Competition Commission to investigate UK motor insurance market

Posted 30/05/2012

The Office of Fair Trading found that premiums paid by drivers are being inflated by insurers who are deliberately driving up the costs of dealing with claims in what can only be described as a cynical attempt to gain a competitive edge over their rivals by forcing them to price themselves out of the market.The report states that after accidents, many insurers refer their policyholders to organisations that tend to charge higher rates for delivering their services in exchange for referral fees, or other financial benefit. Figures of around ?250 to ?400 have been quoted for referral fees paid per hire car, with referral fees/rebates also being paid by garages to insurers with whom they have agreements. The garages, in turn, tend to charge higher labour rates in order to accommodate these additional costs.The OFT also found that the cost of dealing with accidents was being pushed up by replacement (hire) vehicles being given for longer than necessary.These practices boost the revenues of the insurer of the not-at-fault driver, as well as pushing up the costs for the insurers of the at-fault driver, with insurers playing themselves off against one another – the losers being their policyholders.It is understood that artificial charges could be pushing premiums up by around ?225 million a year, all of which finds its way into the coffers of the insurance industry, the cost of which is passed on to ‘Joe Public’ through higher insurance premiums.John Fingleton, Chief Executive of the OFT, summarised the position when he said: “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.”Clearly, we would all benefit from a more detailed investigation by the Competition Commission and can only hope that the Government fully supports the OFT. If the Government is genuinely interested in protecting the consumer, as opposed to the profits of the shareholders of the insurers, an immediate clamp down is required.Indeed, one can only hope that the Government/insurance industry show the same degree of fervour as it has when it comes to ‘protecting’ us all from the “compensation culture” we apparently live in.Tom Ranson of Ashtons Legal’s Injury Services team comments: “Such sharp practice within the industry has been rife for years, at huge cost to the consumer. It is somewhat ironic that rather than get their own house in order, the insurers continue to take with both hands and look to blame everyone but themselves for the rise in insurance premiums”.