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LONDON (Alliance News) - The UK Competition and Markets Authority on Wednesday said it has finalised measures it expects to result in increased competition in the car insurance market and reduced premium costs for drivers, but motoring organisation AA PLC, which also acts as a car insurance broker, questioned whether the findings and remedies justified the scale of the enquiry.
The CMA's measures include a ban on agreements between price comparison websites and insurers which stop insurers from making their products available more cheaply on other online platforms. Other measures include providing better information for consumers on the costs and benefits of no-claims bonus protection. It also wants the Financial Conduct Authority to look into how insurers inform consumers about other products sold as add-ons to car insurance policies.
Janet Connor, managing director of AA Insurance, welcomed measures that help to contain consumer costs and improve transparency, but said there is much greater scope to reduce costs by tackling insurance fraud.
"Attempts to exaggerate or make false whiplash injury claims cost up to GBP90 per policy," Connor said, citing Association of British Insurers statistics. "This remains a considerable burden on insurance companies but it was outside the remit of this enquiry," Connor said.
"The UK motor insurance market is highly competitive and, while some aspects of the market needed change, I would question whether a full competition investigation was the most effective way of addressing this; and to what extent customers will benefit in the long run," Connor added.
Murray Raisbeck, insurance partner at KPMG, said the measures will "undoubtedly" attract a mixed response from firms across the industry.
"The biggest, albeit expected, change is the ban on aggregators restricting insurance firms pricing more cheaply from on other channels. This will be a sigh of relief for many insurers, at a time when, due to price comparison services, purchase decisions are increasingly being made purely based on price, as opposed to the insurers' brand or product features," Raisbeck said.
"In the short term, aggregators are likely to continue benefiting from their brand presence and customer reach. The challenge in the long-term, will be ensuring that their model remains relevant as some insurers may choose a more direct route to market. Having said that, the aggregators were focussed on this before the CMA announcement today," the KPMG insurance partner added.
The CMA's investigation into private motor insurance focused on issues related to competition. It did not consider personal injury claims in its investigation, as the Ministry of Justice had recently made significant changes in the area, including the banning of referral fees for injury claims, and was considering other changes.
Alasdair Smith, chairman of the private motor insurance investigation group and CMA deputy panel chairman, said he thinks the changes will benefit motorists who are paying higher premiums due to the problems identified under the investigation.
"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 which 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," Smith said.
His comments around the removal of clauses from some price comparison website contracts were supported by Moneysupermarket.com Group PLC Chief Executive Peter Plumb, who said the move will help bring car insurance prices down. He said that Moneysupermarket.com is not one of the price comparison websites that uses such clauses.
Smith also said that the way motor-insurance-related add-on products are sold makes it hard for customers 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. We would also like the FCA, as part of its ongoing work on insurance add-ons, to consider how drivers could be better informed in making their choices," Smith added.
However, the CMA also said it was unable to find an effective way of resolving the problem with the cost of post-accident services to drivers who are not at fault in an accident, in particular temporary replacement cars.
"Reluctantly we have had to conclude that we cannot see an effective way of addressing this problem fully short of a fundamental change in the law and, whilst this problem does increase premiums for motorists, the extent of the problem is not as high as was at first envisaged and does not warrant such a radical measure. However, we do wish to challenge the benchmarks typically used in awards for non-fault replacement cars, which do not reflect the cost of the services provided and which we think should be lower," Smith said.
KPMG's Murray Raisbeck said the conclusion that the claims supply chain is too complex to fix without a huge legal overhaul will be "the biggest disappointment for many".
"Intermediated insurers in particular have very little control over 'at fault' claims costs and will be disappointed by the outcome. On the other hand, credit hire businesses will welcome the outcome," Raisbeck said.
The investigation found that a significant change in the law was not warranted because the problem "caused an increase in the average premium of only GBP3 per year", the CMA said.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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