The competition watchdog wants the cost of providing courtesy cars after an accident to be capped to try to reduce the price of insurance premiums.

In many cases following an accident, the insurer of the non-fault driver arranges for a replacement car and repair, while the insurer of the at-fault driver foots the bill.

But the Competitions and Markets Authority (CMA), which replaced the Office of Fair Trading earlier this year, says there's a "significant difference" between the the cost of providing a replacement vehicle and what the at-fault driver's insurer actually ends up being charged.

The CMA says a cap on charges passed would better reflect the true costs of providing a replacement car, though it's not suggested a definite level for the cap at this stage.

While the inflated cost is initially felt by the insurer of the driver who is at fault, it eventually feeds into everyone's premiums – costing British drivers between £70m and £180m a year.

What else is the CMA proposing?

The plan for a cap on courtesy car charges is part of a wider shake-up of the car insurance industry. The CMA also wants:

  • Better information for motorists about their rights following an accident.
  • A ban on price parity agreements between price comparison websites and insurers, which would stop them making their products available elsewhere for a cheaper price.
  • Better information for consumers on the costs and benefits of no-claims bonus protection.
  • It's also recommended to the Financial Conduct Authority that it looks into how insurers tell consumers about add-on products. The CMA says it can be hard for people to work out what the best value add-on products are.

Changes should 'cut cost of cover''s senior insurance writer Leigh Jackson says the CMA’s proposed changes should help drivers.

He says: "The cost, and sometimes needless hire, of replacement vehicles following an accident is one of the reasons why car insurance is so expensive.

"A cap on charges, as long as it is set at the right level, should help the cost of cover fall even more.

"The possible ban on price parity agreements, if it can be properly policed, could lead to more competition on comparison sites and with brokers making motor insurance cheaper.

"Drivers would have to remain on their toes to find the best deal. But if they're savvy enough they could slash the cost of their premiums."

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What do insurers think?

The British Insurance Brokers' Association's chief executive, Steve White, says: “We've long argued that some practices in the motor market, such as anti-competitive parity agreements, are detrimental to customers.

"It is encouraging that the CMA has been listening and the resulting proposals will be beneficial to consumers."

The CMA's proposals are out to consultation before a final decision will be in September. You can read more and send your views via the website.

Additional reporting by Paloma Kubiak