The Office of Fair Trading to investigate the rising costs of car insurance

The Office of Fair Trading to investigate the rising costs of car insurance

They first started investigating in September, after the outcry over referral fees (referral fees are the fees paid by solicitor to insurers or the police for information regarding people who may be entitled to claim for an injury).

Following a previous investigation referral fees have now been banned for personal injury claims however referral fees are also paid by car hire companies when an insurer advises their client to hire a car from that company.

Over recent years insurers have been advising their clients, when involved in non-fault accidents, to arrange a hire car rather than a courtesy car. A hire car is normally a like for like car whereas a courtesy car is normally a small engined car which the garage will loan out whilst repairing the damaged vehicle, the former being a lot more expensive than the latter.

There is also a big difference in cost between a hire car hired from a third party or a car hired from the insurers approved company. On average to hire a car from a third party would cost between £1,200 and £1,500 whereas to hire a car from it's own approved hire company the average is between £400 and £600.

Nick Sterling from the Association of British Insurers (ABI) had this to say about the OFT's investigation, "The industry has long said that there are unnecessary costs in the system and that there are inefficiencies that need to be addressed - from personal injury to credit hire to credit repair - and we are pleased that the OFT have recognised this in their report,"

The OFT will also investigate the insurers use of it's own "approved repairer". It has been reported that in non-fault claims, insurers have also been receiving referral fees from it's own approved repairers. The garages have then used more expensive paint, more expensive parts and increased labour charges, this in turn increases the bill the insurer, of the at fault driver, has to pay.

An extract from the report sums up the OFTs investigation:

The information we have gathered during the course of this call for

evidence on both credit vehicle hire and insurers' repairer networks gives

us reasonable grounds for suspecting that there are features of the

market for the supply of private motor insurance in the UK are restricting

and/or distorting competition. In particular we have found that:


• Private motor insurance companies responsible for meeting third party

claims for credit hire replacement vehicles and/or vehicle repairs

appear to have no choice over who provides the service to the

claimant. They also appear to exercise only limited control over the

costs that they have to meet, and appear to find it difficult to assess

the extent to which the costs claimed are reasonable.

• Rival private motor insurers, brokers and credit vehicle hire providers

may therefore have the opportunity, and the incentive, to exploit third

party insurers' lack of control over costs by carrying out practices,

which allow them to generate revenues through referral fees or

rebates, while simultaneously inflating the costs that rival insurers

have to meet. For example, insurance companies and others active in

the private motor insurance market earn referral fees by referring

drivers who have been involved in accidents to selected credit vehicle

hire companies or certain repairers, neither of whose services may be

most cost effective.


All of these things have added to the increased premiums now being paid for by motorists so hopefully after the investigation these things may change.

One bit of good news from the OFT was that car insurance premiums have not risen by 40% over the last year, which the AA claimed in April, they have however risen by 12% in 2009-2010 and 9% in the first 9 months of 2011.

by Tim (http://www.howcanigetcheapcarinsurance.co.uk/)