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The car insurance market is 'dysfunctional' – I know from my own experience

Amid rising car insurance premiums, Lorna Bourke is worried by the slow pace of reform.


by Lorna Bourke on Oct 03, 2012 at 09:32

The car insurance market is 'dysfunctional' – I know from my own experience

The only surprise about the recent announcement of an investigation by the Competition Commission into motor insurance is that it has taken the authorities so long to recognise that Britain’s 23 million car owners are being ripped off to the tune of many millions of pounds every year.

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.

The Association of British Insurers (ABI) said that it welcomes the inquiry and that ‘much needed reforms’ are necessary. But if that’s the case, why didn’t the ABI do something about this blatant abuse of motorists years ago? ‘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,’ said Nick Starling, director of general insurance at the ABI. 

This is nonsense. Most insurers have ‘approved’ repairers with whom they agree rates for repair work and it is the insurer's fault if they are being overcharged – which they often are. There has already been huge publicity for the rip offs that have occurred over ‘replacement’ cars with car hire firms charging clearly extortionate rates. To date the insurers seem to have done little or nothing about these scams – and it is difficult to understand why since they all push up the cost of claims.

The cost of repairs and replacement vehicles to not-at-fault drivers alone amounts to about £1.4 billion a year. With policyholders ultimately footing the bill for these excessive costs, there has been no incentive – and certainly no will on the part of insurers – to clean up the situation.

Ban on referral fees

The ABI says it called for an across-the-board ban on referral fees – the controversial fees paid by solicitors to claims management companies and insurance firms for personal injury details – together with the introduction of fixed legal costs over a year ago.  ‘Even if we wanted to we could not get all insurers to stop referral fees as it would be against competition law,’ says Malcolm Tarling, a spokesman for the ABI.  ‘And others would continue the practice such as some garages and solicitors – whom we have no power to tell to stop. This is why we called for a blanket ban, and why the government plans to introduce such a ban.’

Tarling points out that not all insurers accept referral fees. ‘Those who do would argue that if they did not get some income in this way, their claims costs in dealing with claims from those firms who do (accept referral fees) would be even higher,’ says Tarling.

The problem is widespread and probably does need government action rather than a voluntary agreement amongst insurers, even if one could be made to stick. The OFT found that mechanics, brokers, credit hire organisations and others can ramp up their income through rebates and referral fees making the market, ‘dysfunctional’.

There was evidence that some insurers took referral fees of up to £400 a time for using favoured repairers and hire companies. The OFT said the practices resulted in the average repair bill being £155 more than it should be and the cost of replacing a vehicle costs on average £560 more than it should, resulting in higher insurance premiums averaging £10 a year for all motorists. 

Overpriced repairs: my experience

This is probably a significant underestimate if my own experience is anything to go by. A few weeks ago someone drove into the back of me at speed. I was stationary in a queue of cars at traffic lights on the A303. The car which hit me was a write off but my car was largely undamaged because I have a tow-bar on the back which took the full force of the impact. Luckily, nobody was injured.

The car owner’s insurers, Quote Me Happy, accepted 100% liability but wanted to write off my car because their approved repairer, Nationwide Crash Repair Centres, said it would cost over £1,000 to replace the bent tow bar and the scratched plastic bumper underneath. We eventually settled on a payout of £800 and I kept the car – which was probably worth only £1,500 – but had suffered only minimal damage. However, the same ‘authorised’ repair garage replaced the tow bar, and knocked out the dent in the floor of the boot for £272.40!    

Contrary to popular belief, car insurance fraud isn't just car owners exaggerating claims for ‘whiplash’ or deliberately crashing cars.  Garages, car hire firms and the insurers themselves are as much to blame for excessive costs as individuals. But why do the insurers put up with this?

Premium increases

Whatever the cause, there is no doubt that motor premiums have been rising. Figures from the AA show that in July of this year car insurance hit the £1,000 barrier for the first time after an massive increase in bogus whiplash and ‘cash for crash’ claims. The average fully comprehensive car insurance now costs £1,034 – up 8.5% on last year’s figure of £955. What is alarming is that it more than doubled in just four years from July 2008 when the average fully comprehensive policy cost just £509, according to the AA British Insurance Premium Index.

But don’t hold your breath for any reductions in car insurance premiums in the foreseeable future. The Competition Commission has up to two years to report its findings. Given the work that has already been undertaken by the OFT one might have thought the government would simply implement a referral fees ban more or less immediately. 

