MoneySavingExpert.com homepage
Cutting your costs, fighting your corner
Founder, Martin Lewis · Editor-in-Chief, Marcus Herbert
Search bar closed.
MSE News

Car insurance industry faces competition probe

cars_in_a_row
Press Association
Press Association
Editor
28 September 2012

The motor insurance industry is to face a full-blown investigation after competition watchdogs said the market wasn't working for consumers and found premiums were being pushed up by £225 million a year.

The Office of Fair Trading (OFT) has referred the industry – worth an estimated £9.4 billion in the UK – to the Competition Commission after discovering at-fault drivers had little control over the way in which repairs are carried out.

Key Points

  • OFT refers car insurance market to Competition Commission

  • It says market doesn't work well for consumers

  • And premiums are being pushed up because of this

It says the industry's practices are ramping up premiums, potentially by around £10 per policy.

The OFT, which provisionally decided to refer the industry to the Competition Commission in May (see the 'Dysfunctional' motor insurance market MSE News story), says there is "no quick fix" to the problems it identified and that further investigation is needed.

The commission has up to two years to report its findings. If it decides competition is being harmed, it can take measures to address the situation.

Clive Maxwell, chief executive of the OFT, says: "Competition appears not to be working effectively in the private motor insurance market.

"The insurers of at-fault drivers appear to have little control over the bills they must pay, and this may be leading to higher costs for them and ultimately higher premiums for motorists."

Inflating costs

In May, the OFT said the motor insurance market was "dysfunctional", with signs that insurers of at-fault drivers were being taken advantage of by the firms who cover of not-at-fault drivers and others involved in providing repairs and courtesy cars.

This is thought to be inflating the cost of providing replacement vehicles by an average of £560 a time, while the cost of repairs was £155 more.

It said after crashes, many insurers of not-at-fault drivers, brokers and repairers, refer at-fault drivers to organisations that tend to charge higher rates so the insurers can pocket referral fees of up to £400 per hire car.

Repair bills paid by the insurers of at-fault drivers are also pushed up because some insurers receive referral fees and rebates from repairers and suppliers.

Some insurers even have agreements with repairers to charge higher labour rates when repairing the not-at-fault driver's vehicle.

These practices boost the revenues of the insurer of the not-at-fault driver as well as pushing up the costs for the at-fault driver's firm.

The higher costs are eventually passed on to drivers through higher premiums.

MSE Forum

Car insurance industry to be investigated

Forum image
MSE Email icon 11 February 2025

For all the latest deals, guides and loopholes simply sign up today - it’s spam free!

Compare+ Home Insurance tool
Beat 19% price hikes
Stop overpaying on energy
Beat 6% April rise
Cheap medical insurance
Our five must-knows
30+ AI tools
Save time & hassle
Beat Microsoft price hike
Of up to £30 a year
Top 5% savings
Post base-rate cut
When'll mortgages fall?
See lender-by-lender
Tools and calculators

Clever ways to calculate your finances

Find your odds of getting top cards
Find your odds for getting a cheap loan
Compare broadband, phone & TV deals
Compares thousands of mortgages
Eight calcs to help you work out the cost
We ensure you’re on the cheapest tariff