The motor industry has been broadly welcoming of the decision taken by the Office of Fair Trading (OFT) to refer the UK's car insurance market to the Competition Commission.
According to the OFT, the market should be investigated amid concerns that it is not working well for motorists. This is due to the fact that that there is significant evidence suggesting certain features of the way car insurance is sold are distorting competition.
The body's provisional investigation indicated that insurers of drivers who are responsible for an accident ('at-fault' drivers) have little control over the way that repairs and replacement vehicles are provided to 'not-at-fault' drivers.
The OFT warned that, as a result, insurers of these not-at-fault drivers may have the ability to engage in practices resulting in the cost of vehicle repairs being higher than they would otherwise need to be. Clive Maxwell, chief executive of OFT, said: "Competition appears not to be working effectively in the private motor insurance market.
"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 Competition Commission will have up to two years to report its findings – if it agrees with the OFT's concerns, it will be able to impose regulations to address the situation.
The BVRLA, which represents companies that lease and rent cars and commercial vehicles, has welcomed the decision by the OFT to refer the market to the Competition Commission. It reiterated the OFT's concerns that the opportunity for inflated costs will be passed on by insurance providers of at-fault drivers to motorists themselves in the form of higher premiums.
This is of particular concern for the vehicle rental industry because the rising costs of compulsory motor insurance poses one of the biggest threats to profitability and sustainability.
John Lewis, chief executive of the association, said: "It is disappointing that politicians and the OFT have had to get involved to improve the competition in the sector, which could have got its own house in order. We believe insurance companies should take greater control of vehicle downtime and costs to manage claims effectively."
He added that one solution could be to provide a courtesy car as standard for all policy holders, with credit hire organisations simply providing cars for as long as they are needed by not-at-fault drivers.
Nick Starling, director-general of the Association of British Insurers, also welcomed the decision, stating that the OFT's own research revealed what drivers "have known for years" – that motorists who are at fault for a crash have very little control over the costs of the subsequent claim.
He said that inflated rates for credit hire cars and excessive hire periods have resulted in higher insurance premiums for all customers, adding: "Regulation of all players in the market to tackle excessive costs is needed and we look forward to working with the Competition Commission to bring much needed reforms to the market that will, in turn, result in lower car insurance premiums for consumers."
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