The Competition Authority has found no evidence of price collusion among insurance companies but said brokers were earning higher fees at the expense of the consumer.
In its preliminary report on the insurance market which is worth €2 billion per annum, the authority said competition problems existed in the broker market rather than among the underlying insurance firms.
Among the problems highlighted by the report are excessive regulation in the broker market, a lack of downward pressure on commissions and a lack of transparency regarding data sharing which deters new entrants.
The current system by which brokers receive percentage commissions discourages price competition in the insurance market, according to Competition Authority chairman, Dr John Fingleton.
An insurance broker usually charges around 5 per cent for motor cover and 9 per cent for liability insurance. Any reduction in these fees disincentivises the brokers from selling a particular company's insurance products.
Incentives from insurers such as quantity discounts and minimum thresholds also cause a conflict of interest between a broker's obligation to give best advice to the customer and best return to the broker, Dr Fingleton said.
Since the ceiling on broker commissions was lifted in 1999 the cost of insurance has risen by 94 per cent but brokers' commission income has risen by 126 per cent. In motor insurance the equivalent increases are 21 per cent in cost and 51 per cent in commissions.
Dr Fingleton said that the existing structure of the industry was too broker-focused rather than in the interests of the consumer and further moves towards transparency allowing for more shopping around would be welcome.
In the underlying insurance market Dr Fingleton stressed that the level of profitability of insurance companies gives a misleading impression of competition
due to the time lags in claims. Instead the main barriers to entry were the lack of data-sharing and the lack of transparency in costing the fund for uninsured drivers.
The Competition Authority will now engage in a period of public consultation before it completes its report and recommendations which is expected in the Summer.