Car Insurance Market To Be Investigated By Competition Commission

Britain’s motor insurance market is to come under increased scrutiny after a report by the Office of Fair Trading (OFT) found that distorted car hire and repair charges could be inflating premiums by some £225 million a year.

Car insurance premiums rose by 12 per cent between 2009 and 2010, and by a further 9 per cent in the first three quarters of 2011.

According to the OFT, a large part of that increase is down to insurers driving up the costs of providing replacement vehicles and repairs to not-at-fault drivers by an average of £560 and £155, respectively, following an accident.

The watchdog said it also found evidence that, following an accident, many insurers of not-at-fault drivers refer the drivers to credit hire organisations – businesses that provide replacement vehicles to drivers involved in accidents. These groups tend to charge higher rates in exchange for referral fees of around £250 to £400 per hire car .

Furthermore, agreements with credit hire organisations often run for longer periods than direct hire arrangements, in some cases because the credit hire companies are deliberately delaying repairs.

All these costs are passed on to the insurance company of the at-fault driver, who in turn, increase their car insurance premiums for all drivers.

“On the basis of the evidence collected, the OFT has reasonable grounds to suspect that there are features of the private car insurance market that prevent, restrict or distort competition,” the watchdog said.

Chief executive John Fingleton confirmed that it intends to refer the market to the Competition Commission for a more in-depth investigation.

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