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OFT investigates car insurance costs

OFT investigates car insurance costs

Category: Car insurance

Updated: 26/11/2012
First Published: 14/12/2011

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The Office of Fair Trading (OFT) is to investigate the rising cost of car insurance.

Evidence gathered by the regulator suggests that car insurance premiums paid in the UK rose by around 12 per cent between 2009 and 2010, and by a further nine per cent in the first three quarters of 2011.

Responses received by the OFT indicated that a key factor in these increases has been a rise in the costs associated with personal injury claims.

In addition, the increased cost of third party non-injury claims, which include credit hire replacement vehicles and third party vehicle repairs, are also said to be factors which have had a notable impact.

As a result of its work, the OFT said it has 'reasonable grounds' for suspecting that there are features of the car insurance market that 'restrict and distort competition' in relation to the provision of third party vehicle repairs and credit hire replacement vehicles to claimants.

In particular, it found that insurers responsible for meeting third party claims for credit hire replacement vehicles and/or vehicle repairs appear to have only limited control over the choice of provider and appear to find it difficult to assess the extent to which the costs claimed are reasonable.

As a result, the OFT says rival insurers, brokers and credit hire providers may have the opportunity, and the incentive, to carry out practices which allow them to generate revenues through referral fees, while simultaneously inflating the costs that the third party insurer has to meet.

"This in turn may contribute to car owners having to pay higher premiums," explained the regulator.

Concern has also been expressed about the provision of motor legal protection cover to car owners, in particular, the complexity of the cover, and the difficulties car owners face in assessing the product's value for money.

Consequently, the OFT has called on the Financial Services Authority to work with insurers to ensure car owners have access to appropriate information when purchasing such cover.

"Our concerns relate to the provision of third party vehicle repairs and credit hire replacement vehicles to claimants, where we suspect companies may be competing to extract money from each other rather than keeping premiums as low as possible and providing car owners with value for money," said Sonya Branch, OFT senior director of services, infrastructure and public markets.

"By carrying out a market study, we aim to clarify whether a market investigation reference to the Competition Commission is appropriate."

The study is expected to be completed by Spring 2012, but in the meantime, the best way to keep car insurance premiums down is to find the very best deal in the market.

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