Driving up insurance costs

Motor insurers may be driving up the costs of premiums by as much as £225m a year by exploiting revenue-generating opportunities in the system, an Office of Fair Trading (OFT) report has found.

The problems stem from the fact the at-fault driver’s insurer must pay for repairs and replacement vehicles yet has little control over who does the work or how much it costs.

Typically, the OFT suggests, not-at-fault drivers inflate the costs of the other side by about £560 because: insurers refer drivers to credit hire organisations that charge higher daily rates for a replacement car in exchange for a referral fee of between £250 and £400 per car hire; and drivers receive replacement vehicles for longer than necessary.

The cost of repairs may also be inflated by about £155 because certain insurers receive referral fees and rebates from repairers, paint suppliers and parts suppliers, while some insurers have agreements in place where repairers are allowed to charge higher labour rates when repairing the vehicles of not-at-fault drivers.

The OFT, which published its report last week, has provisionally decided to refer the private motor insurance market to the Competition Commission, and will reach a final decision by October.

Charlotte Hardie, road traffic accident supervisor at Glaisyers Solicitors, says: “What the OFT has unveiled is that the issue of personal injury referral fees is not the only problem.”

Hardie says making the Association of British Insurers’ (ABI) general terms agreement—a voluntary agreement between insurers and hire companies to pre-agree hire costs—mandatory might bring premiums down.

The Association of Personal Injury Lawyers (APIL) responds: “Insurers have finally been caught with their hands in the cookie jar.”

APIL president Karl Tonks says: “For years, the insurance industry has sought to blame anyone and anything but itself and its own sharp practices for high insurance premiums.”

However, Nick Starling, the ABI director of general insurance, welcomes the OFT report.

“Regulation of all players in the market to tackle excessive costs is needed, and we hope that the work by the Competition Commission will bring much needed reforms that in turn will result in lower car insurance premiums for consumers.”