Car insurance market referred to Competition Commission


Association of British Insurers' Nick Starling: "This is a great opportunity to make sure that the consumer gets the service they need"

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The market for car insurance has been referred to the Competition Commission for investigation on the basis that it is not working well for motorists.

The Office of Fair Trading (OFT) made the referral because it was worried the structure of the market was making costs and premiums unnecessarily high.

It found that insurers of "at-fault" drivers had no control over the amount spent on repairs or replacement vehicles by "not-at-fault" drivers.

The Commission has two years to report.

'Higher costs'

The OFT provisionally decided in May that the market, worth an estimated £9.4bn in the UK, needed more investigation. It has reached its final decision after a public consultation process.

"Competition appears not to be working effectively in the private motor insurance market," said OFT chief executive Clive Maxwell.

Start Quote

The OFT found what insurers have known for years - that when a customer has a crash that is their fault, their insurer has little control over the cost of the subsequent claim”

End Quote Nick Starling Association of British Insurers

"The insurers of at-fault drivers appear to have little control over the bills they must pay, and this may be leading to higher costs for them and ultimately higher premiums for motorists."

The OFT was particularly concerned that replacement vehicles being provided could be unnecessarily expensive and they could be being provided for longer than necessary.

The regulator's report earlier in the year suggested that the market was "dysfunctional".

It claimed that replacement car hire was on average £560 more expensive each time than it needed to be. Each repair was on average £155 more expensive as well.

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

The report said that such practices were pushing up total premiums by about £225m a year - potentially about £10 per policy.

'Serious concerns'

The Association of British Insurers (ABI) welcomed the review.

Car crash test The Competition Commission has two years to report

"The OFT found what insurers have known for years - that when a customer has a crash that is their fault, their insurer has little control over the cost of the subsequent claim," said Nick Starling, the ABI's director of general insurance.

"Regulation of all players in the market to tackle excessive costs is needed, and we look forward to working with the Competition Commission to bring much needed reforms to the market that will, in turn, result in lower car insurance premiums for everyone."

However, the Credit Hire Organisation (CHO), which represents car hirers, said premiums were rising owing to an increase of whiplash claims ahead of anything else.

Martin Andrews, chief executive of the organisation, argued that giving at-fault drivers' insurers more control could mean they try to avoid ways of giving the not-at-fault driver a replacement car.

"We continue to have serious concerns as to the long-term impact it may have on the motoring consumer and their right to mobility after an accident that was not their fault," he said.

The latest investigation comes after 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 Competition Commission can choose to cover all these issues in the scope of its inquiry.


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  • rate this

    Comment number 431.

    The whole thing has been made so opaque and convoluted that nobody gets a fair deal. Blameless people are penalised because their job, their age, their location. The system should work purely on blame-claims and the no-claims bonus should be something that is worth driving more carefully for. There should also be steeper discounts for taking additional driving exams.

  • rate this

    Comment number 367.

    Not before time. Premiums keep on rising for drivers who have never been involved in an accident and there is no reward for being a careful driver other than the no claims bonus which is now a joke. A car reversed into me in a car park and it took 14 months to settle. My insurer increased my premium and said I would get a refund if it was proven not to be my fault. Not my fault but no refund!!

  • rate this

    Comment number 258.

    Im 19, and last year my premium was £3200 for a 1000cc Chev Matiz.
    I need my car to get to work, but how are most teenagers supposed to go and find work if they can not afford car insurance?. (young people that are out of work is such a big problem, and this is one of the key reasons). Most young people are now avoiding paying high premiums by taking out insurance under their parents

  • rate this

    Comment number 73.

    Make motor insurance like car tax. A car falls into a certain 'band' and you pay the fixed price for that banding. The prices are determined by the government, and the insurance cover provided is the same for all. No reason why this shouldn't work, after all both are legal requirements, the government holds all the data anyway..... Or are these parallels too blindingly obvious??

  • rate this

    Comment number 72.

    At 35 having never made any claims to any insurers I have spent over £20,000 for cover and yet my premiums are still rising as I am having to pay for everyone who falsely claims... and the texts about PPI, injuries and other services I don't want are really annoying. With so much cash racked up I should never have to pay any more premiums.
    Costs are more than ever before? Rip-off merchants


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