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Inflated car insurance costs to be investgated

The Competition Commission have launched a probe into car insurance costs, after the Office of Fair Trading (OFT) called the market “dysfunctional”.

According to the OFT, artificially high car hire and repair charges add up to £225 million annually to drivers’ premiums. They are now calling on the commission to investigate further.

It was also found that some insurers connive with garages and suppliers of courtesy cars to allow them to charge inflated prices, which are then paid for by drivers.

John Fingleton, chief executive of the OFT commented: “Competition in this market does not appear to work well for drivers.”

In September 2011 the OFT started looking into the cost of repairs and the supply of temporary replacement vehicles. This exposed that the system of referral feels under which insurers stoke up claims against themselves drives up premiums. This is done by selling details of their policy holders to solicitors, who then encourage drivers to sue for damages.

The OFT explained: “Insurers of the not-at-fault driver and others, such as brokers, credit hire organisations and repairers, can take advantage of this lack of control as an opportunity to generate revenues through rebates and referral fees and so inflate the costs of insurers of at-fault drivers.

The Competition Commission will announce its final decision in October 2012. However, the Credit Hire Organisation, which represents car hirers said that the excessive costs were just 2% of the car insurance industry’s total spending of £13 billion a year.

Martin Andrews of the CHO commented: “The original decision of the OFT to investigate the private motor insurance market came after insurer claims that motor insurance premiums had risen by almost 40% to compensate for the increased costs of personal injury claims (whiplash) and other costs including those of credit hire.

Falsified whiplash insurance claims are thought to cost insurers around £2 billion annually, making the UK the “whiplash capital: of Europe.

This was posted in Bdaily's Members' News section by Ruth Mitchell .