The Competition and Markets Authority (CMA) has said that the cost of courtesy cars must be capped in order to further reduce the price of insurance premiums.
According to the competition regulator, replacement vehicles cost consumers as much as £180m a year through higher premiums.
Fleet World reported that the new measure would see a cap on the charges passed to the insurer of an at-fault driver in an accident for the cost of providing a replacement vehicle to the non-fault driver, to more closely reflect the costs incurred and remove significant inefficiencies.
Courtesy car costs for an insurer can be significantly higher if the replacement car is provided by an outside company, rather than by the insurer itself, the CMA said.
Ultimately, these costs are passed onto the consumer through higher premiums, and so should be capped at source, it added.
"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," Alasdair Smith, chair of the CMA private motor insurance investigation group, told the BBC.
The competitions regulator also stated that deals between insurance companies and price comparison websites should also be banned. The arrangements, dubbed 'price parity agreements', stop insures offering their products cheaply elsewhere and can ultimately push prices up.
"We believe they [price comparison websites] 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 its products differently, whether on different price comparison sites or on other channels," Mr Smith added.
The proposals need to be confirmed in a final report due to be published in September and could take "several months" for it to come into force.