Insurers should place a cap on the cost of replacement cars for at-fault drivers to help steer down premiums for UK motorists, the Competition and Markets Authority has said.
The CMA said replacement vehicles cost claimants who weren't at fault between £70m and £180m yearly.
Its call today follows an investigation by the Competition Commission last year, one of the CMA's predecessor bodies, after concerns were raised that competition in the market was being distorted. The CMA said it has now identified what it considers would be the most effective actions to improve the market for motorists.
It said insurers should provide better information to consumers about their rights following an accident and there should be a ban on price comparison website deals that stops insurers making their products available elsewhere more cheaply.
The watchdog added that better information for consumers on the costs and benefits of no-claims bonus protection should also be provided.
In addition, the CMA has proposed that the Financial Conduct Authority looks at how insurers inform consumers about other private motor insurance related add-on products.
Alasdair Smith, chair of the private motor insurance investigation group and CMA deputy panel chair, said: 'A cap on replacement vehicle costs will reduce the amounts charged to insurers of at-fault drivers, which will cut out some of the inefficiencies in the system and feed through to reduced premiums for all drivers.
'There also needs to be improvements to the way price comparison websites operate. We believe they are great in helping motorists look for the best deal, and this in turn has driven insurers to compete more intensely, but we want to see an end to clauses which restrict an insurer's ability to price it products differently, whether on different price comparison sites or on other channels.
'We also find that the way motor insurance-related add-on products are sold makes it hard for customers to obtain the best value. We would like the FCA, as part of its on-going work looking at add-ons across all insurance products, to consider how drivers could be better informed in making their choices.'
The CMA said it is seeking responses to its proposals by July 4 before publishing its final decision on September 2014.
The Association of British Insurers welcomed the proposals. James Dalton, head of motor insurance, said: 'They build on reforms being introduced to tackle fraudulent whiplash claims, which have partly led to the average comprehensive motor premium falling by 14% since the start of 2012.
'We urged the CMA to focus on the credit hire market, so we are pleased that they have proposed a cap on the prices that credit hire operators can charge to the insurer paying the bill for replacement vehicles. This will help reduce the often-inflated bills from credit hire operators and should help lower premiums.
'We will continue to work proactively with the CMA and the Financial Conduct Authority to ensure that the motor insurance market continues to deliver the best possible service and lowest possible premiums to UK motorists.'