Study To Probe Motor Insurance Premium Surge

The Office of Fair Trading (OFT) has launched a market study into private motor insurance in the UK, to investigate recent increases in private motor insurance premiums associated with third party repairs.

The OFT said that private motor insurance premiums paid in the UK rose by around 12% between 2009 and 2010, and by a further 9% in the first three quarters of 2011.

A key factor in the increases had been attributed to a rise in personal injury claim costs by the industry, however, the OFT said an increase in the cost of third party non-injury claims, which include credit hire replacement vehicles and third party vehicle repairs, were also factors which have had a "notable impact".

The OFT said it had "reasonable grounds" for suspecting there were features of the UK's private motor insurance market that restrict and distort competition relating to the provision of third party vehicle repairs and credit hire replacement vehicles to claimants.

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."

The OFT say private motor insurers responsible for meeting third party claims for credit hire replacement vehicles and 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.

That means rival private motor insurers, brokers and credit hire providers 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.

The OFT said it also has concerns about the provision of motor legal protection cover to car owners and has called on the Financial Services Authority to work with private motor insurers, as soon as possible, to ensure car owners have access to appropriate information when purchasing such cover.

The OFT added it was concerned about the complexity of the product offering, and that the way it is being sold may make it difficult for car owners to assess the product's value for money.

(DW)