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Competition Commission may Take on Car Insurers

June 1, 2012

The Office of Fair Trading (OFT) has recently discovered that car owners are paying out for an insurance market that is in disarray.

This revelation has led to an investigation in the costs of car insurance by the competition watchdog, as the OFT identified steep repair costs and car rentals as having added upwards of 220 million pounds to insurance premiums paid out by drivers.

It appears that a few unscrupulous insurers have been scheming with repair workshops and rental car agents so that they can charge ridiculous prices.

The Association of British Insurers, however, seems to be all in favour of the stand taken by the OFT.
Inflated premiums

The CEO of the OFT, John Singleton, advised that finding a solution to the problem would take time and a complete inquiry conducted by the competition watchdog was essential.

He said that competition in the marketplace for driver related services never seemed to favour the driver.

Nick Starling, a spokesperson for the Association of British Insurers (ABI), was in full agreement and admitted that drivers had to foot the bill. He stated that he had full knowledge that those drivers who had the appropriate insurance cover have been paying out excessively for rental cars, which has meant that their premiums have risen.

Mr.Starling further admitted that there have been no control measures in place and the current system has meant that some have taken advantage of it.

The OFT outlined the fact that once a claim has been put in, the insurer of the negligent driver has the duty to pay for repairs and car rental for the victim of the accident. These costs are often elevated by the insurer of the victim arranging overly costly repairs and car rental arrangements.

The insurers, it appears, make gains as they receive cash from the car rental company or garage concerned, for fixing the deal.

As a result, it has meant a substitute car costs around £560 more than it should do each time, and even the repairs are averaging in at £155 over the top, the OFT stated.

The insurer of the negligent driver carries the cost but obviously, as it flows through the system, higher premiums become the end product.

The OFT emphasised that the insurers of the victims and other parties, like brokers and repair businesses, due to little or no control, can cash in on a chance to gain money using referral fees and rebates which elevate the costs of insurers of the negligent driver.

The OFT began examining repair costs and the provision of substitute rental vehicles last September.

This is just more water under the bridge for the uncontrolled behaviour of insurers and their accomplices and it is just a follow on from the revelations last year on referral fees, when insurers basically inflate claims and therefore force up premiums.

They have also been in the business of trading information about their current policy holders’ accidents on to solicitors, who subsequently push the victims to sue for damages, which may include whiplash injuries.

A firm and final decision on the part of the OFT to direct the issues with the car insurance industry to the Competition Commission is still undecided but will be confirmed by October.

However, the CHO, the organisation which is the representative for car rental companies, said that the costs highlighted by the OFT were actually only 2 percent of the car insurance industry’s total spending of £13 billion annually.

The Transport Select Committee later declared that statements indicating that personal injury claims had driven up insurance premiums by 40% were, in fact, untrue and the increase in premiums was in reality far nearer to 12 percent and was brought about by the rise in claims for whiplash injuries above anything else.

Insurance claims for whiplash are already in for a lashing by the government and the select committee is urging the government to alter the law to ensure that claims would only be paid if objective evidence was provided and for injuries that had a significant impact on the victim’s life.