cAR insurance providers are to face a full-blown investigation after competition watchdogs found premiums were being pushed up by £225m a year.
The Office of Fair Trading (OFT) has referred the industry – worth an estimated £9.4bn – to the Competition Commission after discovering at-fault drivers had little control over the way repairs are carried out and courtesy cars provided to not-at-fault drivers.
It said the practices were driving up premiums, potentially by about £10 per policy.
Bradford East MP David Ward, whose constituency is regularly named as a hotspot for some of the country’s highest premiums, is a long-time campaigner for affordable car insurance.
Welcoming the decision yesterday, he said: “What it proves is there’s now a definite commitment to do something about this issue. The system really needs to be fixed – it is spiralling out of control.
“What this needs to achieve is to reverse this spiral so, instead of the pressure always being on increasing the level of insurance premiums, they are driven down.”
The OFT, which provisionally decided to make the referral in May, said there was no “quick fix” and further investigation was needed. The commission has up to two years to report its findings.
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.”
In May, the OFT said the market was “dysfunctional”, with signs that insurers of at-fault drivers are being taken advantage of by insurers of those not-at-fault and others involved in providing repairs and replacement vehicles.
This is thought to be inflating the cost of providing courtesy cars by an average of £560 a time, while the cost of repairs was £155 more.
It said after crashes, many insurers of not-at-fault drivers, brokers and repairers, refer drivers to organisations that often charge higher rates in exchange for referral fees of up to £400 per hire car.
The bills paid by the insurers of at-fault drivers can be inflated further because not-at-fault drivers are given replacement vehicles for longer than necessary.
Repair bills paid by the insurers of at-fault drivers are pushed up because some insurers receive referral fees and rebates from repairers and suppliers.
S ome insurers even have agreements with repairers to charge higher labour rates when repairing the vehicle of the not-at-fault driver.
These practices boost the revenues of the not-at-fault driver’s insurers as well as pushing up costs for the at-fault driver’s insurers.
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