The UK’s markets watchdog has unveiled plans to reform the £11billion car insurance market and reduce premiums for drivers with a cap on fees insurers can charge following an accident.

Owners of the country’s 25m privately registered cars are footing the bill for unnecessary costs incurred during the claims process, which inflates car premiums by as much as £200m a year, according to the Competition and Markets Authority (CMA).

The Telegraph reports that following an accident, the insurer of the “non-fault” driver arranges for a replacement car and repair, while the insurer of the “at-fault” driver foots the bill.

The Commission found this creates insufficient incentive for insurers to keep motoring costs down.

Several proposals have been made by the CMA which includes.

• A cap on the charges passed to the insurer of an at-fault driver in an accident for providing a replacement vehicle to the non-fault driver to more closely reflect the costs incurred and remove significant inefficiencies.

• Better information for consumers about their rights following an accident • A ban on price parity agreements between price comparison websites (PCWs) and insurers which stop insurers from making their products available to consumers elsewhere more cheaply.

• Better information for consumers on the costs and benefits of no-claims bonus protection.

• A recommendation that the Financial Conduct Authority (FCA) looks at how insurers inform consumers about other private motor insurance-related add-on products.

Alasdair Smith, chairman of the private motor insurance investigation group, told the Telegraph: “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.”

James Dalton, head of motor insurance at the Association of British Insurers (ABI), said the proposals could help to cut out some unnecessary costs faced by insurers and help to lower motorists’ premiums. “They build on reforms being introduced to tackle fraudulent whiplash claims, which have partly led to the average comprehensive motor premium falling by 14pc since the start of 2012,” he said.