UPDATE 1-UK competition watchdog proposes car insurance shakeup

Thu Jun 12, 2014 4:51am EDT

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(Adds statement from CMA, analyst's view)

LONDON, June 12 (Reuters) - Britain's competition watchdog has proposed a series of reforms of the car insurance industry aimed at reducing premiums for motorists, which it says are inflated by unnecessary costs.

In a statement on Thursday, the Competition & Markets Authority (CMA) suggested measures including a cap on replacement car charges sent to the insurer of the at-fault driver after an accident. It said these cost consumers between 70 million and 180 million pounds ($120 million and $300 million) a year.

Preliminary findings published in December by the CMA's predecessor, the Competition Commission, said car insurance in Britain was too expensive because of complexity in the claims process and a lack of incentives to keep costs down.

The CMA also proposed a ban on "price parity" deals, in which insurers reach exclusive agreements with websites not to offer consumers lower prices elsewhere.

Some analysts noted that competition has already driven prices down in Britain's car insurance market, and said profits could be squeezed further if premiums fell as a result of the reforms.

The sector is dominated by companies such as Aviva Plc , Direct Line Insurance Group Plc and Admiral Group Plc.

"We see little in this to provide respite to an industry which is already suffering from significant premium rate reductions," said Eamonn Flanagan, insurance specialist at Shore Capital Stockbrokers.

The CMA also said insurers should improve "often unclear" disclosure about the terms of no-claims bonuses. ($1 = 0.5956 British pounds) (Reporting by Chris Vellacott and Richa Naidu; Editing by Kevin Liffey)

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