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 142.

    Perhaps we could have a price comparison site comparing the most abusive rip off behaviour.

    Something Like GO CON PARE might be an appropriate title

  • rate this

    Comment number 141.

    It's a scam and its not helped by people who take advantage of the system. I got rear ended once before, no one was hurt an we were both driving worthless cars. Instead of telling the insurance companies we decided to settle between us for the minor repairs my car needed. Then I rear ended someone else a year later, again no one hurt and minor damage and they went for everything they could claim!!

  • rate this

    Comment number 140.

    It REALLY is ABOUT TIME the insurance companies, the law and the DVLA got themselves sorted out. If somebody is banned from driving or uninsured it should be simple to find them. The general LAW ABIDING drivers are sick of being RIPPED OFF.

  • rate this

    Comment number 139.

    This should have started years ago. Anybody could have pointed out how corrupt the car isurance forced scam is.

  • rate this

    Comment number 138.

    On top of all this you are now pressured into "insuring your insurance" with protected no claims. Most of which is rubbish as it can only be applied if you remain with the same company as many other companies ask now if you have ever had a claim which would have resulted in a loss of NCD had you not had protection in place.

    Competition is supposed to keep prices low not drive them up!

  • rate this

    Comment number 137.

    I was involved in an accident - someone hit me from behind while I was in a queue of traffic, and ended up needing a hire car while my car was being inspected.
    I was horrified to find that my insurance company only used "approved" hire companies, the only one in my area charging £140 per day. For a similar medium-term hire, I could have got it myself for less than £20. A total con.

  • rate this

    Comment number 136.

    Yet again,the financial services sector is totally inept in learning the lessons of the past:Miselling of pensions,endowments,payment protection etc.As before,senior executives spot a revenue stream, then fail to grasp the unintended consequences that would arise from this obvious conflict of interest, namely customer interest vs profit interest. The easy remedy is to ban such fee payments in law.

  • rate this

    Comment number 135.

    127. Huw Turn

    Went onto the well known cuddly russian cat website and saved £200 with full disclosure of the claim!

    Stuff that up yer pipe Ad****l!

  • rate this

    Comment number 134.

    We live in a ridulous time where loyalty counts for diddly squat. The good deals are offered to new customers or those who shop around. Not everyone has the time to shop around, and there are lots of people who don't feel comfortable doing these things on line. It time that companies when back to rewarding loyal, long standing customers.

  • rate this

    Comment number 133.

    About time!!!

  • rate this

    Comment number 132.

    I regard car insurance as legalised theft. Like banks, we are at the mercy of these parasites. I doubt anything will change though - there is too much profit for the governments chums.

  • rate this

    Comment number 131.

    @94 'ChrisHardley'
    Young, inexperienced drivers pay more as they are a higher risk according to stats. Older, experienced drivers pay less as they are a lower risk according to stats.

    Don't forget that if you buy health insurance you will be judged on your age - young pay less - older pay more. Swings and roundabouts is what insurance is all about. Search 'actuarial tables' to learn more.

  • rate this

    Comment number 130.

    Ive just bought my first car which is a 1.2 petrol corsa. 52 plate and its insured provisionally for £1800 as soon as i pass my test the cost will go up to £2800+ .they wonder why people are driving round unisured, its because no one can afford to pay these prices. by the time you pay for maintenance, tax, m.o.t's and fuel, you have to pay stupid costs of insurance too. rediculous!

  • rate this

    Comment number 129.

    The only two times my car has been in an accident (I wasn't the driver on either occasion) the insurance company claimed that it was better to write the car off than repair the superficial damage - i.e. replace a couple body panels, lights and mirrors etc.

    Even though I wasn't even in the car on the second occasion I am still five years later getting SMS asking me to consider claiming for PI.

  • rate this

    Comment number 128.

    i have a.lways said that if you have to have insurance by law then the goverment should provide it. Standard rates depending on experience and type of car, no bias towards a gender or age group. In the words of the meerkat - 'Shimples'

  • rate this

    Comment number 127.

    116. CJHooker

    Shop around on the phone, some insurers don't penalise for non-fault claims, make it the first thing you ask when you call them - worked for me!

  • rate this

    Comment number 126.

    I was hit by an uninsured drive, no licence, new to the country. I was badly injured and some witnesses chased him down and called the police and ambulance. I couldn't claim off him so lost my NCD but got a payout for my injuries from the central fund MIB. The police nearly gave up on him but I pushed them, eventually he got to court and was fined £150 out of his benefits. Cheaper than insurance!

  • rate this

    Comment number 125.

    The Establishment watched 'The Compensation Culture' take hold.
    This is one of the main reason for very high insurance premiums for motor vehicles.And which employers will want to pay the very costly premiums for allowing a 'youth' to
    drive?All so very well thought out!!

  • rate this

    Comment number 124.

    It took 3 months for my insurance company to agree with a 3rd party's company that I was not at fault when the 3rd party reversed into my car.

    My car was parked.

    I was not in it.

    Due to my young age and car I was paying £1,750 for this kind of service, with a £750 excess, 0 points, 4 years' no claims.

    For most of my driving life, a fine for no insurance would have been less than my premiums.

  • rate this

    Comment number 123.

    The thing is that if you don't have one, it is illegal. But it never breaks the trade laws when insurance companies try all the possible ways NOT to pay the damage or claim. Everytime after I renew my insurance, I feel I have been robbed!


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