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 42.

    Maybe I shall finally stop being quoted £6000 for one years car insurance on an old banger?
    Then maybe I shall be able to actually get driving, its been put off since 17, 19 now, getting quoted £3500 top 3, then goes up to £12,000 for one years insurance..? Insurance does nothing at all, needs to be scrapped.

  • rate this

    Comment number 41.

    From the inside, main problem is No Win No Fee lawyers (most have no legal qualification and work for a Mr Big. They chase whiplash claims, a quickie medical report and a spurious claim, even after the teeniest accident. Then a legal bill twice the amount of damages, no questions asked by the insurers! (it's even more expensive to defend in court). Just pay and add to the next mugs renewal.

  • rate this

    Comment number 40.

    In a no-fault accident (ie other driver paid) my insurance company got me a hire car for 3 weeks at 700 per week - even though I asked for a cheaper option and could find a suitable one for under 250 ! First questions were not about fixing the car - but about how many add-ons they could go for - told not to mention I was 100% unhurt to anyone just in case I wanted to claim later.

  • rate this

    Comment number 39.

    There was supposed to be a national database relating to all insurance claims . The purpose of the database was to identify multiple claimants and where potential fraud maybe taking place . Everyone who has had any kind of accident will tell you .. the whole system is flawed and often corrupt , the fact its taking so long to sort out and bring some charges is nothing short of disgraceful .

  • rate this

    Comment number 38.

    '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.'

    In plain English. We might look into it but nothing will happen for months.
    Another pointless, toothless waste of space...

  • rate this

    Comment number 37.

    I had an accident and live in Dorset, the 'hire car' was driven from Newcastle to be delivered and collected from me. This is just madness and drives up costs. The repair bills are also massively inflated. My car was written off as too expensive to repair, yet was bought by a company and is now back on the road. And my data was sold on to claims companies who now ring me constantly. This must stop

  • rate this

    Comment number 36.

    Well I hope whatever comes out of this investigation has some real teeth and that its findings are made widely public.
    The insurance industry is one of the most corrupt, along with many, many others in the finance sector, and anyone with even half a brain has known they've been being financially milked dry by their insurers for years.

  • rate this

    Comment number 35.

    Getting a car fixed on your insurance has always been a fix. For last 20 years and only now the OFT are going to look into it.
    I had a 50/50 bump years ago her insurance company asked for 200% more than the full coast and part and fitting at a main dealer, just for the part!

  • rate this

    Comment number 34.

    Hit by a bus, saw it coming and stopped - we got pestered daily for weeks by various companies enquiring if we were 'sure' we didn't have whiplash! The hire car company didn't collect their car for 5 days after we advised them we had our own vehicle back - although no fault on my part my premium increased by £100 on renewal - what a rip off the whole business is - very cross!!

  • rate this

    Comment number 33.

    I only hope these latest 'revelations' (car hire and repair costs in insurance claims are inflated? wow, who knew) don't detract from the real issue, the complete and total fraud that is the personal injury sector. That whole ambulance chasing sector needs running out of the UK , and back to the US where it belongs.

  • rate this

    Comment number 32.

    Car Insurance is nothing short of a legal racket. Simple as that

  • rate this

    Comment number 31.

    Insurance is such a massive scam they have to have laws written to guarantee them ever increasing business.

    Having just open a shop, I am sad to report that insurance sales people are as threatening as the mob.
    "But sir, don't you realise what will happen to your business if you don't buy our extended liabilities insurance waiver liability insurance?"

    "Yes, I do, nothing."

  • rate this

    Comment number 30.

    If the insurance companies employed more assessors, they could provide some much needed jobs and considerably reduce our premiums. Seems win-win to me.

  • rate this

    Comment number 29.

    Of course we have known for years that the repair market along with the insurance companies inflate repair costs. My wife's car was 'written off' in a late night hit-and-run. The front bumper, with the frame was bent and the radiator pushed back. The car was worth £5,000, the repairs would be £4,000. Later, the car was bought by someone who repaired it themselves for far less.

  • rate this

    Comment number 28.

    While they at it can they look at changing the fine for uninsured drivers.
    Something like the price of full insurance for the vehicle they are driving multiplied by 10.

  • rate this

    Comment number 27.

    "Something needs to be done about the practice of offering a reasonable premium to your business and at renewal increasing the premium by 150%."

    Easy, don't renew with them. The bigger scam that needs dealing with is automatic renewal

  • rate this

    Comment number 26.

    It's not just the insurance companies.
    There was a crash in Morecambe yesterday involving two cars in a 30mph zone.
    According to the local paper 1 person had minor injuries. (whiplash)
    The emergency services sent 2 fire engines, 2 ambulances, 2 police cars and 2 police vans.
    It was like a scene from 911 and the road was blocked for 90 minutes.
    I thought the power station had gone up in Heysham!

  • rate this

    Comment number 25.

    Banks, Insurance companies, Gov't : They are all in it together!! WE are not all in it together...

  • rate this

    Comment number 24.

    Insurance is the biggest con going!!!!!! We were told uninsured drivers was the problem, that goes down so now it is whiplash claims, that will go down so now it is courtesy cars!!! Problem is you have to buy it by law so it is a captive market!!!!!

  • rate this

    Comment number 23.

    This would probably explain why the car I nudged at about 2mph (not a mark on my car OR theirs for that matter) cost nearly £2000 to "repair".

    I know I was technically at fault (followed a car out at a roundabout and didn't stop fast enough when they changed their mind) but there is absolutely no way it cost £2000 to "repair". Ridiculous.


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