Drivers pay £10 extra on premiums due to 'dysfunctional' motor insurance market
Friday 28 September 2012
British drivers are paying an extra £10 each year in premiums due to a “dysfunctional” motor insurance market, according to the trading watchdog.
The Office of Fair Trading (OFT) said the £9.4 billion-a-year market was not working well for consumers amid concerns that insurers are focusing too much on pushing up rivals' costs.
It wants to see firms concentrate on the quality and value of the service they provide to customers.
The industry has come under fire for soaring motor insurance premiums, which rose by 12% between 2009 and 2010 and a further 9% in the first three quarters of 2011, at a time when consumers have already been squeezed by high living costs, including petrol prices.
The OFT estimates the problems it has uncovered cost private motor insurers £225 million last year and mean consumers could be paying an extra £10 per private motor insurance policy.
The commission, which has intervened before on issues such as the sale of payment protection insurance, has wide-ranging powers to restructure the market and make firms sign up to binding agreements in cases where this is felt necessary.
The probe comes at a time when MPs have been looking at how to tackle spurious whiplash claims, which have also been ramping up premiums.
Prime Minister David Cameron has vowed to take on the "compensation culture", including the £2 billion-a-year costs associated with whiplash that are forcing up insurance costs for all motorists.
Proposals include consulting on the feasibility of introducing independent medical panels.
The independent medical experts, who would have no direct links to either claimants or defendants, would replace the current assessment of whiplash injuries by either GPs or doctors employed by medical reporting organisations.
The private motor insurance market in the UK was estimated to be worth £9.4 billion in 2010, with the cost of third party property damage, including repairs and replacement vehicles to not-at-fault drivers, standing at around £1.4 billion.
Under the law, drivers who are not at fault are entitled to be put back in the position they were before the accident happened, which could include receiving a replacement vehicle.
The OFT found that insurers of the driver at fault have "little control" over how repairs and courtesy car services are carried out.
Insurers of the drivers who are not at fault take advantage of this to make cash through referral fees and rebates.
These extra expenses ramp up the costs for other insurers, which end up being passed on to drivers as their premiums go up.
From the late 1980s, credit hire companies began to supply replacement vehicles on credit terms, recovering the costs from the at-fault drivers' insurer.
While this has improved the service that the not-at-fault driver receives, some insurers believe the cost of this is too high.
The OFT has pinpointed several practices which could be inflating the cost of replacement vehicles, including insurers of not-at-fault drivers referring them to credit hire organisations which tend to charge higher daily rates, in exchange for referral fees of up to £400.
It was also concerned that courtesy cars were being provided for longer than necessary.
The watchdog highlighted further practices which could be increasing repair costs to not-at-fault drivers' cars, including agreements between insurers and repairers to charge higher labour rates.
Apple agrees deal with Visa on contactless payments
Five Questions: Changes to car tax discs
Bargain Hunter: There's one day left to book a bargain flight with Air Asia
A student's guide to financial survival: You don't have to drown in debt at university
Two million first-time buyers are locked out
How to save money: UK is crashing down the European league table for putting money away
- 1 Half of young women unable to ‘locate vagina’ and 65% find it difficult to say the word
- 2 Perez Hilton apologises for Jennifer Lawrence naked photo leak
- 3 A teacher speaks out: 'I'm effectively being forced out of a career that I wanted to love'
- 4 Mexican woman becomes world’s 'oldest person' at 127
- 5 Jennifer Lawrence 'naked sex video' will be leaked threatens 4Chan celebrity photo hacker
Rotherham child sex abuse scandal: Labour Home Office to be probed over what Tony Blair's government knew - and when
Robin Williams Emmys tribute led by Billy Crystal criticised for including 'racist' joke about Muslim woman
The Rotherham child abuse scandal is a tale of apologists, misogyny and double standards
What do immigrants really think of Britain? Polish immigrant's Reddit post goes viral
Do you realise just how foolish the UK looks?
With Douglas Carswell joining Ukip, my party has taken another giant step forward
iJobs Money & Business
£85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...
£40000 - £50000 per annum: Harrington Starr: You will not be expected to hav...
£500 per day: Harrington Starr: SQL DBA/Developer SQL, C#, VBA, Data Warehousi...
£650 per day: Harrington Starr: .NET Developer C#, Win Forms, WPF, WCF, MVVM,...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony