Out-Law / Your Daily Need-To-Know

'No-claims bonus' information requirements included in draft CMA motor insurance order

Out-Law News | 09 Jan 2015 | 3:57 pm | 2 min. read

Car insurance providers would be required to provide customers with certain pre-set information before selling policies that feature 'no-claims bonus' protection, under detailed proposals put forward by the UK's Competition and Markets Authority (CMA).

The CMA is consulting until 6 February on a draft order that would give effect to its planned remedies tackling anti-competitive practices it identified during its private motor insurance (PMI) market investigation (19-page / 337KB PDF). The draft order also sets out detailed reporting requirements for insurers, brokers and price comparison websites (PCWs).

The regulator plans to publish a final order in March; and insurers, brokers and PCWs would have to begin publishing the required information within six months of the publication date. 'Price parity' agreements between PCWs and insurers, which prevent insurers from making their products available more cheaply on other online platforms, would be banned one month after the order is finalised, according to the draft.

The CMA published its final report on its investigation into the PMI market in September. The report concluded that price parity clauses could have anti-competitive effects as they prevented insurers from making their products available more cheaply on other platforms and ultimately pushed up the cost of premiums overall. The CMA also found problems with the way that no-claims bonus protection was sold as an 'add-on' product to consumers; finding that the limited information provided made it difficult for consumers to compare these products.

Amongst its proposed remedies, the CMA said that it would ban price parity clauses as well as introduce the new information requirements. The Financial Conduct Authority (FCA) has also been asked to take a closer look at motor insurance as part of its own work on insurance add-on products more generally.

The draft order requires 'PMI providers' to give specified 'NCB [no-claims bonus] protection information' and an 'NCB protection statement' to prospective consumers at the point at which the add-on is offered or the consumer has selected the add-on, for example while requesting a quote on the provider's own website. Providers are defined in the order as brokers or insurers with a consumer-facing relationship. PCWs must also provide the information where they provide access to an offer.

The required information would have to be given in writing, whether on the provider's own website or sent electronically by post. Where the offer of a product was made orally, the information would also have to be provided orally as well as sent to the purchaser in writing along with the policy documents. Information must be given "sufficient prominence so that prospective purchasers' attention can reasonably be expected to be drawn to it"; for example on the same webpage or in a pop-up window with the required text and tables presented in an appropriate font size.

The order also establishes reporting requirements which would enable the CMA to monitor its effectiveness. Once in force, providers will be required to submit annual statements of their compliance including average no-claims bonus discounts. 'Designated' PCWs that refer 300,000 sales or more to providers annually would be required to submit seven quarterly and two annual compliance statements to the CMA, stating their compliance with the ban on price parity clauses and providing details of any provider they have 'de-listed' from their service over the period covered by the statement.