The Office of Fair Trading (OFT) is to refer the UK’s car insurance industry to the competition commission to investigate concerns that the market is not working effectively for consumers.
It believes that costs for repairs and courtesy cars are being artificially inflated and increasing the total cost of car insurance premiums by £255 million a year.
The OFT looked into the car insurance industry in May and said that there was reasonable grounds to suspect that the industry was restricting or distorting competition.
It has decided that a full investigation is required because it believes that in the event of an accident, insurers of the drivers that caused the accident have little control over how repairs and courtesy cars are provided to the driver who did not cause the accident.
The OFT believes this is how costs are being artificially inflated, pushing up the cost of car insurance for all motorists. It says that the cost of covering the expenses for each accident could be £560 a year higher than it should be.
Clive Maxwell, OFT Chief Executive, 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 OFT found that the insurer of the driver not at fault in an accident can refer the case on to a hire firm in return for a fee of between £250 and £400. Fees are also paid to mechanics and part suppliers who have business referred to them.
The OFT also says it has found evidence that some insurers have agreements with repair firms who then charge higher labour rates when repairing cars belonging to the driver who was not at fault.
Mr Maxwell said: “Having publicly consulted on our provisional decision, we are still of the view that there is no quick fix to these problems, and that a more in-depth investigation by the Competition Commission is therefore appropriate.”
The Competition Commission will now have two years in which to compile a report.