Watchdog acts to put car premiums into reverse

The cost of replacement vehicles given to drivers after accidents is to be capped in an attempt to bring down motor insurance premiums.

Britain's competition watchdog claimed yesterday that the charges currently being passed on to insurers are costing consumers £180m a year, as it unveiled the latest pack of measures to reform the £11bn private motor insurance market.

Other proposals by the Competition and Markets Authority (CMA) include a ban on so-called price parity agreements between comparison websites and insurers. These prevent insurers from making their products available to consumers more cheaply elsewhere.

The CMA recommended the Financial Conduct Authority, the City regulator, looks further into the sale of add-on products alongside home and motor policies, credit cards and even holidays.

Despite all of this, prices have finally been falling in motor insurance. Premiums were down 5.6 per cent during the first quarter and 16.6 per cent over 12 months, wiping £105 off the average cost of a comprehensive policy, which now stands at £531, according to the AA.

This is partly due to increased competition among insurers. Simon Douglas, the director of the AA's insurance arm, said: "The CMA's recommendations could wipe perhaps a further £20 or so off the average premium."

He added: "There remains considerable scope to reduce costs to a much greater extent by continuing to address the high burden still borne by car insurance customers of fraudulent whiplash claims, which was outside the remit of this inquiry."

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