27 comments so far. Why not have your say?


Oct 03, 2012 at 10:03

RSA.L - if you can't beat 'em, join'em but be warned, if you buy these shares you're going straight to hell!

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Oct 03, 2012 at 10:21

Ripoff Britain. When will regulators ever do something worhtwhile other than just get their fat salaries and bonuses.

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Oct 03, 2012 at 10:23

Having worked in Motor Insurance at claims stage, this is a major problem.

The company I worked for, set up an department, which basically called the 3rd party as soon as we heard about the incident/claim, to get them into our own Garage and Hire Car to keep costs down.

Garages are a nightmare for pushing up the prices if you go through the insurance. I had work done on my car, Private was about £300, if I went through the insurance they quoted me over £700.

Some insurance companies are now makin deals with the garages, work is regularly checked as well as customer service etc. If they have good scores they get first dibs on a repair. So if the garage does a good job they get more business. The problem is these schemes cost a lot to start up and get going, as need someone trained then to go out to dso the inspections etc.

It is getting better but not as fast as it should!!!

I totally disagree with selling the info to a claims management company. But the insurance company, saves money in legal fees and someone else takes the risk!!

But a lot of consumers go for car insurance based on price, as its the small cheap firms that outsource these aspects of the claims. And as the small company does not foot the bill the other insurance company does, the higher rates are passed on.

With Gender neutral rates coming in Dec! Will Mens Prices come down and womens go up. Or are mens going to stay the same and just females rise.

I am betting on the later!!

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Oct 03, 2012 at 10:25

Isn't it obvious why insurers allow inflated claims by their "no fault" customer? If they can pass these high costs on to the other company they are hurting their competitors.

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Anonymous 1 needed this 'off the record'

Oct 03, 2012 at 10:44

I suggest that the OFT takes a close look at the cost of the paint used when cars are repaired. This might sound like a small issue, but it isn’t. In the UK there is an extortionate mark up between the paint maker’s cost price and the price paid by the insurance companies. It isn’t a simple issue but if they persist they will see past the excuses offered by all those that profit from the status quo.

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derek farman

Oct 03, 2012 at 10:55

Pity there isn't a body who one can contact if one believes one is being ripped off. Then if it is found that one is, a very heavy fine is imposed on either insurer or garage.

Hitting them where it hurts is the only way to bring them to heel.

For starters RSA would have some very difficult questions to answer.

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steven fieldfare

Oct 03, 2012 at 11:00

It's not just the car insurance business that is dysfunctional but the wider ambit of self interest lawyers and motor industry barons.

For the lawyers, car insurance is one lucrative arm of PPI claims, personal injury claims (those pamphlets and agents at reception desks in A&E), endless legal aid appeals for when "sorry is not good enough", and when human rights are deemed slighted or deportation looms.

Motor industry self-interest is not only entrenched, but exerts a powerful political lobby.

Reflect that in the past year, we have moved from political intent to extend the MoT to 2 year periodicity in line with the European norm to tightening up the annual test instead. Allegedly for safety reasons, additional measures include panel lights, common and often spurious on otherwise serviceable older cars and expensive to diagnose and fix. So the easy money and lucrative MoT garage licence is maintained.

Injury is added by planned obsolescence of increasingly specialised and high cost spares, especially of the electronic variety. The effect is to curtail gains in car longevity achieved in recent years through better build and engine quality by forcing cars to a position where they are uneconomic to repair.

Similar "throttle grip" practices (pardon the bad pun) apply in car insurance repairs, where the gatekeepers will make every endeavour to maintain their self interest. So don't hold your breath!

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Rose G

Oct 03, 2012 at 11:04

What the car insurance industry demonstrates is the same cavalier attitude their buddies in the other insurance & financial services show - which is they do not care about customer service, only how much they can sting the customer & get away with it.

No different to the other insurance companies - I have never claimed against my home contents insurance, but as sure as sugar, every year, I am informed that my premiums discounted, but the prices never come down, just go up, up & away - they make their millions knowing we are captive to their unfair premiums.

As for the regulator, they are unfit - fire them all, unless they can sign a declaration to aid customers rather than the big businesses who rip us off!

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joe stalin

Oct 03, 2012 at 11:11

All part of the something for nothing culture championed by the last Government.

