The big news in the motor insurance world this week was yesterday’s announcement that car insurance
costs are to be studied by the Competition Commission after the OFT (the Office of Fair Trading) described the market as “dysfunctional”. This provisional decision – a final announcement regarding this will be made in October 2012 – has already been felt by the industry with at least one of the UK’s largest insurers seeing its share price fall significantly.
The OFT claims that artificially high car hire and car repair costs following accidents are costing Britain’s motorists a collective £225 million a year in inflated insurance premiums. These costs are incurred by the insurers of “at fault” drivers following accidents. These insurers pick up the car hire and repair costs of the “not at fault” driver. The OFT claims that “not at fault” insurers are artificially hiking the hire and repair costs and receiving a referrer fee from car hire and repair companies.
On average, the OFT estimates that an additional £560 is added to car hire costs and a further £155 to repair costs. These costs are, in turn, passed on to all motorists by way of increased insurance premiums.
The OFT’s announcement has been welcomed by the Association of British Insurers and we too support any initiative that will help to reduce motor insurance costs for the UK’s hard-pressed motorists, who have been hit with massive inflation in premiums over the last two years as well as steep rises in fuel prices.
However the scale and impact of this activity does need to be put into context. Whilst the claimed £225 million over-spend is undoubtedly a significant amount of money, it equates to just over £7 per driver and so if the OFT are successful in their campaign to eradicate this “inefficiency” in the motor insurance market, it may not have that much of an effect on annual premiums for the average driver.
We’ll watch this one over the next few months...