Car Insurance Investigation concludes ñ ëPrice Parityí clauses between Price Comparison sites and Insurers to be ceased



Car Insurance Investigation concludes ñ ëPrice Parityí clauses between Price Comparison sites and Insurers to be ceased

Agreements based on interconnected goals struck between insurers and price comparison websites are to cease as the competition watchdog resolves that these deals are obstructing the natural flow of competition through the car insurance sector and thus costing drivers in the form of pricier premiums.

This development was outlined in the Competition and Markets Authorityís (CMA) final report on the private car insurance industry, and can be considered the most significant measure proposed to protect consumersí pockets.

At present, contractual accords made between motor insurers and price comparison websites prevent the former from advertising their products at cheaper prices through other channels of distribution. Due to these ëprice parityí stipulations, premiums are organically dragged up and this lack of competition cannot be allowed to prevail in the eyes of the CMA.

However, though there exists a tangible lack of competition within a market, the CMA acknowledged that price comparison websites are credible aids to consumers seeking the best deal, and for their value to be properly gauged reform is required to synthesize greater competition between the price comparison websites themselves.

Given that over 50% of all new car insurance transactions are conducted through price comparison websites, adherence to ëprice parityí clauses tie insurersí hands with regard to any varying product pricing they might want to advertise through other distribution channels.

ìThere need to be improvements to the way price comparison websites operate,î said Alasdair Smith, chairman of the private motor insurance investigation group.

ìThey 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 insurerís ability to price its products differently on different online channels. We expect this to lead to greater competition between price comparison websites.î

Ineffectual CMA Investigation

The CMAís investigation has taken nigh on 2 years now, and critics have slammed it for its perceived lack of palpable results in spite of its lengthy duration.

Having declared its intention in the earlier stages of the investigation to reduce the cost of courtesy cars, the CMA fell short of taking any meaningful action to address this issue. Insurers are under no obligation to drive down this heightened cost, and regulations were expected to simplify the process. However, the CMA expressed its reluctance to combat what it considers to be to complex a system.

He said: "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 and, whilst this problem does increase premiums for motorists, the extent of the problem is not as high as was at first envisaged and does not warrant such a radical measure.

"However, we do wish to challenge the benchmarks typically used in awards for non-fault replacement cars, which do not reflect the cost of the services provided and which we think should be lower."

James Dalton, the ABIís head of motor insurance, said: "Todayís CMA report is the culmination of three years of work and has cost taxpayers millions of pounds. The fact that the CMA report fails to do anything to address the excessive costs of replacement vehicles ñ a problem that the CMA itself identified ñ will be a bitter pill to swallow for honest motorists.î

ìFar from reducing the cost of car insurance, the CMAís inaction simply entrenches the business models of some replacement vehicle providers who profit from inflating car hire charges at the consumerís expense.î

However, the CMA has stressed the need for greater succinctness in the provision of information for consumers on car insurance add-ons, underlining the dearth in public knowledge over no claims bonuses. The CMA found that almost 60% of people believing themselves to be informed on the matter overestimated the effect their no claims bonus would have on their premium in the case of a claim. As such, the CMA prioritised the requirement for insurers to provide clearer, more concise information on the extras which accompany car insurance purchase.

As for the issues left unaddressed, the impetus has now been shifted from regulators and placed on policymakers to review their gravity and act accordingly. The other CMA processes are set to be effected in the early stages of 2015.

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