OFT investigates rising car premiums

  • OFT says car insurance industry is ‘dysfunctional’
  • Over-charging for repairs averages £155
  • Over-charging for car hire averages £560

Insurance companies, repair garages and car hire firms are massively over-charging, according to evidence from the Office of Fair Trading’s (OFT) investigation into rising car insurance costs.

A new study published by the OFT last week revealed that all parties involved in an insurance claim are often in cahoots to over-inflate prices at the expense of the at-fault driver's insurance.

The racket of over-charging as well as a jobs-for-the-boys referral fees system uncovered by Parkers.co.uk last year is costing UK motorists a total of around £225 million a year in rising premiums says the OFT.

The OFT study branded the car insurance industry as 'dysfunctional' and revealed that courtesy car hire had become, on average, around £560 more expensive than the standard rate, while repair costs were inflated by an average of £155.

According to the OFT the massive insurance claims were normally paid by the at-fault driver’s insurance company without objection but merely recouped in the form of higher premiums.

The OFT said: 'On the basis of the evidence collected, the OFT has reasonable grounds to suspect that there are features of the private motor insurance market that prevent, restrict or distort competition.

'The market would work better if insurers competed primarily on the quality and value of the service each provides to insured drivers, rather than focusing on gaining the competitive edge through raising rival insurers' costs and increasing their own revenues.'

OFT chief executive John Fingleton said there is no ‘quick fix’ for the issue, which is why he wants a full inquiry to be launched by the Competition Commission. The decision of the OFT to refer the car insurance sector to the Competition Commission is provisional and a final decision will be announced in October.

Malcolm Tarling, spokesman for the Association of British Insurers (ABI), said he welcomed reform: ‘At the moment we are seeing far too many cases of excessive charges that far outweigh what would be a reasonable charge for a replacement vehicle. And these are charges that ultimately insurers are facing.’