Insurance industry responsible for high premiums, OFT report finds

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Insurance industry responsible for high premiums, OFT report finds

1st June 2012

The private motor insurance market has been referred to the Competition Commission, after a new report from the Office of Fair Trading uncovered what it called a ‘dysfunctional’ system which forced up motorist’s premiums.

The report, ‘Private Motor Insurance - Report on the market study and proposed decision to make a market investigation reference’, concluded that the way the insurance system operates could directly push up premiums for drivers by £225 million a year.

Karl Tonks, a partner with Fentons Solicitors LLP and president of the not-for-profit group APIL (Association of Personal Injury lawyers), said the report meant that insurers had finally been ‘caught with their hands in the cookie jar.’

“For years the insurance industry has sought to blame anyone and anything but itself and its own sharp practices for high insurance premiums,” said Karl. “Legal costs for compensation claims were slashed two years ago for this very reason, but premiums have remained high. The OFT report clearly spells out exactly how the insurers have been operating within a system that fails to control costs, and is open to exploitation.”

The report explained that following a road traffic collision, the insurer of the ‘at-fault’ driver is responsible for meeting the cost of repairs and replacement vehicles for the not-at-fault driver. But the OFT found evidence that insurers of at-fault drivers have little control over the way those repairs and vehicle replacement services are carried out, or the associated costs.

“It found evidence that insurers of the ‘not-at-fault’ driver and others, such as brokers, credit hire organisations and repairers, have been able take advantage of this lack of control to generate revenues through rebates and referral fees,” said Karl. “This therefore inflates the costs of the insurers of those at-fault drivers, which naturally drivers end up paying for as part of inflated premiums.

“What the OFT calls ‘dysfunctional’ and ‘inefficient’ actually reveals a host of grubby practices to line insurers’ own pockets, to the tune of an extra £225 million on car insurance premiums last year,” said Karl. “The report reveals what we’ve known to be the case for a very long time – that the solution to unaffordable car insurance premiums lies in the insurance industry’s own hands, and not by constantly pointing the finger at others.

“We hope this report will now kick-start an appetite for much closer scrutiny of the insurance industry and the way it operates.”

Read more at: OFT, APIL