Simon Read: The real reason car insurance costs have soared? Backhanders
Car insurance appears to be a minefield of dodgy charges and blatant backhanders. This week the Office of Fair Trading (OFT) published evidence that showed insurers have been ramping up repair costs and the charge of hiring a replacement vehicle.
It's a shocking tale that reveals the market is out-of-control with no one firm prepared to play fair and stop the dubious practices because they know they'll be hit by rivals continuing the tactics.
The industry seems to have completely lost sight of what it should be doing: that is, providing competitively price cover for drivers. Instead, as OFT chief John Singleton said, "insurers are distracted from competing on the quality and value of service".
What's been going on? According to the OFT, motor insurers have been effectively colluding with vehicle hire companies, repair firms, paint suppliers, and car parts suppliers to beef up charges.
At the heart of the problem are the referral fees and rebates that suppliers pay to insurers in order to get business from them.
Insurers can trouser the fat fees while encouraging suppliers to inflate their bills knowing that other insurance companies will have to pick up the tab.
That's because there are two sets of insurers involved in any accident claim. On the one hand is the company representing the person who may have caused an accident. Working against it is the insurer of the driver of the vehicle that may have been damaged by the other.
The person who has been hit is the not-at-fault driver. His or her insurer arranges the repairs and any replacement vehicle for the policyholder while their car is in the shop.
And herein lies the problem: because the insurer of the not-at-fault driver is not picking up the bill, it doesn't really care how much it comes to. Worse, most insurers, according to the OFT, encourage repair companies and car hire firms to inflate the costs, so that the insurance firm paying the bills has to dig deeper into its pockets.
In effect its a cheap trick to hit the profits of rivals. But because all firms play the game, it's not the insurers who end up getting stung, but the motorists, who are charged higher premiums for their cover.
The OFT says insurers are paid referral fees of between £250 to £400 per hire car when a replacement is needed. On top of that they appear to encourage the cars to be hired for longer that necessary.
That means the bill for a replacement vehicle soars to £560 more than it needs to. If that's not bad enough, insurers have similar deals in place with repair firms, which adds £155 to the cost of each repair made.
The OFT says some insurers even have agreements with their suppliers to charge higher labour rates when repairing vehicles, so that rivals get hit with bigger bills.
The OFT hasn't named and shamed any insurance companies in this scandal but that's because they all seem to be at it. So it's good that it plans to refer the industry to the Competition Commission.
We must get rid of all these dodgy practices that hit drivers. The only problem is that if the Competition Commission does launch an investigation, it won't be until after October and then it may take up to two years.
We need this sorted out much more quickly. A start would be to ban referral fees from all suppliers. There is a ban on referral fees from lawyers that is due to come into effect from next April. It would be sensible to extend that ban to car hire companies and repair firms.
But it's not been all bad news from motor insurers this week. The AA, Britain's biggest broker, said that any AA-insured driver involved in a collision with an uninsured driver will not suffer loss of their excess or no-claim discount.
This is an important move. It's clearly unfair that an innocent driver should end up paying the penalty of a lost no-claim discount. It can, in some cases, instantly double the cost of cover, which means people who are innocent of fault in an accident, often end up being victims twice over if they are hit by an uninsured driver.
It happens more than you probably realise: around one in 25 drivers on Britain's roads has no insurance. And while innocent motorists will normally have their no-claims discount restored once compensation is paid out by the Motor Insurers' Bureau, there really is no reason for them to suffer financially in the meantime.
Direct Line introduced the concept of an uninsured drivers' promise eight years ago and others have followed. So it's a big cheer that the AA has finally caught up. But all other insurers should follow.
Later in the year the EU gender directive will force insurers to stop offering better deals on the basis of someone's sex. That could increase the cost of all policies. Before then insurers must start to clean up their act and offer decent service.
- 1 Gun instructor accidentally shot dead by nine-year-old girl with Uzi gun
- 2 Miley Cyrus' homeless MTV VMAs date, Jesse Helt, is wanted by the police
- 3 Notting Hill Carnival: Woman shares selfie after being ‘punched in face for telling man to stop groping her’
- 4 Pamela Anderson rejects ice bucket challenge because of ALS experiments on animals: 'Mice had holes drilled into their skulls'
- 5 Homer Simpson has taken the ALS ice bucket challenge because of course he has
Exclusive: We share blame for creating 'jihad generation', says Muslim strategist
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
Scottish independence TV debate: Pumped-up Alex Salmond bounces back in bruising second round against Alistair Darling
Do you realise just how foolish the UK looks?
Jeremy Clarkson is a cultural tumour and needs to be removed, says comedian Frankie Boyle
- < Previous
- Next >
iJobs Money & Business
£40000 - £48000 per annum + benefits+bonus+package: Harrington Starr: C# Devel...
£45000 - £60000 per annum + benefits+bonus+package: Harrington Starr: C# Swift...
Negotiable: Harrington Starr: A fast growing Financial Services organisation b...
£50000 - £60000 per annum + excellent benefits: Harrington Starr: An award-win...
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