29 July 2014

LMA disappointed by CMA’s plan to reform private motor insurance

Proposals by the Competition and Markets Authority (CMA) to reform the private motor insurance market, specifically the cost of hire cars after an accident, have been labelled as ‘disappointing’ by the Lloyd’s Market Association (LMA).

In its response to the CMA consultation, the LMA said that the proposed changes were ‘workable’ but failed to address key issues and represented only ‘minor changes to the system of providing replacement vehicles and managing vehicle repairs now in place’.

Specifically, the LMA argued that:

  • The proposals allow credit hire firms to retain a primary role in the provision of replacement vehicles; as the credit hire firms operate business models that are contrary to those of at-fault insurers, it is unlikely that any significant savings for customers will be created.
  • The  problem of the separation of cost control and cost liability has not been addressed. In essence, while the at-fault insurer is liable for costs, the non-fault driver’s insurer or credit hire firm is responsible for cost control. As the credit hire firm will pass on costs to the at-fault insurer, it has little incentive to control costs effectively.
  • The proposals do not eliminate referral fees, which lead to credit hire firms bidding to gain business, and their costs are added to the bill payable by at-fault insurers.
  • Credit hire and accident management firms will be encouraged to seek alternative sources of revenue. This may well come from using ‘credit repair’; where credit hire firms inefficiently manage the repair process as a way of lengthening the hire period of a replacement vehicle.

David Powell, the LMA’s Manager, Underwriting, said: “These proposals are well intentioned but fail to get to the real nub of the problem – the behaviour of credit hire firms, and some non-fault insurers, that is driving up costs for motorists in the UK.

“We support the CMA’s proposal to cap the amount charged for supplying replacement vehicles to non-fault customers. Capped costs should, in theory, limit insurers’ exposure to being over-charged. But we fear that there will still be scope for abuse as the reforms don’t remove credit hire firms from the provision of replacement vehicles, nor will the reforms prevent insurers that manage non-fault claims from passing on inflated costs to their competitors.

“Ultimately, our members feel that the reforms are not likely to deliver savings for customers, which is the real test. That’s why we’re urging the CMA to publish detailed success criteria on the reforms, and revisit the remedies in two years if they don’t deliver savings.”

- ENDS -

Notes to Editors

For further information please contact:

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

Adrian Beeby
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.
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