Competition watchdog to probe car insurance market

The motor insurance market was today facing an investigation by the Competition Commission after a report found the market was “dysfunctional” and pushed up premiums by £225 million a year.

The report by the Office of Fair Trading (OFT) found premiums paid by drivers are being ramped up because of referral fees and the fact that insurers of at-fault drivers have little control over the way in which repairs are carried out.

This inflated the cost of providing replacement vehicles by an average of £560 a time, while the cost of repairs was £155 more.

OFT chief executive John Fingleton said: “Competition in this market does not appear to work well for drivers.

“We believe the focus that insurers have on gaining the competitive edge through raising their rivals’ costs means that drivers pay more than they need to for their motor insurance policies.”

The report found that the system does not work efficiently because the insurers of at-fault drivers foot the bill for repairs which are organised by the insurers of not-at-fault drivers.

It said after crashes, many insurers of not-at-fault drivers, brokers and repairers, refer the drivers to organisations that tend to charge higher rates in exchange for referral fees of around £250 to £400 per hire car.