OFT Targets Insurance Companies

Car Insurance InflationThe Office of Fair Trading is investigating the car insurance sector after claims that companies are inflating the cost of repairs and hire vehicles by over £200m every year.The OFT has discovered that, following an accident, insurers of not-at-fault drivers are adding over £500 on average to the cost of a replacement car, and paying up to £400 to the organisations that provide replacement vehicles. The OFT also discovered that agreements often run for longer periods than direct hire as credit companies deliberately delay repairs!

As a result, the nation’s motor insurers have been reported to the Competition Commission as an investigation begins into whether drivers are being charged hire and repair charges purposefully inflated. The model is thought to contribute to inflated insurance premiums (between 2009 and 2010, insurance premiums rose by 12%, and in the first quarter of 2011, by a further 9%).

Clive Maxwell, OFT chief executive, said the regulator suspects competition in the motor insurance market is being restricted or distorted.

“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.”

John Fingleton, Chief Executive of the OFT added:

“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.”

The Association of British Insurers’ Nick Starling concluded:

“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 consumers”.

The Commission will hold a two-year investigation before communicating its findings.

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