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Lost my marbles

Oct 03, 2012 at 11:46

Motor insurance is real cowboy country and unfortunately the insurers themselves must take a large part of the blame for not being more robust with fraudulent whiplash claims,which quite frankly have become a joke. In many instances they have paid out for fraudulent claims rather than taking a more robust stance,stating it is cheaper to pay out than argue the case.Well it may be in the short term,but look what has happened in the longer term..........a whole industry has been partially spawned by this neglect and the parasites are having a field day.

AsLorna says,it is not only such fraudulent claims that are putting the premiums up for all of us,but also the shambolic repair cost rip -off and the so-called'Accident Management Companies' that are on a feeding frenzy at the consumer's expense.

Good God, the banks have had some welly over the past few years,but the insurance industry takes the biscuit for me.

My final rant is about the renewal quotes one gets when the insurance is due.Despite no changes in one's circumstances,the qoutes often bear absolutely no resemblance to the previous year's qoute and one can often be looking at 50%+ increase in premiums.The insurers are obviously hoping a percentage of their customers may be too apathetic to look elsewhere,whilst the rest of us give the usual sigh and hit the keyboards for more sensible quotes.............until next year when the whole farce starts once again!

they have no respect for their customers and I hate the lot of them


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Rickenbacker Al

Oct 03, 2012 at 11:55

Car insurance companies are IMHO right up with bankers at the top of the Rip Off Britain league table. Almost every year for a decade now I have 'internet shopped' my insurance renewal and got a much more favourable quote from a different company after my renewal premium has soared (typically by 40-60% plus) despite me never having had any claims, convictions, or changes in circumstance

I don't know what's more irritating: the attempt to rip me off financially, or the apparent feeling on the companies' part that I would be too stupid to notice.....

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derek farman

Oct 03, 2012 at 12:30

My car insurance I used to be with Swinton , but they hiked my premium the year before last to a crazy degree with no valid explanation, so I went online and got a substantially cheaper deal elsewhere. Now Swinton have mailed me offering lowest quotes and £100 back. They also are touting me for household insurance . But Ha Ha they have shot themselves in the foot because I will not touch them again.

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alan thorburn

Oct 03, 2012 at 12:56

Lorna, your car may have appeared to have minimal damage, but the chassis could well be stressed such that it breaks at some point. I suggest you do not drive it, but scrap it ! You may save some lives, including your own !

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Oct 03, 2012 at 14:04

As I read some of these comments, I totally agree with some of the statements. And would like to add some personal incite as to Premium increases.

Now I am not sticking up for insurance companies, as some of the practices I have seen and lack of time to respond to changing circumstances have just fuelled the fire.

Gone are the days when someone sits down in front of you and discusses your circumstances and using some of their own judgement and a small list of criteria to determin the premium. In todays world, there are over 170 different factors that affect premiums all done by computer. Most people know of Age, Sex, Miles Driven, Where They Live. But it also takes into account, how many accidents that have happened in your postcode area, People in similar job roles, same industry. Majority of claims happen after the 1st year of being insured at a company, this also adds to increases. Type of car, how many times that type of car has been involved in an incident. All those false and inflated claims have all had an impact. Due to recession the number of claims have jumped up. The amount of fraud has increased.

Fraud, is difficult to spot and sometime difficult to prove. There are a lot of 3rd party companies in on it. Luckly Insurers are sharing even more data and spotting these crash for cash schemes.

Something like 8 out of 10 people would think about making a false or inflating a claim, and 6 out of 10 would. It is the younger generation, ‘I paid my premiums therefore I am entitled to it’

A lot of the older generation actually feel bad about making a claim…..

It is not bankers or insurance companies. It is society as a whole. Just look at the press, NHS Workers, Government Officials, Sports People, Comedians and Plumbers, Mechanics.

Everyone seems to want in.

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Rose G

Oct 03, 2012 at 15:12

I agree with your post SG, it is society which seems to have lost the plot, together with the financial services, the list of those on the bandwagon to rip each other off is infinite.

How about the lawyers (or should I give them their more appropriate label - ambulance chasers) who are happy to take on cases regardless of whether or not any injury had been sustained.

How about the systems in place that allows us to be ripped off, whether its property rent or sale prices, or gas at the pump, we are paying over the odds because these are businesses who have no ethics or moral sense.

I believe that those who set up businesses with a view to making profits by increasing the price of the goods they sell well over the odds. Legitimate businesses will suffer because of those who abuse the systems.

It starts with unrealistic house prices, boosted by governments, and used by all the industries to make this a really very expensive place to live or work in.

