CMA probe: Hire vehicle costs to be capped

The Competition and Markets Authority (CMA), formerly the Competition Commission, has announced a proposed cap on the cost of replacement vehicles in the event of a motor accident.

The CMA has also proposed a ban on most favoured nation clauses between aggregators and insurers that restrict policies being offered cheaper elsewhere.

Other major decisions to come out of today’s report include: better information for customers following an accident; better information on the costs and benefits of no claims bonus protection; and a recommendation that the FCA investigates further how insurers inform customers about motor add-on products.

Chair of the private motor insurance investigation group and CMA deputy panel chair Alasdair Smith said: “A cap on replacement vehicle costs will reduce the amounts charged to insurers of at-fault drivers, which will cut out some of the inefficiencies in the system and feed through to reduced premiums for all drivers. Through the measures we propose to introduce, we will address the problems that stem from those managing the non-fault accident claim having little or no incentive to keep costs down.

“There also need to be improvements to the way price comparison websites operate. We believe they are great in helping motorists look for the best deal, and this in turn has driven 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, whether on different price comparison sites or on other channels.”

The CMA has also revised its estimation of the cost to the consumer of inefficiencies in the market to between £70m and £180m.

This compares to an initial estimate of between £150m and £200m, although this was later revised down to between £120m and £155m after errors were identified in the calculations of the cost of credit hire.

In a boost for the insurance industry, the CMA has also confirmed that there is “insufficient evidence” that repairs performed on behalf of insurers are not of a high enough quality.

“Nevertheless, it observes that it is still concerned about the arrangements of many insurers for monitoring repair quality which appear to rely too much upon consumers identifying repair deficiencies,” it said in a written statement.

The proposed remedies are now open for consultation, and interested parties have until 5pm on Friday 4 July to respond. The CMA is asking anyone wishing to submit evidence to email email pmi@cma.gsi.gov.uk or write to:

Inquiry Manager
Private motor insurance market investigation
Competition and Markets Authority
Victoria House
Southampton Row
London
WC1B 4AD

More to follow.