Car insurance market under heavy scrutinyReferred to the Competition Commission

28 September 2012

Car insurance 2

The car insurance market has been referred to the Competition Commission after the Office of Fair Trading (OFT) found that the market is not working well for consumers.

Cost of replacement vehicles and repairs too high

The OFT provisionally decided to refer the car insurance market to the Competition Commission in May this year after a market study gave it reasonable grounds for suspecting that there are features of the market that prevent, restrict or distort competition.

The main problem identified by the OFT is that the car insurance company representing the person who caused an accident has no control over the cost of repairs and replacement vehicles provided to the 'not-at-fault' driver. 

This may allow the insurer of the 'not-at-fault' driver, brokers, credit hire organisations and repairers to inflate the cost of replacement vehicles and vehicle repairs provided to the 'not-at-fault' driver, with the bill being met by the insurer of the 'at fault' driver.

It's been claimed by the OFT 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.

In-depth investigation of car insurance required

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

'Having publicly consulted on our provisional decision, we are still of the view that there is no quick fix to these problems, and that a more in-depth investigation by the Competition Commission is therefore appropriate.'

Car insurance customers have suffered for too long

Richard Lloyd, executive director at Which?, said: 'For too long consumers have suffered above inflation increases on their car insurance premiums without seeing increased benefits to their policy. Rather than rewarding people for their loyalty, consumers are regularly hit with much higher renewal rates.   

'The Office of Fair Trading's decision to refer the motor insurance industry to the Competition Commission is a much needed step in the right direction. The Competition Commission must now conduct a thorough investigation without delay and look at all aspects of the industry to put an end to bad practices and give consumers a better deal.'

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