Competition Commission investigating the Car Insurance Market

You may have seen news reports today about the Competition Commission announcing that it will continue its investigation into the car insurance market having decided that there are concerns to be addressed. The headlines concentrate on the market failure caused by the current system of non-fault claimants organising their own replacement vehicles (and then charging the at-fault insurers) but I thought it was just as interesting that the CC are looking at the relationship between the insurers and price comparison websites.

If you are bringing your students to our January workshops revising Unit 3 Business Economics, there's a great session on oligopolies and collusion written by Geoff Riley and Michael Smalley. The CC's identification of a concern over the relationship between insurers and price comparison websites may well be showing an example of how an oligopolistic market can lead to welfare loss.

The car insurance market has become a lot more competitive in recent years - with a increase in foreign insurance companies breaking into the UK and with supermarkets such as Sainsbury and Tesco joining as well. For competition to be effective, customers need to have full information at hand so that they can make an informed decision - the emergence of price comparison websites should make this more possible. Confirmation that these websites actually require the insurers to state and then stick to stated prices indicates that, in some ways, competition is being undermined and prices are being kept higher than they need to be.

You may have noticed that some insurers now advertise that their policies do not feature on price comparison websites. These insurers are attempting to highlight that their prices are more flexible because they are not party to the website requirements.

Whilst the CC are not stating that their is an overt attempt to collude over prices between the insurers and the websites they are suggesting that the relationship is causing market failure.

Follow this link for more on the story from The Telegraph