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 162.

    Goodness, are you telling me that insurance companies part of the self-regulated finance industry is conning people I don’t believe it.

    This is just rip off Britain at its best and the government do nothing after all they make tax on premiums and all services used.

  • rate this

    Comment number 161.

    Maximum of £100 per year charge for all Drivers.Bring in mandatory on board black boxes and HD cameras. Only pay-out for injuries that have been confirmed by a doctor impose a massive fine for false claims with a prison term.Driving a car without tax would then carry a life ban, and if found to be driving car after ban imposed a prison term. Mandatory advanced lessons for new drivers.

  • rate this

    Comment number 160.

    I'm 24 and was lucky enough to be able to insure my car before passing (4 years ago) so got my own no claims from day 1. First insurance policy was £550 full comp on a ford fiesta so approx £40 per month... Currently paying £80 per month on a 1.4 rover 25 with 4 years no claims, car parked on a drive at night and no speeding tickets. Madness!!!!

  • rate this

    Comment number 159.

    Being a young driver I find the prices of car insurance a complete and utter joke. I think it's wrong that the price is determined on the statistics.

    I'm nearly 21 and held my license for three years now I do less than 6000 miles a year. My latest quote was £1800 for a 1.6 Diesel car. and I just can't afford to pay it so I have to rely on others and I feel that I'm putting them out.

  • rate this

    Comment number 158.

    I'm not sure how 2 dented door panels and a scraped wing cost over £2000 to repair but it did, on a Clio! A quarter of the cost of the car a few months earlier. I had to use the insurers repair shop, they took forever. Had anxiety attacks every time I rang the call centre. They make it very easy to take out the insurance but not to question anything about the policy.

  • rate this

    Comment number 157.

    The biggest problem is that many of the direct personal motor insurers business model and profits are based on referral fees from repairers, credit hirers,solicitors and other ancillary services providers.
    They are busineses ruled by "caveat emptor" rather than insurance professionals ruled by "uberimma fides".

  • rate this

    Comment number 156.

    @130 'MissMurphy91'
    I wouldn't disagree with any young person complaining about trying to afford car insurance today. My first basic (third party/fire/theft) car insurance cost more than my first little car. Little has changed except tax on car insurance; escalating fuel duty + 20% VAT and the rise of organised crime causing RTCs affecting the innocent.

  • rate this

    Comment number 155.

    Yet another example of the government turning a blind eye to big business shafting the general public. I had an experience similar to many described on here after being hit by another driver - hire car for 2 weeks even though there was probably a days work in the repair shop. Then the unsolicted phone calls encouraging me to claim etc. totally corrupt, the lot of them!

  • rate this

    Comment number 154.

    1 - The industry need a government regulator.
    2 - Insurance companies should go through the driver at fault, not their insurer.
    3 - Separate 3rd party insurance.
    4 - The total value of their car should limit repair payments.
    5 - Unless a car is undrivable, 4 days max hire car, govt controlled rate capped.
    6 - Kickbacks from hire companies/garages, illegal for both parties.
    7 - Max 25% no claims.

  • rate this

    Comment number 153.

    It is 2 years since I got hit on the motorway by a lorry. All I wanted was my car repaired and liability to be sorted which it was. Yet I still get pestered frequently by various legal firms chasing me to make a claim for injury. It is obscene, and just inflates everyone's Premiums. This kind of immoral practice has to get stamped out before we really are a "blame = claim" culture.

  • rate this

    Comment number 152.

    BOOKIES by any other name! WINNER WINNER...CHICKEN DINNER..Its all risk assessed...lost 1/4 of my roof some ago months ago..premiums will sky rocket much like the slates did, only they came back down to earth...

  • rate this

    Comment number 151.

    My husband bumped the back of a womens car as she pulled out in front of him, His fault of course.? No injurys...? weeks later lawyers letters she is off work losing money claiming obscene amount for injury,,,What injury.
    There was none at time of accident. Yet still our insurers had to pay out.
    RIP OFF BRITAIN. Get it sorted. NOW

  • rate this

    Comment number 150.

    Increased RoadTax to cover insurance for everyone. When a driver makes a claim the offending party pays a small excess based on thier no claims. Everyone will have insurance/tax, the amount you pay dependendent on the type of car you own/experience you have as a driver.

    Enforce driving license renewal every couple of years using a refresher exam which should also help reduce accidents.

  • rate this

    Comment number 149.

    Long overdue.
    Insurance is required by law if you have a car, so you HAVE to buy it. But there are no controls on how much it costs so insurance companies can and do charge what they want.
    If the investigation shows foul play, the insurance companies should be forced to repay the overcharged monies (with interest) they have fleeced from their customers.

  • rate this

    Comment number 148.

    Got continually pestered by one company who "guaranteed" to beat my existing company's renewal. They were so confident that they could not be beaten that they would not actually quote me a price without knowing what they had to beat.

    As others have said - Truly a money-making racket.

    ... and I thought operating a cartel is. strictly speaking, illegal.

    Do something, UK government!

  • rate this

    Comment number 147.

    It would be interesting to compile a list of inflated expenses as seen by customers. We are forced to accept them. E.g. for a dented bumper my garage sent a crane lorry (though I was happy to drive) and delivered the car by a driver accompanied by another driver and another car; then no win no fee lawyers; then my son’s quotes £750 and £1800 (someone taking a chance). It need a good shake-up.

  • rate this

    Comment number 146.

    How about the con that rules that you can be 52 years of age, had a full driving licence since you 20, never had a claim and built up maximum no-claims bonus. But because you didnt drive for nearly 3 years due to financial reasons, you lose all your no-claims and are classed as a new driver!!!!

  • rate this

    Comment number 145.

    Quite simply, as wrong as it is, is it any wonder people drive without insurance? If running a vehicle wasn't expensive enough this government allows us to get ripped by our insurers.

  • rate this

    Comment number 144.

    A car knocked my bumper, no damage I could see, but took it to a dealer to check and was told that they deal with this through another firm. 2 days later I was told there was £3000 of damage and 3 weeks to repair so they would sort me a hire car. Couldn't beleive it!. I was almost forced to have a hire car. They were very insistant. No way £3000 of damage, dread to think what the total claim is!

  • rate this

    Comment number 143.

    My car was in a "knock for knock" accident. Insurance company quoted repairs at £500' same amount as my excess so I decided to pay myself rather than lose no claims. went to same garage for repairs who charged me £375. That said it was less as the insurance company includes " admin and other charges" to their costs. No wonder premiums are high and insurance companies making money !


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