Insurance costs

AA welcomes findings of CMA insurance market probe

The AA has welcomed changes to the private motor insurance sector proposed by the Competition & Markets Authority (CMA).

The AA has welcomed changes to the private motor insurance sector proposed by the Competition & Markets Authority (CMA).

The AA has welcomed changes to the private motor insurance sector proposed by the Competition & Markets Authority (CMA).

Simon Douglas, director of AA Insurance says that if the CMA’s proposals reduce premiums as they suggest, it will help to keep the high cost of owning and running a car in check. 

But, noting that Alasdair Smith, Chair of the private motor insurance investigation group said that motorists are ‘paying higher premiums as a result of the problems we found’,  Mr Douglas points out that other government reviews of car insurance over the past four years have already led to dramatic premium falls.

Record fall in car premiums

The first quarter of 2014 saw a record fall in car premiums, according to the benchmark AA British Insurance Premium Index.

Using a nationwide basket of risks, the Index shows that the average quoted ‘Shoparound’ premium fell by 5.6% over the quarter and 16.6% over 12 months, wiping £105 off the cost of a comprehensive policy which is now £531.

This shows that the industry is already responding to changes to the way that car insurance is sold and how claims are handled.  The CMA’s recommendations could, it’s estimated, wipe a further £20 or so off the average premium.

While we warmly welcome any measures that help to contain consumer costs, there remains considerable scope to reduce costs to a much greater extent by continuing to address the high burden still borne by car insurance customers of fraudulent whiplash claims, which was outside the remit of this inquiry.

Specific measures proposed

On the specific measures proposed, Mr Douglas says:

Replacement vehicle and other charges

“I welcome a cap on charges such as a hire car to the insurer of an at-fault driver.  Cost efficiencies will help to reduce overall costs, particularly for the at-fault insurer, which is good for motorists.”

Consumer rights

“The proposal to provide better information to drivers about their rights following an accident I believe the insurance industry is already embracing.  Ensuring consumers have a clear understanding will help to establish a greater measure of trust between insurers and drivers during the stressful time following a collision.”

‘Parity agreements’ between insurers and price comparison sites

“The measure to ensure that restrictions placed by price comparison sites on the prices charged on other sites are removed is welcome and should support competition. Price comparison sites charge insurers a fee for the sales they make and I believe that the CMA should have gone further by banning agreements that prevent insurers from offering cheaper premiums that those offered on comparison sites.  This would have had a much greater impact on reducing premiums for many customers and is a missed opportunity.”

Protected no-claim bonus

“Many customers enjoy the benefit of a protected no-claim bonus and insurers generally offer prices both with and without protection if they have a good claims record.  However, ensuring that clear information about how protection works, for example what happens if a claim is made with that protection in place, will help consumers in their decision making.” 

Add-on products

“Linked to the above proposal for more clarity on protected no-claim bonus is the suggested review of add-on products already being conducted by the Financial Conduct Authority (FCA), which is looking as how such add-ons are sold and priced. These can help to keep the basic cost of motor insurance down for all drivers and while offering useful additional benefits for those who want them.”

The specific measures are now out for consultation and the AA says that it will continue to co-operate with the CMA in reaching its final conclusions.

(13 June 2014)