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

Comments

[anonymous]

Most of the price comparison sites are owned by groups of insurers anyway. -Art

[hsenag]

This point was sort of mentioned in the determination - but even the insurers that own price comparison sites were in favour of this change. One insurance broker that owns a site was against the change.

[jvvw]

I must be missing something but how does this encourage insurers to admit liability as quickly as possible? (as somebody who recently had to wait several months for a third part to admit liability over what should have been a very straightforward claim!)

[hsenag]

They're putting in a cap on the amount a claims management company can charge for car hire. There'll be a lower cap (say X) if liability is admitted within 3 days, and a higher one (they're suggesting 2X) otherwise. So there'll be a financial incentive for an insurance company to admit liability quickly if they think it likely that they will end up being liable.

[The full story is quite a bit more complicated, but that's the basic idea - see paras 2.76 onwards of the determination, page 2-22]

[jvvw]

Ah - I missed that bit. Yes that makes sense, even if quick admission of liability doesn't logically affect the actual cost, as things stand there doesn't seem to be any good reason for the liable party not to draw things out so introducing one is a good idea.

(My case was complicated I suspect by the fact that it was a commercial vehicle which dented my car so the driver wasn't the owner and I suspect feared losing his job if he admitted liability - so not sure if it would have helped there, but given that I have absolutely no idea what went on behind the scenes it's hard to tell!)

[hsenag]

I think part of the argument is that admitting liability late creates higher "frictional" costs - i.e. people end up incurring more costs or arguing over existing costs more because of the uncertainty.

I must admit I don't really understand how the existing market works even after reading the determination. It seems like claims management companies are willing to take the risk of their client not being found liable after all, and cover this risk by adding a markup to their prices so that the actual amount they charge the other side is higher than the true costs. I don't understand how, legally, they can recover that markup at all.