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Competition Law

Analysis - debate - current awareness

Field Fisher Waterhouse , 21 NOV 2014

Most favoured customers

John Cassels


Most favoured customers
In the UK, drivers are legally required to hold a valid insurance policy to cover third party risks. The most commonly purchased type of private motor insurance (PMI) is comprehensive insurance. This provides, at an additional premium, extra benefits, known as 'add-on products', such as replacement vehicles or roadside assistance.

On 24 September 2014, the Competition and Markets Authority (CMA) published its final report on its PMI market investigation, identifying features of the industry which give rise to adverse effects on competition. The CMA found that:

  • In relation to the sale of add-on products, information provided to drivers was insufficient in terms of descriptions of such add-ons. This insufficiency makes it difficult for them to identify the best-value offers across different PMI providers and to make informed purchasing decisions.
  • Some clauses, referred to as 'most favoured nation clauses' (MFN), in contracts between PMI providers and price comparison websites (PCWs) stipulate that the PMI provider cannot sell a policy on a particular sales channel at a price cheaper than it is available on the PCW. This limits price competition and innovation, and ultimately leads to higher premiums.
  • There is separation between cost control and cost liability. For example, a non-fault party is entitled to a replacement vehicle whilst their car is being repaired and the fault party has no right to choose the provider of such vehicle but is required to pay for reasonable costs. This separation distorts competition and increases PMI premiums.

In order to address these concerns, the CMA has proposed measures which include:

  • Provision of more transparent information on non-claims bonus protection, which is the area where drivers' lack of information is most acute.
  • Make recommendations to the Financial Conduct Authority that it should look at how drivers can better be informed about add-on products.
  • Prohibit MFN clauses which stop PMI providers from making their products available more cheaply on other online platforms.

The investigation confirms the CMA's continued interest in retail markets and highlights the sensitivity around MFN provisions.

If you are interested in these issues, please do not hesitate to contact John Cassels at john.cassels@fieldfisher.com
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