The competition watchdog plans to put a cap on replacement vehicle costs following motor accidents as part of a clampdown to help cut premiums for drivers in the £11bn private motor insurance market.

The Competition and Markets Authority (CMA) said the cap on charges passed to the insurer of the driver who is at fault in an accident for the cost of providing a replacement vehicle to the non-fault driver, would 'more closely reflect the costs incurred and remove significant inefficiencies'.

The watchdog has previously found that the 'complex chain' of claim costs following an accident collectively inflates premiums by as much as £200m a year.

The CMA is also proposing that competition in the market should be boosted by banning price parity agreements between comparison websites and insurers. These agreements stop insurers from making their products available to consumers elsewhere more cheaply.

It said consumers should be given better information about their rights following a motor accident and about the costs and benefits of taking out protection against their no claims bonus.

The CMA also recommends City regulator the Financial Conduct Authority (FCA) looks at how insurers tell consumers about other add-on products related to private motor insurance. The watchdog found it can be hard for people to work out the best-value add-ons.

The CMA, which superseded the Competition Commission this year, will consult on the plans before publishing a decision in September.

Alasdair Smith, chairman of the private motor insurance investigation group and CMA deputy panel chairman, said: 'There are over 25 million privately-registered cars in the UK and we think these changes will benefit motorists who are currently paying higher premiums as a result of the problems we've found.

'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.'

The CMA found that the collective costs to consumers for providing replacement vehicles to non-fault motorists are between £70m and £180m a year. It has not suggested a definite level where the cap should be set for replacement vehicle costs and this is something that will be looked at in more detail.

In many cases after an accident, the insurer of the non-fault driver arranges for a replacement car and repair, while the at-fault driver's insurer foots the bill. It is this separation of control and liability which ramps up the bill.

The AA welcomed the proposals and also pointed out that car insurance premiums had already been falling amid government reviews of car insurance which helped to weed out bogus personal injury claims.