On the 12 June 2014, the UK Competition and Markets Authority (CMA) issued its provisional report and recommendations to combat competition concerns in the private motor insurance industry. The report and proposals follow initial examination of the industry by the CMA’s predecessor, the Competition Commission. The provisional report will send shockwaves through the insurance industry, perhaps most of all to price comparison sites whose method for receiving low prices looks under threat.
The CMA’s aim and that of the proposed remedies is to boost competition between insurers, lower insurance prices and increase consumer protection. One of the measures to help market entry for new companies and increase competition relates to insurance price comparison sites. Frequently, these websites use so-called ‘most favoured nation’ (MFN) or price parity/best price clauses between themselves and the insurers. The insurers agree that they will provide their best price to the comparison site and that this price will be lower than anywhere else. Whilst this may seem kind to consumers, the effect in practice is for this fixed price to become a minimum and exclusive price granted to one website. Other websites or insurance sellers are unable to match, or better it and the consumer is worse off as a result.
The use of these clauses also lowers the likelihood of consumers searching for deals, and in doing so precludes competition between other comparison website and insurers. The CMA’s provisional decision is to prohibit all MFN clauses and measures of equivalent effect, unless if ‘narrow’ (that is, if they only refer to a price cheaper than on a particular insurer’s own website). It is hoped that through this measure, market entry and competition will be improved and consumers will be encouraged to look around for more competitive rates.
Another major concern in the CMA’s report is the insufficient information available for consumers as to their rights. The CMA calls for more transparency, deeming the current consumer to have unsatisfactory and unclear information available to understand the insurance policy offered and what it provides for in a claim. The CMA is looking to introduce an enforcement order, after three months of which, insurers will have to provide:
- clearer information on consumer rights following an accident;
- the value and significance of a No Claims Bonus protection;
- how the discounts available through it work; and
- a simple FAQs and restatement of rights.
The CMA report also finds there is lack of control available to the at-fault drivers’ insurers for hire vehicles following repair of the other party’s vehicle. Currently, there is no effective system to ensure that the at-fault driver is not charged more than they ought to be for the hire of a car. The CMA proposes to address this lack of control by imposing a dual rate price cap on the provision of a temporary replacement vehicle with a prohibition on financial inducements to hire cars above normal rates and a requirement to not allow any hires beyond 24 hours after repairs.
Interested parties have until 4 July 2014 to provide input, with the final report due by 27 September 2014.