The watchdog said a “complex chain” for the settlement of non-fault claims increased the costs of replacement cars and repairs which in turn are passed on to the insurers of at-fault motorists

The Commission’s review on the £11bn private motor insurance market also found issues with the standard of post-accident repairs and identified problems with the sale of add-on products and the contracts between price comparison websites and insurers.

It said the way add-on insurance products are sold makes it hard for customers to find the best-value products.

Alasdair Smith, CC Deputy Chairman and chair of the private motor insurance investigation group, said: “Our provisional view is that many drivers of the UK’s 25 million privately registered cars are footing the bill for unnecessary costs incurred during the claims process following an accident. These costs are initially borne by the insurers of at-fault drivers, but they feed through into increased car insurance premiums for all drivers.

“In most cases, the party managing the accident claim, typically a non-fault insurer or intermediary, is not the party liable to pay the costs of the claim. There is insufficient incentive for insurers to keep costs down even though they are themselves on the receiving end of the problem.

“We are now considering a range of possible measures, some of them far-reaching reforms, to ensure that the market better serves the interests of customers.”

The CC has also published a list of possible measures to improve competition and address the issues it has identified, such as:
• tackling the problems associated with separation of cost control and liability either by making a driver’s own insurer responsible for providing a replacement vehicle or by giving at-fault insurers greater opportunity to take control over managing claims;
• caps on the costs of providing a replacement vehicle and on repair costs;
• compulsory audits of repair quality;
• better and more comprehensive information for customers when comparing add-ons both on price comparison websites and on insurers’ own websites;
• a prohibition on ‘wide’ price-parity clauses on price comparison websites; and
• improving claimants’ understanding of their legal entitlements in the event of an accident.

James Dalton, head of motor at the Association of British Insurers, said:
“As an industry we remain absolutely committed to improving the car insurance market for hard-pressed motorists. We asked for the Commission’s inquiry into the market to help insurers continue the work we are already undertaking to remove costs that unnecessarily drive up car insurance premiums.

“So today’s possible remedies are a further step along the road to getting a market that enables insurers to deliver fully for consumers.”