#car insurance comparison sites
Car insurance industry faces shakeup over price comparison websites
Exclusive deals between price comparison websites and insurers are to end. Photograph: Jochen Tack/Alamy
Exclusive car insurance deals made between price comparison websites and insurers will become a thing of the past after the UK competition regulator ruled that these were not doing drivers any favours and should be banned.
The ruling was one of a number of measures recommended by the Competition and Markets Authority in its final report into the 11bn private motor insurance market.
It said some price parity clauses in contracts between price comparison websites and motor insurers were preventing insurers from making their products available more cheaply on other online platforms. This, it said, had the effect of restricting competition and leading to higher car insurance premiums overall.
“There need to be improvements to the way price comparison websites operate,” said Alasdair Smith, chairman of the private motor insurance investigation group. “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.”
However, the report, which ends a two-year investigation by the Competition and Markets Authority (CMA) and its predecessor the Competition Commission fell short of the recommendations many had hoped for that might have had the biggest effect on driver’s premiums.
In an announcement of its interim findings earlier this year the CMA had said it wanted to cap the cost of a courtesy car following an accident. after finding there was often little incentive for insurers to keep this cost down due to a divide between who organises the courtesy car and who pays for it. The practice can add as much as 1,000 to the cost of a replacement car compared with the price an insurer would have paid if it had taken liability for the cost of the car hire itself.
However the CMA’s final report concluded that this was too complex to tackle. “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,” Smith said.
The Association of British Insurers condemned the lack of action. “The fact that the CMA report fails to do anything to address the excessive costs of replacement vehicles – a problem that the CMA itself identified – will be a bitter pill to swallow for honest motorists,” said James Dalton, ABI’s head of motor insurance. “Far from reducing the cost of car insurance, the CMA’s inaction simply entrenches the business models of some replacement vehicle providers who profit from inflating car hire charges at the consumer’s expense.”
The CMA said it will ensure drivers get better information about the costs and benefits of the add-ons they buy with their car insurance policy – in particular no claims bonus (NCB) protection.
An NCB typically entitles a driver to a 60% discount on their car insurance premium after five years, according to the Association of British Insurers – and so are greatly prized by motorists. However the policies that protect these bonuses, and are usually sold alongside a policy, are often misunderstood, the CMA said.
Its report found that 77% of the respondents to its customer survey thought they had a good understanding of NCB protection, yet 59% of those who claimed to understand it well wrongly thought it would prevent their premium going up as a result of a claim. The CMA concluded that drivers are paying a collective 120m a year for a product that may not offer them the protection they expect.
“The way motor insurance related add-on products are sold makes it hard for customers to obtain the best value,” Smith said. “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.”
The CMA measures are subject to a two-month appeal period but are expected to be implemented in early 2015.