Car insurance facing Competition Commission study


Sonya Branch from the Office of Fair Trading says the insurance market is not running in the most efficient way

Car insurance costs are set to be studied by the Competition Commission after the Office of Fair Trading (OFT) said the market was "dysfunctional".

The OFT says artificially high car hire and repair charges add £225m a year to drivers' premiums and it wants the commission to investigate the sector.

It says some insurers connive with garages and suppliers of courtesy cars to let them charge inflated prices.

The OFT's announcement was welcomed by the Association of British Insurers.

'Higher premiums'

John Fingleton, chief executive of the OFT, warned there was no "quick fix" for the problem, which is why he wanted the Competition Commission to launch a full inquiry.

"Competition in this market does not appear to work well for drivers."

Nick Starling of the Association of British Insurers (ABI) agreed, pointing out that drivers were bearing the cost.

"For too long insurers and people paying premiums have faced inflated rates for credit hire cars and excessive hire periods, which have led to higher premiums," he said.

"There is no control of costs which have run away, and some people have taken advantage of the system," Mr Starling added.

Referral fees

The OFT explained that when a claim is made, the insurer of the "at-fault" driver will have to pay for repairs and temporary car hire for the other driver in the accident.


If any more evidence was needed that car insurance has turned into a gravy train for a variety of businesses, it is here for all to see in the OFT's market study.

The fat charges from repair shops and car hire firms which the OFT focused on are by no means the worst of the problem.

Ballooning personal injury claims, which the Ministry of Justice is supposed to be dealing with, have a far bigger impact on the size of premiums.

The epidemic of whiplash claims, on its own, adds nine times as much to the cost of car insurance as the issues being raised today.

But a Competition Commission inquiry will shine an even brighter light into the murky world of backhanders which has distorted car insurance and led to policies becoming unaffordable for some drivers.

Claims companies have paid chunky fees to insurers, and even to nurses and police officers, to get hold of contact details for accident victims.

In a similar way, repair shops and specialist car hirers have been slipping backhanders to make sure their services are used, at an inflated price.

The backlash started with a report from a select committee of MPs, which criticised the "merry-go-round" of fees.

Perhaps now the smile will be wiped off the faces of players in the industry who have been riding this particular carousel.

But these costs are inflated by the insurer of the "not-at-fault" driver arranging artificially expensive car hire deals and repairs.

The insurers do this in return for a lucrative fee from the car hire firm or garage involved.

This made replacement car hire on average £560 more expensive each time, and made each repair on average £155 more expensive as well, the OFT said.

The cost is borne by the insurer of the "at-fault" driver, but is eventually passed on in the form of higher premiums.

"Insurers of the not-at-fault driver and others, such as brokers, credit hire organisations and repairers, can take advantage of this lack of control as an opportunity to generate revenues through rebates and referral fees and so inflate the costs of insurers of at-fault drivers," the OFT explained.

"This is an inefficient way for the sector to operate, raising the total costs for providing private motor insurance which drivers end up paying."

The OFT's decision to refer the car insurance market to the Competition Commission is a provisional one. It will announce its final decision in October 2012.

Which? executive director, Richard Lloyd, said change was needed: "Consumers have been hit time and again with significant increases in costs for their car insurance without seeing increased benefits to their policy.

"We would also welcome an investigation by the Competition Commission to put an end to bad practices and give consumers get a better deal on their car insurance."


The OFT started looking at the cost of repairs and the supply of temporary replacement vehicles in September.

This followed the exposure last year of the covert system of referral fees, under which insurers, in effect, stoke up claims against themselves and thus drive up premiums.

They do this by selling details of their own policy holders' accidents to solicitors, who then encourage those drivers to sue for damages such as whiplash injury.

The Credit Hire Organisation (CHO), which represents car hirers, said the excessive costs identified by the OFT in its latest report were just 2% of the car insurance industry's total spending of £13bn a year.

"The original decision of the OFT to investigate the private motor insurance market came after insurer claims that motor insurance premiums had risen by almost 40% to compensate for the increased costs of personal injury claims (whiplash) and other costs including those of credit hire," said Martin Andrews of the CHO.

"The Transport Select Committee subsequently identified that these claims were unfounded and the rise in premiums was in fact closer to 12% and was caused by the increase in whiplash claims more than any other factor," he added.

Earlier this year, the government said it would take action to cut down on spurious whiplash insurance claims.

The Transport Committee had urged the government to change the law so that such claims could only be paid if there was objective evidence of both an injury and of its having a significant effect on the claimant's life.

These claims alone are thought to cost the insurers £2bn a year and their rapid growth in the UK has made the country the "whiplash capital" of Europe.


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  • rate this

    Comment number 22.

    It's about time something was done about something that is wide open to abuse and scams but the impact on premiums will be minimal - £10 per policy per year.
    If the Government want to drive down motor premium costs uninsured driving must be a serious criminal offence. I understand that about 20% of all motor insurance premiums are paid to the MIB to deal with claims caused by uninsured drivers.

