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.
Pensioners to be told how long they have left to live to help them plan their finances
Should I delay retiring because of the Budget?
'My car insurance quote was double what I paid last year. It's outrageous'
How to start your own internet business
Bargain Hunter: The Easter holidays offer some sweet surprises from Playmobil
- 1 Poveglia: 'World's most haunted island' up for sale...is anyone brave enough to buy it?
- 2 The Hobbit: There and Back Again set for possible title change
- 3 Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'
- 4 24 people applied for the 'world's toughest job', here are their interviews
- 5 Andre Johnson: Wu-Tang Clan-discovered rapper severed his penis and jumped from LA building
The food poverty scandal that shames Britain: Nearly 1m people rely on handouts to eat – and benefit reforms may be to blame
US Navy christens huge $3 billion destroyer ship USS Zumwalt that appears as a fishing boat on enemy radar
Scottish independence: It is the English who should be on their knees, begging the Scots to vote ‘No’
Nigel Farage fatigue? Half of voters ‘immune’ to Ukip’s appeal
Nigel Farage on Have I Got News For You: Ukip leader ridiculed over expenses and party 'fruitcakes'
Nigel Farage: I’m taking on the status quo, and the Establishment’s fighting back
iJobs Money & Business
£150.00 per week: QA Apprenticeships: This company has been providing on site ...
£221.25 per week: QA Apprenticeships: This company is a well established Inter...
£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...
£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...
Day In a Page
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
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds