Car insurers facing cartel inquiry after premiums soar by 40%

AN INQUIRY has been launched into the rising cost of car insurance after it emerged some drivers have seen premiums soar by up to 40 per cent in a year.

The Office of Fair Trading (OFT) will begin gathering evidence concerning the role of price comparison sites.

Motoring organisations and insurers said the rising prices were partly the result of “ambulance chasers”, law firms which look to win damages for anyone involved in a car accident.

The AA said premiums were lower north of the Border than elsewhere in the UK due to the Scottish legal system making it more difficult for such firms to operate.

The OFT said its call for evidence represented a quick look into the market that may lead to a full inquiry if consumer or competition issues are found to have been broken.

As well as looking at price comparison sites, the OFT said it had identified a number of aspects of the motor insurance market that may raise competition or consumer issues.

In a statement, the OFT said: “UK annual comprehensive car insurance premiums are reported to have risen by as much as 40 per cent in the year ending 31 March 2011.

“The OFT wants to establish the full facts, the reasons behind any increase, and whether there are any consumer or competition issues that need to be addressed to improve the functioning of the market.”

The OFT said it was also interested in establishing why insurance premiums in Northern Ireland are significantly higher than those in the rest of the UK.

The “shoparound average” for annual comprehensive car insurance cover rose by 40.1 per cent for the 12 months to March 31, according to the AA’s British insurance premium index.

Figures obtained by What Car? magazine earlier this year showed that 80 per cent of car owners are paying more for their insurance than last year.

In one case, a 25-year-old man’s insurance had gone up 77 per cent to £1,520, more than his Skoda Fabia was worth, despite him not having a claim in the past 12 months.

Simon Douglas, director of AA Insurance, said: “The OFT inquiry appears concerned that there has been collusion within the industry over premiums, but in our view that is not the case.

“In practice what we have seen is intense competition between insurers, fuelled in part by the advent of price comparison sites. Competition has kept premiums low during a period of rapidly rising claim costs caused, as has been widely reported, by growth in personal injury claims and fraud.”

Otto Thoresen, the director general of the Association of British Insurers, said the motor insurance industry had not been profitable for 16 years.

He added: “This inquiry gives the industry another opportunity to highlight the cost pressures motor insurers are facing, what action is needed to reduce them, and steps the industry is taking to ensure customers get the best deal when buying motor insurance.

“Rising claims costs from personal injury claims and excessive legal costs, insurance fraud and uninsured driving, coupled with lower investment returns in recent years, have unfortunately led to rising motor insurance bills for many customers. In fact the motor insurance industry has not been profitable for the last 16 years.”

The OFT plans to publish its initial findings in December.