James Moore: Insurers cost drivers and themselves money with their own incompetence

Outlook Who to believe? The Office of Fair Trading lambasted motor insurers yesterday for overcharging customers to the tune of £225m. But just a day earlier Investec's insurance analyst produced a report calling the industry "inherently unprofitable" and advising clients to sell Admiral, a notable exception until the wheels started to fall off last year.

Could it be that someone's numbers don't add up?

Right-wing critics, who believe that trade should be free but not fair, will point to the OFT. They'll accuse the watchdog's "communist staff" of unjustly squeezing the industry. What else should one expect from an organisation whose chief economist was once the lead singer of, ahem, Talulah Gosh, an indie band popular in the late 1980s with a certain type of floppy-fringed student.

Left-wing critics will beg to differ, suggesting that the problem lies with the worthy analyst's analysis, which they will probably see as typically City. Just look at the way premiums have been soaring, they'll say. The consumer is clearly being ripped off because of profiteering.

Actually the OFT, floppy fringes and all, and Investec's analyst are both right.

Premiums are up and profits down for the same reason: the ballooning cost of dealing with accidents.

In recent months the finger has been pointed at the rise in allegedly false whiplash-related compensation claims. That, however, is a sideshow. Unnecessary costs start ticking up as soon as the mangled wreckage has been towed from the scene of a smash.

Insurers for the victims rack them up by using favoured credit hire companies to supply courtesy cars (often for longer than necessary), favoured garages to handle repairs (at inflated costs) and favoured lawyers to handle those compo claims (ditto). No control is exerted because everything can be recovered from the guilty party's insurers.

It doesn't seem to matter to those victims' insurers that they could be on the other side of this process through insuring an at-fault driver two miles down the road. Quite often they'll actually be on both sides of the same smash. With no discernable impact on those costs.

The lack of profitability identified by Investec and the overcharging by the OFT is caused by the same thing: the incompetence of the people who run insurance companies. Sadly, it will take more than the OFT's provisional referral to the Competition Commission to fix that.

Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific