The Office of Fair Trading (OFT) has today launched a market study into the private motor insurance industry to “find out the reasons behind recent reported increases in private motor insurance premiums”.
The OFT reports that premium prices rose by a per cent every month between 2009 and September 2011, and because of this and other factors they have “reasonable grounds for suspecting that there are features of the UK’s private motor insurance market that restrict and distort competition.”
Sonya Branch OFT Senior Director of Services, said, “Our concerns relate to the provision of third party vehicle repairs and credit hire replacement vehicles to claimants, where we suspect companies may be competing to extract money from each other rather than keeping premiums as low as possible and providing car owners with value for money.
“By carrying out a market study, we aim to clarify whether a market investigation reference to the Competition Commission is appropriate.”
It reported the two main findings so far are that:
– private motor insurers responsible for meeting third party claims for credit hire replacement vehicles and/or vehicle repairs appear to have only limited control over the choice of provider and appear to find it difficult to assess the extent to which the costs claimed are reasonable, and
– rival private motor insurers, brokers and credit hire providers may therefore have the opportunity, and the incentive, to carry out practices which allow them to generate revenues through referral fees, while simultaneously inflating the costs that the third party insurer has to meet. This in turn may contribute to car owners having to pay higher premiums.
As part of the OFT investigation, they called on the Financial Services Authority to work with private motor insurers to ensure the product they are selling is fully understood by consumers.
The OFT expects to complete the study by Spring 2012.
