Insurers may appeal UK watchdog ruling on replacement cars

(Recasts, adds possible appeal, comment)

By Carolyn Cohn

LONDON, Sept 24 (Reuters) - An insurance trade body said on Wednesday it may appeal a British competition watchdog's decision not to tackle the high costs of replacement cars in motor insurance policies, which it said created unnecessary costs for customers.

Its comments came after the Competition and Markets Authority (CMA) said it could not find a solution to the problem that the amount which insurers have to pay for temporary replacement cars is far greater than the cost.

The CMA said alternatives such as requiring a not-at-fault driver's insurance company to cover the cost of a replacement car, or capping the amount which could be recovered from the other driver's insurer for the replacement, would require a change in the law.

And it said such a change was not necessary since the issue only caused an increase in the average motor insurance premium of 3 pounds ($5) a year.

But the Lloyd's Market Association (LMA), a trade body for the Lloyd's of London insurance market, said it may appeal the decision, arguing consumers are charged an aggregate 178 million pounds a year under the current system.

"It's perfectly clear that there are inefficiencies, to use the polite word, in the supply chain, which raise costs for customers," said David Powell, a manager at the LMA, which has eight members who write motor insurance policies.

"If we need to change the law, go ahead and do it."

British insurance companies such as Admiral, Direct Line and Esure are active in the highly-competitive motor insurance market.

After an investigation into the car insurance market, the CMA also said it would ban agreements between price comparison websites and motor insurers which stop insurers from making their products available more cheaply on other online platforms.

In addition it recommended the Financial Conduct Authority look at how insurers tell customers about products sold as add-ons to car insurance policies.

"The regulatory cloud persists over the UK quoted motor insurers," said Eamonn Flanagan at brokerage Shore Capital in a client note.

"This, together with continued uncertainty over the rating and claims environment, leads us to reiterate our 'sell' recommendations on Admiral, Direct Line and Esure." (Editing by Mark Potter and David Holmes)