Car insurance competition ruling

[hsenag]

As reported in the news, the Competition and Markets Authority has issued a provisional determination aimed at improving competition in the car insurance market

Two things struck me about the news story which was why I went to read the actual determination.

1. They're planning on stopping price comparison websites insisting that insurers provide their lowest prices on the website
2. They're planning on capping the cost of the temporary replacement cars people get following an accident in which they weren't at fault

1. seemed really bad in terms of consumer inconvenience, as if the proposal goes through we'll need to visit multiple price comparison sites to be sure of getting a good deal. However it does seem that there's a significant competitive problem in the market - price comparison websites are typcially getting a cut of about £50 on an insurance sale, which is quite a big chunk of a year's premium. In one case one site (MoneySupermarket) wanted to cut their commission in exchange for a matched cut in premium by the insurer on their site (I think the proposed cut was £10-15 x 2) but were unable to do so because the insurer would have had to offer the same resulting premium on another site, who were not offering to lower their commission.

So it seems this change will create some inconvenience but will be worthwhile overall - I hadn't realised how much we are (indirectly) paying for the price comparison sites.

2. also seemed rather strange as people are legally entitled to spend what they reasonably need to in order to put themselves in the same position as if the accident hadn't happened - i.e. hire an appropriate replacement car - but if they spend more than they need to then the other insurer wouldn't have to pay the extra. So on the face of it the proposal seemed to be at odds with the law.

It turns out that the proposal won't restrict how much individuals can claim directly if they arrange their own car hire etc. What it will restrict is the amount that claims management companies can charge if they follow their standard model of taking over the claim for the individual. It seems they have generally then been overcharging the insurers, leading to a lot of disagreements between the claims management companies and the insurers which themselves cost money to sort out.

The idea also seems quite neat in that it will provide an incentive for insurers to admit liability as quickly as possible - the claims management companies will be able to charge more if liability is left in doubt for several days.