Car insurers face Competition Commission investigation

The car insurance industry is to be investigated by the Competition Commission amid concerns that it is failing motorists.

The Office of Fair Trading (OFT) warned in May that it has reasonable grounds to suspect that some car insurers are acting in a way that 'prevents, restricts or distorts compensation in the motor insurance market'.

The OFT’s main concern is that when there has been an accident the insurer of the ‘at fault’ driver has little, if any, control over the way repairs and replacement vehicles are provided to the ‘not at fault’ driver. As a result, insurers of the 'not at fault’ driver, credit-hire organisations and repairers are able to engage in practices that inflate their costs higher than they might otherwise be.

Inflated premiums

Ultimately, this leads to higher premiums for motorists. In fact, according to the OFT’s report in May, dysfunctional competition could be pushing up premiums for drivers by as much as £225 million a year.

Clive Maxwell, chief executive of the OFT, said today: 'Competition appears not to be working effectively in the private motor insurance market.

‘Having publicly consulted on our provisional decision, we are still of the view that there is no quick fix to these problems, and that a more in-depth investigation by the Competition Commission is therefore appropriate.'

The Competition Commission now has up to two years to report its findings. If it finds that features of a market are harming competition, it has powers to introduce remedies to fix the situation.

Insurer welcomes OFT decision

Dominic Clayden, claims director at the UK’s largest insurer, Aviva, welcomed the OFT’s decision as an important step to stripping out the excessive costs that have driven premiums skywards.

‘We are particularly pleased that the OFT has expanded the scope of its referral to include non-fault personal injury claims, which have increased in recent years despite a long-term decline in the number of accidents on our roads,’ he added.

The news comes after MPs called on the government earlier this year to crack down on compensation culture in the UK, blaming 'spiraling whiplash claims' for rising car insurance premiums.