  • rate this

    Comment number 21.

    Does anyone know if men pay more than women? if so would I have a be able to have a case against my insurer for discrimination??

  • rate this

    Comment number 20.

    We are all paying too much in insurance premiums and a cottage industry has grown up of inflated costs associated with accidents ie car hire , legal and whiplash and probably the smallest cost is the actual repair . I think a close examination of the figures across the industry will identify where there is fraud and overcharging and its about time it was addressed for the benefit of motorists .

  • rate this

    Comment number 19.

    For a start the police & magistrates should come down far harder on uninsured drivers, fines of £200 are pitiful when compared to the average insurance policy. It encourages people to take the risk.

    I suspect uninsured drivers are not effectively targetted because they are concentrated in the immigrant communities & post Lawrence the police are very wary of seemingly targetting this group.

  • rate this

    Comment number 18.

    We had slight damage to our cr about 6 months ago, mostly black tyre marks and slight dint to the rear bumper.
    I was staggered by the bill to the other driver. £525 + car hire. We took the hire car back well before the car was rectified in sympaphy with the other driver. I did feel sorry for her as she paid in cash to save her no claims

  • rate this

    Comment number 17.

    More of the same sort of people who work for Banks, Credit companies and other such bodies. They really don't have any sense of financial or business morality - what ever makes most money for them is always the best solution.

    That of course, is the root cause of all of our current financial problems - too much debt, too little concern for customers, to muck 'Me, Me, Me'.

  • rate this

    Comment number 16.

    OFT like the regulators of utility companies are nothing more than "we will look into it" merchants. Nothing seems to be done about the abuse and rip off culture that exists in this industry as well as others across business.

  • rate this

    Comment number 15.

    It is a captive market, you have to have insurance. Car accident technology and repair methods have advanced massively yet premiums are riduclous. For young people they are easily paying more than their car is worth ! . I have had calls from 7 injury claims companies for an accident and I wasn't in the vehicle, my data has obviously been sold on by the Police or my insurer. It's a disgrace.

  • rate this

    Comment number 14.

    The whole insurance industry need better regulation.

    My last insurance renewal quote went from £1300 to £2000. I shopped around and eventually got it for £800 with only 1 or 2 slight variances.

    While I am pleased it does go to show that there is no pricing structure or proper regulations with regards to premiums.

  • rate this

    Comment number 13.

    Biggest protection racket since the Krays.

  • rate this

    Comment number 12.

    About time too, its easy money for companies that don't care about their Customers.

  • rate this

    Comment number 11.

    Something like car insurance which is a legal necessity to have to own and drive a vehicle MUST be regulated as tightly as possible.

    It's like petrol, doesn't matter how high the prices go, we have to keep buying it.

    They need to do the right thing here.

  • rate this

    Comment number 10.

    I'd like to know this:

    If you have 2 cars, you have to build up your NCD separately on each one. ( So say you have full NCD, then buy a 2nd car, you have 0 years NCD on that car ).

    But if you make a claim, then it affects both your NCDs.

    Why is that then ? Oh yes, I think I can work it out !

  • rate this

    Comment number 9.

    I agree it was so obvious that in the UK we were paying ridiculously high premiums when compared to other countries. Yes I was shocked at the cost of repairs. It often made more sense to get an independent quote, agree with the person you hit that you would pay direct and you wouldnt lose your no claim bonus.

  • rate this

    Comment number 8.

    Only money really talks

    I got rid of my car so no more cash can go to this scammer industry from me

  • rate this

    Comment number 7.

    Another mini false economy driven by smash and grab mentality within an Industry that hides behind legislation and becomes highly 'dysfunctional' without regulation.
    A prime example of where the " competition creates best value..." argument falls flat on its face.
    20 years later the Government comes lumbering along to look at it and scratch their weary head.

  • rate this

    Comment number 6.

    The market has been dysfunctional for decades, why has the OFT only just noticed?

    The OFT is yet another dysfunctional quango and should be investigated to ascertain its fitness for purpose

  • rate this

    Comment number 5.

    Does anyone think we are going to see a massive reduction in premiums because of this?....No, I didn't think so.

  • rate this

    Comment number 4.

    #revenues through rebates and referral fees #

    As usual the canker of the country, commissions, all anyone cares about, money for nothing. Make commissions or any similar renamed 'fees' illegal. Then we may be free of the constant deliberate miss selling scandals, and this 'corrupt' type of practice.
    Make both sides get a quote, cheapest one gets the job.

  • rate this

    Comment number 3.

    Doesn't surprise me the insurance companies do this. They know it's illegal for us to drive without insurance so just like the government, petrol companies, petrol stations, banks and utility suppliers they bleed us dry for every penny they can get and because we need their services. Tthere is little we can do about it!


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