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derek farman

Oct 03, 2012 at 16:45

SG ...another problem, referring to your para 5 is that many many people really dislike the insurance industry. How many out there have been encouraged by slick advertising to buy a certain insurers product, and then found, when a claim is made that the insurer denies liability for all kids of reasons or hidden small print.

Therefore many people think insurers are fair game, and don't see themselves as immoral when putting in spurious claims .

I find this very sad having spent 30 years broking at Lloyds of London, where the Lloyds motto was 'Utmost good Faith'. But many roll their eyes when I admit to being a retired insurance man as if I am some sort of pariah.

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White Stick follower

Oct 03, 2012 at 18:15

About 4 years ago, I was driving my wife's car, with her and our two grandchildren as passengers on the M40. We were struck twice by a LHD HGV which pulled out into the central lane when we were 75% past it. Fortunately, possibly as a result of my police driver training (I was not a police officer, but due to my duties underwent that course) I managed to keep the car under control and bring it safely on to the hard shoulder, followed by the HGV. The subsequent formalities are not needed here, but suffice it to say that assisted by a crow bar loaned by the Highways Agency I was able to bend the nearside front wing and drive the car home.

The insurers wrote the car off as 'seriously damaged', although it was not, mainly having suffered some bent panels and cosmetic damage. The repair cost was put at almost £2,700 +VAT. I bought the car back from the insurers, had it inspected by my regular mechanic and then repaired in a local professional body shop, given a full respray and valet, all for £1150, slightly less than I was paid for the car by the insurers. The car is still going well today. So yes this whole racket needs cleaning up- oh & by the way, the car suffered a loss of 2 gallons of petrol whilst with the recovery firm which removed it from the Insurers dedicated Body Shop. I know this because I had filled it to the brim only 8 miles before the crash.

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Oct 03, 2012 at 19:27

From the responses the subject has hit a raw nerve. As large fleet manager

for a blue chip all the comments are pretty well spot on. From my side of things this issue started many years ago when the Motor Insurance competition was intense and the insurers screwed the repairers for every penny taking claw backs on parts, paint and ludicrous labour rates. Many Trading Standard and true engineerings investigations on repaired cars showing items not being carried out but invoiced, items replaced for new when not required and generally wham bam poor quality repairs. Frankly the garages were stuffed to go along with it else they did not get the volume however when environmental requirements and standards were raised so the rates stayed still with many good private family repair shops calling it a day. And so legal referrals, inflated rates both repair and hires came along offerring an income stream untapped.....but even that insurers wanted their cut. Cases of accident management companies with huge conflicts of interest actually trading and handling for both sides and that was also seen with insurers having the same drivers on their books "acting" for both. Twenty years ago a rep would ring from an upturned car in a ditch demanding a new replacement unit this minute...nowadays its to the A&E,Doctors off work for weeks for even the smallest of bumps not even activating the air bags......ho hum.. It is for sure an even worse crock of #### than it was and worse everyone seems to be in on a feeding frenzy that the decent motorist who never has an accident paying dearly. At least the insurers have starting making some money piling on the premiums.

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Dennis .

Oct 03, 2012 at 20:13

My wife recently renewed her car insurance with Saga, she was quoted £174 which was only a couple of pounds more than last year, however on visiting a price comparison site found one quote for £112. When she mentioned this to Saga they immediately matched it without even asking for any proof.

I am also with Saga and my quote this year was about the same as last year.

Are we unusual?

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Oct 04, 2012 at 09:30

@ Derek,

At the company I worked for, our motto was similar we would pay any valid claim. The main area of our complaints was wear and tear! This was mainly in Building Insurance. Most people service their car ect and get it MOT'd, however a very limited number of people service their homes!

The other complaint was trying to explain to a driver they were at fault. Two very common classics, skiding on ice during the winter - and trying to explain they must have been driving to fast for the conditions. Or the 2nd was when people ran into the back of someone and trying to blame the person in front for stopping! I lost the count of the number of times I had to explain that as the driver they should have left plenty of room for the person in front to stop!!

@ Denis - It varies from company to company, and which insurance brackets you fall into. Some hike the prices up some dont.

The insurance company I worked for use to pay out £100 in claims for every £96 they received in Premium. They managed to turn this around by the premiums being invested, and getting a reasonable return. The problem is in the last few years, as everyone knows returns have dropped.

