20 February 2014

LMA responds to Competition Commission investigation into motor insurance

The Lloyd’s Market Association (LMA) has responded to the latest consultation from the Competition Commission, which examines potential remedies to the problems facing the UK motor insurance industry.

The consultation, issued on 17th December 2013, comes following comments from the Competition Commission that the UK’s motor insurance market was ‘not working well for motorists’.

Following consultation with members, especially the eight Lloyd’s syndicates currently writing UK motor insurance, the LMA was supportive and welcomed intervention. However, the Association stressed its view that this is a complex situation with no single straight forward solution.

The primary problem is the issue of the split between liability for costs and the control over those costs. Where policyholders contact their own insurer following an accident that was not their fault, their insurer will often manage the claim themselves, and then recover the cost from the insurer of the at-fault driver. Some non-fault insurers have exploited this opportunity to generate inflated bills for repair and hire cars, which the at-fault insurer is then obliged to pay.

David Powell, LMA’s underwriting manager said: “There are a number of potential solutions proposed by the Competition Commission, with two proposals provoking most discussion.

“The first remedy proposes introducing compulsory 1st party cover for replacement vehicles, so that both sides pay for their own replacement cars following an accident, regardless of fault. This could be complex to introduce, but would remove a layer of middlemen as customers would get hire cars from their own insurers. It would not, however, tackle the problems with inflated repair bills as non-fault insurers could still manage repairs, and inflate the cost for other insurers.

“The main alternative remedy is for claims to be referred directly to the at-fault insurer. This would be easier to introduce, and would solve the primary problem of non-fault insurers and other intermediaries manipulating costs. The main disadvantage is that this remedy risks leaving the customer in a worse position if they require immediate assistance - they could end up waiting for help whilst the at-fault insurer is identified.

The LMA made three main recommendations to the CC:

  • Further detailed discussion with insurers is necessary to produce a workable set of proposals.
  • However the CC chooses to proceed, a very broad prohibition of referral fees is necessary to remove a clear incentive for unnecessary cost inflation.
  • Given the urgent need for reform the CC should consider which changes could be introduced in the short-term, perhaps by industry Agreements or Enforcement Orders rather than changes to the law.

David Powell added “A fundamental question for motor insurers (and regulators) to consider is whether or not non-fault claims should be used to generate profits, or inflict inflated costs on competitors.”

Responses to the Competition Commission were submitted on 17th January 2014. The Competition Commission is expected to publish a response to feedback in March 2014 with final recommendations due in September 2014.

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Notes to Editors

For further information please contact:

James Milne, Communications Manager
Lloyd’s Market Association
T 0207 327 8405

Matthew Longbottom
T 020 7623 2368

About The Lloyd’s Market Association (LMA)

Formed in 2001 and located in the heart of the Lloyd’s Building in the City of London, the Lloyd's Market Association represents the interests of the Lloyd’s underwriting community. All underwriting businesses at Lloyd’s are members, together managing gross premium income of around £26 billion per annum.