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 562.


    Sorry, I wasn't being critical, I just thought it odd you started work at 12, makes sense now with the background information.

  • rate this

    Comment number 561.

    Switch your insurance to an insurance company that ISN'T owned by a bank....



  • rate this

    Comment number 560.

    Nationalise car insurance and introduce premiums by the car and not by other rating factors insurers use to give an excuse to rip people off. OK some people will have to pay more and some will pay less but we will have a central pot which will cover all claims. No uninsured driver issues and affordable premiums for all.

  • rate this

    Comment number 559.

    Golgotha: Yes, that's right...I don't mean as a full-time employee, just an after-school & weekend car-washer & "Gopher"....(I lived in the north, but they had abolished the promised Chimney Sweeps job by then!)
    And did me no harm whatsoever. But even at that age: My eyes were wide open to the reality of the Great Insurance Traps (GIT's). Just amazed it has taken so long for Britain to wake up.

  • rate this

    Comment number 558.

    Put a Chip and PIN card reader in every car - no insurance, no driving!

    We got a HYS on breathalyser technology, now we're allowed to discuss insurance...!

    Does this "government" have any sensible ideas of their own, or do they rely on HYS to find out what might be popular enough to win them enough votes to allow them another five years dictating to us?


  • rate this

    Comment number 557.


    You started work at the age of 12 in 1964?

  • rate this

    Comment number 556.

    "Market forces" as championed by the Tories and their backers seem to work in 2 ways:-
    1 - costs go up.
    2 - pay goes down.

    No wonder people turn to "no-win, no-fee" services to make ends meet!

    Sadly, the result is increased costs - AGAIN!

    This country needs a kick up the proverbial... or a revolution!

  • rate this

    Comment number 555.

    I have been driving for a few months now and looked at the price of car insurance for me and it cost over £2,000 to insure me, while my brother who got insured a few years before me but had been driving the same length of time got insured for under £500 how can it cost more for the same amount of driving experience. There should be a maximum price for new drivers of something like £1,000.

  • rate this

    Comment number 554.

    I have been telling all & sundry this was the case since I started work in a garage at the age of 12!
    I am 60 next month.....Who listened? NF,TW! (Derek & Clive.)
    Just yet another case of Rip-Off-Britain.
    British Bankers, Insurance Companies,et al, they are nothing more than a sordid can of worms.
    (and before the usual: "It's all Maggies fault."comments flood in, re-read my opening sentence!)

  • rate this

    Comment number 553.

    The inept is to investigate the corrupted in the meantime the Government does nothing to protect the consumer from the rip offs all over.

  • rate this

    Comment number 552.

    Personal injury lawyers.
    "Claims Management" companies.
    Parasitic shysters, the lot of them.

  • Comment number 551.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 550.

    Why not put a penny on a litre of fuel and provide everyone with third party cover. Then, anyone who wants/needs theft, damage or other cover can make an additional payment. The more mileage a driver undertakes, the more they contribute to the pot. It would also provide cover for overseas drivers.
    It might put some insurers, car repairers and car hire people out of business, but - so what?

  • rate this

    Comment number 549.

    Maybe if the court's didn't always bash the motorist?

    "I may have been cycling the wrong way up a one way street, at night
    with no lights and drunk but he was doing 31mph!".

    "Clearly a speed related accident. Give the 'victim' his compo."

    ... and everyone else's premiums go up to pay for it.

  • rate this

    Comment number 548.

    What do you expect from your insurer? Peace of mind that a legit claim will be paid, I guess. How does that happen? Collect enough to pay all expected claims with a bit to spare. To do that, sell policies at a price people are happy to pay. To say all insurance is a scam is ignorance in the extreme. A £300 policy lead to a £50m payout for the Hatfield rail disaster. Self-insure that!

  • rate this

    Comment number 547.

    It is not just the rocketing premiums, the minimum 'excess' payments have gone up disproportionately. The selling of information is widely done but illegal under the DPAct, why doesn't the commissioner do something? Without the info racket, the TV advertising lawyers would be seriously handicapped(hurrah). Make our own insurers cover vehicle hire whether we are at fault or not. Fleecing sorted.

  • rate this

    Comment number 546.

    Car Insurance tax check how much you are charged when you next renew your premium.
    Its about £50 for me.
    Its a GOVERNMENT tax introduced to pay for claimants of drivers who DIDN'T have insurance.( so they say )
    Hardly fair, & I am sure the `government' doesn't mind sucking that off us.
    Air port tax " for increased terrorism risk'
    Dumb people for excepting this crap

  • rate this

    Comment number 545.

    Disfunctional? Its a black art that even the Insurance brokers can't explain. A good deal from an insurance company is about as likely as the UN choosing Robert Mugabe as a special tourism ambassador. Hmm hold on a minute, they just did.

  • rate this

    Comment number 544.

    I received my renewal notice, with a price. I compared the price and got several quotes nearly £100 cheaper. I then put the car details in with my existing insurer as new business via their website, and the price also came back nearly £100 cheaper. For the same policy, on the same car, with the same company.

    Are we being ripped off? Too right we are!

  • rate this

    Comment number 543.

    I agree. As ethic minorics (Chinese), I welcome the police to stop and check my insurance. It cause me fortune. In fact, I understood police could identify uninsured vehicle by checking just the reg plate. Those people should be stopped and penalized. If they are not local residents, don't give them residency.


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