Car insurance premiums too high, Competition Commission says

Vehicles Some post-accident repairs were substandard, the Commission found

Related Stories

Motor insurance premiums are unnecessarily high for all drivers owing to the complex chain of claims, the Competition Commission has said.

The higher premiums come from the cost of courtesy cars and repairs which is paid by the insurers of motorists who caused the accident.

The Commission discovered that post-accident repairs were often shoddy.

It also raised concerns about difficulties for motorists trying to identify the best value products.

Repairs and replacements

The Commission has been studying the £11bn private motor insurance market for more than a year, following a referral from the Office of Fair Trading (OFT).

It agreed with the OFT that the system was not working well for motorists.

It found that premiums were pushed up because the insurer of a driver who was not to blame in an accident arranges for a replacement car or repair, but the at-fault driver's insurer foots the bill.

Start Quote

If these reforms go ahead, we're going to be back to the situation we were in 20 years ago when accident victims were forced to take the bus”

End Quote Martin Andrews Credit Hire Organisation

"This separation of control and liability creates a chain of interactions which result in higher costs for replacement cars and for repairs being passed on to at-fault insurers," it said.

"The Commission estimates the extra premium costs to be between £150m and £200m a year.

"There is insufficient incentive for insurers to keep costs down even though they are themselves on the receiving end of the problem."

The Commission will now consider ways to fix the market, with a final report published by September 2014.

The options include a cap on the cost of replacement vehicles, or making an insurer of the not-at-fault driver responsible for providing the replacement vehicle.

Alternatively, the insurer of the at-fault driver could manage the claim.

Worries

Other concerns raised by the Commission, affecting drivers of 25 million privately registered vehicles in the UK, include:

  • "Too many" substandard repairs following an accident
  • Limited information about add-on insurance products, making it difficult to identify the best-value offers on the market
  • Price-parity contracts between price comparison websites and insurers, which mean that the policy is not offered more cheaply elsewhere.

Graeme Trudgill from the British Insurance Brokers' Association says premiums have already been coming down in price

The Commission will consider the idea of compulsory audits of repairs and the requirement of clearer information on price comparison websites.

"[These] possible remedies are a further step along the road to getting a market that enables insurers to deliver fully for consumers," said James Dalton, of the Association of British Insurers (ABI).

"We look forward to continuing to engage with the Competition Commission as it carries forward its work and we hope that this will lead to further improvements in the market and lower premiums for customers."

The Commission believes that premiums could be reduced by £6 to £8 per policy if changes were made to the claims process.

But Martin Andrews, director general of the Credit Hire Organisation - which represents replacement vehicle providers - said that the Commission had focused on the wrong target.

"Premiums need to come down, but not at the erosion of the legal rights of motorists who are in accidents that aren't their fault," he said.

"Insurance companies have no incentive to provide a replacement car to a non-fault driver and can easily bully motorists into believing they are not entitled to one.

"If these reforms go ahead, we're going to be back to the situation we were in 20 years ago when accident victims were forced to take the bus."

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

Business Live

  1.  
    07:24: Direct Line results
    Direct Line website

    It's been a good 2014 for Direct Line, with pre-tax profits up 12% to £456.8m and a windfall of £430m from the sale of its international business. Shareholders will pocket total dividends of 27.2p per share, up from 20.6p in 2013. Harvey Keitel probably pocked a pretty penny too for featuring in its TV ads.

     
  2.  
    07:16: Barclays results

    Antony Jenkins will take his first bonus as chief executive of the lender: £1.1m. The bank also said it would increase its provision for payment protection insurance (PPI) by £200m for the last three months of 2014, taking the year's total to £1.1bn. Excluding these provisions and other things the bank considers one-offs, pre-tax profit rose 12% to £5.5bn. But including the nasties, the figure sank 21% to £2.26bn.

     
  3.  
    07:03: Barclays results
    bank

    Barclays have posted their 2014 results. They have set aside an extra £750m after those investigations for foreign exchange manipulation, taking the pot to £1.25bn.

     
  4.  
    06:53: Barclays BBC Radio 4
    Barclays

    Chris Wheeler, of Atlantic Equities, has also popped up on Today. He tells Simon Jack that Barclays is doing only "averagely well ... it's still work in progress". He expects pre-tax profits to be about £5.2bn when the bank reports its annual results at 7am.

     
  5.  
    06:35: Markets performance Radio 5 live

    Justin Urquhart-Stewart of 7 Investments is still on 5 live. "We are dealing with companies that make a profit and make things," he says of the Nasdaq's rally. The dotcom boom was based on companies that failed to make money, although "we have to be wary" because markets in 2015 are gorged on cheap money and cheap debt.

     
  6.  
    06:23: Barclays results Radio 5 live

    Chris Wheeler of Atlantic Equities is talking about Barclays. £5.2bn pretax profits are on the cards for the bank in its annual results, he estimates - a tad ahead of last year's result. However, "it's the return on equity that counts", he says. The bank is struggling to make 10%, which for a high-risk endeavour like banking is not where you want that figure, Wheeler adds. Results come at 07:00.

     
  7.  
    06:11: Markets performance Radio 5 live

    Justin Urquhart-Stewart of 7 Investments is on 5 live as the markets guest. "You have a global economy in pretty good shape and in the eurozone some better figures," he says, following soaring US markets. The FTSE 100 may grow further if there's better sentiment from China, he adds.

     
  8.  
    06:02: Mobile World Congress Radio 5 live
    Kazuo

    Rory Cellan-Jones, technology correspondent, is in Barcelona at the Mobile World Congress. Sony chief executive Kazuo Hirai is "making some tough decisions" and focusing Sony on things like films and games and camera technology: the areas that make money, he tells 5 live. Like many companies, it's finding mobile phones a tricky market.

     
  9.  
    06:00: Chris Johnston Business reporter

    Get in touch via email bizlivepage@bbc.co.uk or on twitter @BBCBusiness

     
  10.  
    06:00: Howard Mustoe Business reporter

    Good morning! US stocks hit record levels, with both the Dow Jones and the S&P 500 closing at all-time highs and the Nasdaq breaking the 5,000 barrier for the first time in 15 years. Is that going to last? Stay tuned for more.

     

Features

  • Mukesh SinghNo remorse

    Delhi bus rapist says victim shouldn't have fought back


  • Aimen DeanI spied

    The founder member of al-Qaeda who worked for MI6


  • Before and after shotsPerfect body

    Just how reliable are 'before and after' photos?


  • Lotus 97T driven by Elio de AngelisBeen and gone

    A champion F1 designer and other notable losses


Try our new site and tell us what you think. Learn more
Take me there

Copyright © 2015 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.