The Office of Fair Trading (OFT) has announced a provisional decision to refer the private motor insurance market to the Competition Commission after a study found ‘evidence that insurers compete in a dysfunctional way that may push up premiums for drivers by £225m a year’.
The accusation is that costs are inflated by the insurer of the ‘not-at-fault’ driver, with claims management referral fees and whiplash claims in the spotlight.
It could have implications for dealers’ revenue streams from accident management services and crash repair.
Welcoming the news, Nick Starling, of the Association of British Insurers (ABI), said: “For too long insurers and people paying premiums have faced inflated rates for credit hire cars and excessive hire periods, which have led to higher premiums,” he said.
Andrew Moody, managing director of Retail Motor Law (RML), said: “I applaud the OFT. It is the right decision given the shocking evidence.”
Dealers have told AM of their concern that younger and inexperienced drivers are being deterred from car ownership because of high insurance costs.
The OFT’s study suggest that practices which appear to inflate the cost of replacement vehicles provided to not-at-fault drivers, making it on average £560 more expensive each time, included:
- After road traffic accidents, many insurers of not-at-fault drivers, brokers and repairers, refer those drivers to credit hire organisations that tend to charge higher daily hire rates, in exchange for a referral fee of between £250 and £400 per car hire.
- Not-at-fault drivers appear to receive replacement vehicles for longer than necessary, leading to inflated bills for the at-fault driver’s insurer.
- Practices which appear to be inflating the cost of repairs to not at-fault drivers’ vehicles by £155 on average each time, included:
- Some insurers receive referral fees and rebates from repairers, paint suppliers and parts suppliers. It appears the cost of these referral fees and rebates to insurers increases the repair bills being passed to the at-fault driver’s insurer.
- Certain insurers have agreements with their approved repairers to charge higher labour rates when repairing the vehicle of the not-at-fault driver which they insure, leading to higher bills being passed to the at-fault driver’s insurer.
A final decision is expected in October.