News that the car insurance market has been referred to the Competition Commission has been welcomed by industry bodies amid spiralling costs for UK motorists.
The ABI (Association of British Insurers) has welcomed the Office of Fair Trading's (OFT) decision after branding car insurance 'excessive' for the industry.
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Last week the OFT called for a further investigation of the private insurance sector, concluding it's 'dysfunctional' and 'doesn't work well for motorists' in its current guise. Rising insurance rates have hit many in the UK in recent years - a fact attributed to false claims for hard-to-disprove injuries such as whiplash.
However, the new ruling indicates the industry does need investigating by the Competition Commission and could potentially lead to lower premiums for hard-hit UK drivers.
The ABI says 'regulation of everyone in the market is needed', adding: "The OFT found what insurers have known for years - that when a customer has a crash that is their fault, the insurer has little control over the cost of the subsequent claim.
"In particular, for too long insurers have faced inflated rates for credit hire cars and excessive hire periods which have led to higher insurance premiums for customers," says Nick Starling, ABI's Director of General Insurance.
Meanwhile, the British Vehicle Rental and Leasing Association (BVRLA) has released a statement saying it believes increasing costs in compulsory car insurance is a massive threat to the profits and long-term future of the rental industry.
The BVRLA suggests having a courtesy car as standard for all policy holders as a solution: "We believe insurance companies should take greater control of vehicle downtime and costs to manage claims effectively.
"A credit hire organisation will simply provide a car for as long as one is needed to help the not-at-fault car owner. One solution could be to provide a courtesy car as standard for all policy holders," says BRVLA chief executive John Lewis.
The OFT's investigation
The OFT made the referral to the Competition Commission toward the end of last week, claiming that the current structure of the market makes premiums and costs too high for motorists.
Insurance providers of drivers found 'at-fault' had no control of the costs of repairs and replacement cars by those drivers 'not-at-fault'.
It's not the first time the OFT has investigated the car insurance sector. In May this year the body estimated that the industry was worth £9.4billion, but conceded that it needed more investigation.
One of the OFT's main concerns on conclusion of its public consultation process was that replacement cars were unnecessarily expensive and could be provided for longer than required.
It found that replacement car hire was £560 more expensive on average than need be - each repair was on average £155 more expensive. Insurers do this for a big fee from the hire firm or garage involved.
"Competition appears not to be working effectively in the private motor insurance market," said OFT chief executive Clive Maxwell.
"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."
The Commission has two years to report its findings.
Written by John Meadowcroft