A new report on anti-competitive practices in the car insurance market does not go nearly far enough in protecting consumers, says leading law firm Thompsons Solicitors.
The Competition and Markets Authority, which spent two years investigating the car insurance industry, has published measures it says will increase competition and reduce the cost of premiums for drivers.
The CMA says pricing agreements between motor insurers and price comparison websites should be banned on the grounds that they stifle competition and stop insurers from making their products available more cheaply on other online platforms.
The watchdog also recommends - but goes no further - that consumers should be provided with “better information” about no-claims bonus protection and found that products sold as 'bolt-ons' to motorists are offered with inadequate information meaning consumers are unable to make an informed decision about the real costs and benefits. It is asking the Financial Conduct Authority to look into these practices further.
Weaker still, the CMA has rowed back on implementing a cap on replacement car and repair charges, claiming there is no effective remedy within the current legal framework – despite finding that this practice can increase the cost of a non-fault repair to the non-fault insurer by up to around £270.
Nothing to break the stranglehold
Responding to the report, Thompsons Solicitors argues that, while it is positive that the CMA has gone some way down the road followed by the Transport Select Committee, who described the car insurance market as “dysfunctional”, its recommendations ultimately do nothing to break the stranglehold that a handful of insurers have over consumers in a compulsory market.
Tinkering at the edges
Tom Jones, head of policy at Thompsons comments: “One ban - with no detail - and one recommendation that they are kicking into the long grass will be dressed up as tough action when it is nothing of the sort. The insurance industry will no doubt pretend they are devastated when frankly this doesn't put their feet to the fire - it's a tickle with a feather duster.
“The CMA has confirmed the market is failing consumers, but their investigation only tinkers at the edges of the issue. And their final report fails any test of openness or consumer interest by redacting significant pieces of text – presumably to protect the commercial interests of those in the industry they are meant to be the independent assessors of.
“The car insurance market is dominated by a few hugely powerful insurance firms, it's a lobby that holds major influence over the current Tory-led government.
“Major insurers are consistently making huge profits from this captive market and then making massive dividend payments to shareholders. But all the consumer hears is a constant complaint about their being the victims of a difficult commercial environment, about ‘fraud’ – never properly defined - and a so-called compensation culture which, despite three government reports, has never been substantiated.
Worse still, some big insurers like AVIVA and AXA fail to even report how much money they make from their motor insurance customers, despite international reporting standards requiring them to do so.
Market needs comprehensive investigation
“With a captive market, any pressure to reduce premiums being deflected by lots of noise about fraud and a so-called ‘compensation culture’, money to be made from keeping panel law firms reliant on you for work, money from repair companies and before-the-event insurance, and kick-backs throughout the process, insurers are winning every which way while the consumer and the accident victim lose out.
The government and the regulators need to conduct a comprehensive investigation into the motor insurance market and start putting the consumer first by clamping down on profiteering, enforcing a reduction in premiums, and making the industry fully transparent.”
For more information on the motor insurance industry, click here to read Thompsons’ car insurance ‘Tracker’.
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