Car insurance premiums 'too high', says Competition Commission

Competition Commission warns that too many drivers are footing the bill for "unnecessary" costs

Car insurance premiums are too high and should be reduced through far-reaching reforms, the competition watchdog has said. (GETTY IMAGES)

Car insurance premiums are unnecessarily high and should be reduced through "far reaching reforms", the competition watchdog has said.

The Competition Commission has warned that too many drivers are footing the bill for "unnecessary" costs resulting from replacement cars and repairs following an accident.

These costs are initially borne by the insurers of at-fault drivers, but they feed through into increased insurance premiums for all drivers.

The watchdog is also concerned about the relationship between price comparison websites and insurers, signalling that drivers often struggle to identify the best value products.

Motorists have limited information about add-on insurance products, which puts them at a disadvantage, according to the watchdog.

Alasdair Smith, who is leading the investigation, said: "We are now considering a range of possible measures, some of them far-reaching reforms, to ensure that the market better serves the interests of customers."

These include plans to limit the cost of replacement vehicles, or making the insurance company of the not-at-fault driver responsible for providing a replacement car, as well as giving at-fault insurers greater opportunity to take control over managing claims.

The report estimates the extra premium costs due to the separation of control and liability on replacement cars and repairs is between £150 million and £200 million a year.

The watchdog also found that repairs are often not completed to the required standard, suggesting that compulsory audits of repair quality could be introduced in the future.

"This separation of control and liability creates a chain of interactions which result in higher costs for replacement cars and for repairs being passed on to at-fault insurers,

"There is insufficient incentive for insurers to keep costs down even though they are themselves on the receiving end of the problem," it said.

The Commission has been studying the multi-billion pound private motor insurance market for more than a year, following a referral from the Office of Fair Trading.

The Association of British Insurers (ABI) said the report was "a further step along the road to getting a market that enables insurers to deliver fully for consumers".

James Dalton, ABI's head of motor, said: "As an industry we remain absolutely committed to improving the car insurance market for hard-pressed motorists.

"We asked for the commission's inquiry into the market to help insurers continue the work we are already undertaking to remove costs that unnecessarily drive up car insurance premiums.

"We look forward to continuing to engage with the Competition Commission as it carries forward its work and we hope that this will lead to further improvements in the market and lower premiums for customers".

The watchdog is set to publish a complete report by September 2014.

Additional reporting by agencies