Office of Fair Trading looks at car insurance premiums
- 8 September 2011
- From the section Business
The Office of Fair Trading (OFT) has said it will look into recent reports of rising UK motor insurance premiums.
The watchdog said it wants to establish whether premiums have risen by a reported 40% and, if so, why.
Specifically, it said it wants to establish if there are any consumer or competition issues to address.
The OFT is calling for evidence from insurers and other industry participants on many issues, including the role of price comparison sites.
It will also look at additional products sold by insurers on top of standard motor insurance and the provision of replacement vehicles following accidents.
The body said it was particularly interested in reports that car insurance premiums are "significantly higher" in Northern Ireland than in the rest of the UK.
The OFT will gather evidence over the next five weeks and publish its findings in December. This will determine whether it looks any further into car insurance premiums.
In April, the AA said that the cost of car insurance was rising at the fastest rate on record, and had gone up by 40% in 12 months.
At the time, the average premium for an annual comprehensive car policy was £892, while third party, fire and theft policies - usually taken by high-risk younger drivers - cost £1,533.
Otto Thoresen, director general of the Association of British Insurers (ABI), said: "Insurers are committed to keeping motor insurance competitively priced but we urgently need reform of our compensation system if motor premiums are to come down.
"Rising claims costs from personal injury claims, excessive legal costs, insurance fraud and uninsured driving, coupled with lower investment returns in recent years, have unfortunately led to rising motor insurance bills for many customers.
"In fact the motor insurance sector has not been profitable for the last 16 years because the amount paid out in claims and expenses has been greater than that received in premiums."
Aodhan O'Donnell, director of the Consumer Council for Northern Ireland, said costs for those in Northern Ireland had risen by more than 70% in two years, or even higher for younger drivers.
He welcomed the OFT's decision to call for evidence to show whether increased claims were behind the rising premiums, as insurers suggest.
Insurance premiums have been in the news regularly since former Justice Secretary Jack Straw called for reform of the industry.
He repeated claims that insurers were getting paid for referring clients' details to personal injury lawyers without permission, calling the practice the industry's "dirty secret".
This had led to higher premiums even though the roads were getting safer, he said.
This view was repeated by Paul Evans, chief executive of insurer Axa UK, who said that the UK was becoming gripped in a compensation culture, especially in claims for smaller injuries.
He said the NHS spent about £8m a year treating genuine whiplash, but insurers paid out about £2bn in compensation.
This issue is already being considered by the Ministry of Justice and is not the "focus" of the OFT's upcoming work, a spokesman for the regulator said.