But like I said insurance companies are not faultless, and we live in such a blame culture now, everyone wants to blame someone else. "Trip on the pavement? How about watching where you f-ing walk!!'

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Oct 04, 2012 at 09:36

'Was given the wrong type of Ladder!' Why the did you use it then, or why not ask for the correct one, or why not think, ok I need to ensure it is more secure!!!

Yes some instances are someone elses fault! But a lot of the reasons on tv are due to a lack of common sense.

My solution for improving natural selection, and removing these people for the world, is not to go around killing them all, but just remove all warning lables and let the issue sort it's self out!!!

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normski 2nd

Oct 04, 2012 at 11:17

SG, Down at B&Q there is instructions on how to use a shopping trolley !!

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Dennis .

Oct 04, 2012 at 11:42

Did anyone see Newsnight earlier this week when they finished with an experiment to see if hot water freezes quicker than cold water? They had a person in a white coat wearing safety glasses pouring hot water into a container. I wonder if they do that when they make a cup of tea?

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Oct 04, 2012 at 13:15

I should invent a kettle that only warms the water rather then boil it! Then sell it to millions in the name of safety.

But knowling my luck some idiot would manage to drown themselves in it, then the family will sue me for not putting enough warning lables on it!!!

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derek farman

Oct 04, 2012 at 15:40

SG ....what I didn't say was that I was a broker at Lloyds. We were paid by commission. For this commission, not only did we negotiate face to face with the insurers to get the best deal, but also when claims happened we did the collecting on behalf of the client. Frequently we argued the case if any insurer refused payment. We rarely failed.

Therefore, I believe, for their commission, brokers have a bigger duty than simply taking commission. The brokers through whom many place their insurances should be on the side of their clients to fight the bad practices which many insurers have drifted into.

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Oct 07, 2012 at 10:16

I fortunately don’t have much experience of car insurance claims, but I have acted for close family members and it seems to me that when an accident occurs there is a potential claim between the drivers. If Mr Bad admits it was his fault then Mr Good is entitled to say to Mr Bad, my car suffered £500 of damage because of you, so please give me £500. Mr Bad is entitled to say, “I’m sorry about the accident but please give me evidence that it really costs that much to repair it.” So Mr Good gets quotes from garages. Mr Bad is entitled to choose a lower price. The garage has to be careful with their quote. If they go to high they won’t get the job. If they go too low they will get the job but it will be uneconomic for them. So normal market forces apply.

When I was scraped by a lorry after having been stationary for some time waiting to turn right, the lorry driver was apologetic and we exchanged details. Fortunately a stranger offered to be my witness. When I applied for my repair costs the lorry’s insurer (that stupid talking dog lot) told me it was not their client’s fault. I asked my witness to write to the insurer. The insurer denied receiving anything. I had to apologetically go to the witness again, and ask him to send his account to me this time. Eventually my claim was paid after 7 months.

With other accidents of family members I found that insurers attempted to lay down the law to me. I found myself saying to the insurer, “Excuse me, my wife, (or my daughter) had the accident. We are in agreement with the other party. You are only the insurer. You have to pay up according to the terms of the insurance contract, so get on with it”. And that is about what happened. Perhaps, legally, I was wrong, but in my view that is how it should be. Of course the insurance company is entitled to dispute the cost of their repairs, but only if it is too expensive, not if it is too cheap!

So perhaps some lawyer, preferably not one regularly involved in car crash claims, could comment?

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John Hart

Oct 07, 2012 at 14:54

Two years ago our car was hit by the third-party reversing while our car was stationary. Our no-fault claim was settled by our insurers, Churchill, which provided a replacement car whilst ours was being repaired in a garage 20 minutes drive from our home near Southampton. The replacement car came from Bristol and when I questioned the agents acting for Churchill why the repairing garage couldn't provide one was told that it had none available. The car was duly delivered from Bristol and the driver then had to make his way back there by train (I drove him the 6 miles to the nearest station). The driver then had to make the same journey again to collect the car. Thus two days employment, petrol to travel 200 miles, and wear-and-tear on the hire car for it's 200 mile journey to and from our home was added to the insurance costs which were then presumably added to the third-party's account. On collecting our car from the repairers I was told that they had had a few replacement cars. What I would like to know is who apart from the owners of the replacement car and its employee driver was benefiting from this arrangement. Is it any surprise that premiums are unnecessarily high with this sort of incompetence bordering on the criminal?

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