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OFT refers car insurance to Competition Commission

Concerns over replacement vehicles and repairs

OFT Car insurance

OFT has found expensive repairs and replacement cars adding to premiums

The Office of Fair Trading (OFT) has provisionally decided to refer the car insurance market to the Competition Commission after it found that the market is ‘dysfunctional’.

Research by the OFT highlighted that dubious practices within the private car insurance market were costing drivers an extra £225 million per year in inflated premiums. This follows recent Which? research indicating that insurers have been putting through premium increases of up to 20% when the driver’s circumstances appear not to have changed.

High cost of repairs and replacement vehicles

After a road traffic accident, the at-fault driver’s insurer is responsible for meeting the cost of repairs and replacement vehicles for the not-at-fault driver. However, in its market study published today, the OFT found evidence that insurers of at-fault drivers have little control over the way in which these repairs and vehicle replacement services are carried out or the associated costs.

Instead, 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. This is an inefficient way for the sector to operate, the OFT has concluded, raising the total costs for providing private motor insurance which drivers end up paying.

Which? welcomes further investigation into car insurance

Which? Executive Director, Richard Lloyd says: ‘Consumers have been hit time and again with significant increases in costs for their car insurance without seeing increased benefits to their policy. Our research has even found instances where policy-holders had their fees increased but the new policy had fewer benefits.

‘The Office of Fair Trading found a pattern of complicated fees and charges so we want to see greater transparency and pressure on insurers to reduce prices. We would also welcome an investigation by the Competition Commission to put an end to bad practices and give consumers a better deal on their car insurance.’

OFT Chief Executive John Fingleton said on the release of the report: ‘Competition in this market does not appear to work well for drivers. We believe the focus that insurers have on gaining the competitive edge through raising their rivals’ costs means that drivers pay more than they need to for their motor insurance policies.

‘Because insurers are distracted from competing primarily on the quality and value of service provided to insured drivers, incentives for greater efficiency may be reduced.

‘There does not appear to be an appropriate, quick fix to these problems. We have provisionally decided that a more in-depth investigation by the Competition Commission, which has a range of additional tools at its disposal, may be necessary.’

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