Report found poor understanding of consumer rights has led to higher annual premiums of up to £200m

‘Poor’ understanding by consumers over their rights following an accident is leading to higher insurance premiums of up to £200m, according to the Competition Commission (CC) probe into the motor market, published today.

The commission said this affected the ability of policyholders to enforce their legal entitlement under both the tort system and their own insurance policy.

Additionally, it has led to to a distortion of the market and an increase in premiums of between £150m and £200m.

This has prompted the CC to propose changes to insurance policy wordings to ‘enable’ consumers to enforce their legal entitlements.

Under tort the person who suffers loss as a result of another person’s negligence is entitled to be put back into ‘as good a position as he would have been if no wrong had occurred’.

In the report, it found that customers did not fully understand the separation of cost liability and cost control that arises from the insurer of the not at-fault driver managing the costs of the claim.

There were also significant limitations to the consumers’ ability to assess the quality of repairs, which were also not monitored effectively by insurers and claims management companies (CMCs).

This distorts competition between repairers to obtain business from insurers and can lead to consumers’ cars not being repaired to their pre-accident condition.

The commission is proposing that in the annual policy document, motor insurers will be required to set out the policyholder’s entitlement in the event of an accident.

Additionally, CMCs and any other first notification of loss party will have to inform the customer “more clearly” of their legal entitlement.

The information will be expected to include:

1. What happens when a claimant is at fault and what the basic legal entitlements are in each case (in relation to both repairs and replacements cars);

2. Whether a claimant claiming under their own insurance policy would have to pay an excess and/or would lose any no-claims bonus and how these can be recovered;

3. When a claimant is entitled to choose their own repairs and whether this affects their liability to pay an excess; and

4. What a claimant’s contractual rights are if the claimant is unsatisfied with the repairs carried out.

The commission is inviting responses to the changes to be submitted by 17 January 2014.

The commission is also considering making a recommendation that a small number of questions on the legal entitlements of at-fault and non-fault claimants in relation to insurance claims following an accident be included in the driving theory test.