome of the report is a “mixed bag”.  At Direct2Compensation, we welcome the report.  It sheds important light on the truth regarding the murky way in which the British Motor Insurance industry works in terms of pricing and revenue making.  For years, people making a claim for personal injury compensation such as whiplash after a road traffic accident have been questioned and blamed as responsible through the compensation culture for the costs of motor insurance rising.  However, we can now see through that myth and clarity is on the way.

What are your thoughts on buying car insurance? Have your premiums climbed without fair reason? Do you agree with this report that price parity comparison website deals should be banned? Make your feelings known by commenting on this article!

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