Car insurance industry faces investigation
The motor insurance industry is to face a full-blown investigation after competition watchdogs said the market was not working well for consumers and found premiums were being pushed up by £225 million a year.
The Office of Fair Trading (OFT) has referred the industry - worth an estimated £9.4 billion in the UK - to the Competition Commission after discovering at-fault drivers had little control over the way in which repairs are carried out and replacement vehicles provided to not-at-fault drivers.
It said the practices were ramping up premiums, potentially by around £10 per policy.
The OFT, which provisionally decided to refer the industry to the Competition Commission in May, said there was "no quick fix" to the problems identified and that further investigation was needed.
The commission now has up to two years to report its findings.
Clive Maxwell, chief executive of the OFT, 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."
News of the referral comes as Royal Bank of Scotland puts the finishing touches to the stock market flotation of its Direct Line Group insurance arm.
But the investigation is not expected to throw the plans off track.
In May, the OFT said the motor insurance market was "dysfunctional", with signs that insurers of at-fault drivers are being taken advantage of by insurers of not-at-fault drivers and others involved in providing repairs and courtesy cars.
This is thought to be inflating the cost of providing replacement vehicles 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 the drivers to organisations that tend to charge higher rates in exchange for referral fees of around £250 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.
When it comes to repairs, bills paid by the insurers of at-fault drivers are pushed up because some insurers receive referral fees and rebates from repairers and suppliers.
And some 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 insurer of the not-at-fault driver as well as pushing up the costs for the insurers of the at-fault driver.
The higher costs are eventually passed on to drivers through higher premiums.
The Association of British Insurers (ABI) welcomed the referral to the Commission to "tackle excessive costs" and help bring down premiums for drivers.
Nick Starling, director of general insurance at the ABI, said: "The OFT found what insurers have known for years - that when a customer has a crash that is their fault, the insurer has little control over the cost of the subsequent claim.
"For too long insurers have faced inflated rates for credit hire cars and excessive hire periods which have led to higher insurance premiums for customers."
The Motor Accident Solicitors Society added the industry and Government needed to work together to "clean up the system".
Donna Scully, chairwoman of the society, said a Competition Commission investigation was "an important and vital step in addressing a complicated sector that isn't working efficiently or effectively".
- 4 Women think Irish men are the sexiest, survey finds
- 5 Florida couple forced to register as sex offenders for having sex on public beach
Italian police 'reveal' what Jesus looked like as a young boy
Who should I vote for in the general election? Take The Independent's interactive quiz to find out which party is the right choice for you
Florida couple forced to register as sex offenders for having sex on public beach
Mysterious 'X-Files' sounds heard miles above the Earth
US gameshow gives woman in wheelchair incredibly awkward prize
In defence of liberal democracy
General Election 2015: Post-election 'shambles' looms as 70 per cent of voters say SNP 'should not be able to veto UK government policies'
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
General election live: SNP suspends two members for disrupting Labour rally
Schools forced to act as 'miniature welfare states' with teachers buying underwear and even haircuts for poor pupils
£35000 - £40000 per annum + car and benefits: Ashdown Group: Marketing Manager...
£18000 - £20000 per annum: Ashdown Group: Helpdesk Analyst - Devon - £20,000 ...
£35000 - £50000 per annum + generous bonus: Ashdown Group: Business Analytics ...
£45000 - £50000 per annum: Ashdown Group: IT Project Coordinator (Software Dev...