CMA Propose Capped Pricing for Courtesy Cars as a Way to Lower Premiums

CMA Propose Capped Pricing for Courtesy Cars as a Way to Lower Premiums

The competition regulator has recommended that we slash the price of courtesy cars in insurance agreements, suggesting that we need to address a number of industry issues in order to bring premiums down.

Replacement vehicles cost consumers around £180m each year according to the Competition and Markets Authority (CMA).

Courtesy car costs are considerably higher if the replacement car is sourced from an outside firm, meaning that the consumer inevitably foots this bill. It is for this reason that the CMA want courtesy car charges regulated, feeling that the consumer can obtain a better deal if alterations were to be made to industry operations.

“There are over 25 million privately registered cars in the UK and we think these changes will benefit motorists who are currently paying higher premiums as a result of the problems we’ve found,” said Alasdair Smith, chair of the CMA private motor insurance investigation group.

Deals between price comparison websites and insurers called “price parity” agreements are also a cause for concern.

These deals stop insurers offering their products for low prices elsewhere, influencing the price of premiums to rise.

“We believe they [price comparison websites] are great in helping motorists look for the best deal, and this in turn has driven 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, whether on different price comparison sites or on other channels,” Mr Smith said.

Although this level of support undoubtedly overjoys consumers the insurers and brokers are not so thrilled, feeling that the regulators should step back and gain a bigger picture of how premium prices are arrived at.

Andrew Morrish, motor claims director for Aviva in the UK & Ireland, said:

“Aviva believes that there is additional cost that can be taken out of the system. We believe that the CMA have not tackled the fundamental issue of cost liability versus cost control. Notably absent is any meaningful reform covering non-fault vehicle repair, which leaves the door open for additional costs and referral fees to be added to the repair process. The at-fault insurer continues to have pay for these extra costs, despite having no control over how those costs are incurred. Ultimately, these costs impact customer premiums.

“Without control of repair costs and a ban on all referral fees, Aviva is concerned that costs may simply shift from one problem area to another, instead of being removed. With the intense focus on motor premiums and the pressure to continue their downward trend, we believe more can be done to reduce costs for the benefit of motorists’ premiums.“

Although a subject splitting opinion insurers and brokers are all claiming to want to lower the price of insurance premiums.

Simon Douglas, director of AA Insurance, said: “The CMA’s recommendations could, it’s estimated, wipe perhaps a further £20 or so off the average premium.”

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