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Competition Commission says car insurance is too expensive

The Competition Commission has said that the complex nature of the claims process is making motor insurance premiums too high. Their investigation has revealed that the cost of replacement cars and repairs being paid by insurers for at-fault customers is inflating premiums. The Commission also reported that accident damage repairs are too often sub-standard.

The Competition Commission has said that the complex nature of the claims process is making motor insurance premiums too high. Their investigation has revealed that the cost of replacement cars and repairs being paid by insurers for at-fault customers is inflating premiums. The Commission also reported that accident damage repairs are too often sub-standard. Surprisingly, despite what seems like stiff competition online from the price comparison websites, the Commission also raised questions about the difficulties motorists can have in uncovering the best value policies for their specific needs.

The Competition Commission has been investigating the private insurance market for over a year. This investigation followed the £11 billion industry being referred to the Commission by the Office of Fair Trading (OFT). The Commission's initial study showed that the motor insurance market was not functioning correctly in obtaining best value for motorists and a full investigation was launched. In a complex report on findings, the Commission said that premiums were being increased because insurers of not at fault drivers arrange for a replacement car and repairs but pass these cost onto the at-fault driver's insurance company. Because the not at fault insurance company are not footing the bill, they have little incentive to keep these costs down.

The report stated: "This separation of control and liability creates a chain of interactions which result in higher costs for replacement cars and for repairs being passed on to at-fault insurers. The Commission estimates the extra premium costs to be between £150m and £200m a year. There is insufficient incentive for insurers to keep costs down even though they are themselves on the receiving end of the problem."

The Commission will now undertake work to identify ways of correcting these issues and will publish a final report in September 2014. Options being considered include capping the cost of a replacement vehicle or transferring the onus for providing the replacement vehicle to the not at fault driver's insurers.

Other concerns identified by the Commission include a large percentage of substandard repairs, an absence of clarity around policy add-on pricing and non-competitive 'price-parity' agreements between insurers and price comparison websites that prevent policies being offered cheaper elsewhere.

Spokesman for the Association of British Insurers, James Dalton, commented: "These possible remedies are a further step along the road to getting a market that enables insurers to deliver fully for consumers. We look forward to continuing to engage with the Competition Commission as it carries forward its work and we hope that this will lead to further improvements in the market and lower premiums for customers."

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