Car insurers say that they welcome the impending investigation into their industry by the Competition Commission.
The Association of British Insurers (ABI) say that they welcome the news and that the “much-needed reforms” should result in lower car insurance premiums for UK drivers.
Nick Starling, director of general insurance at the ABI, said: "The OFT found what insurers have known for years: that when a customer has a crash that is their fault, the insurer has little control over the cost of the subsequent claim.”
The Office of Fair Trading said that after an initial assessment in May they have decided to launch a full investigation and refer the industry to the Competition Commission.
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 said that they had found evidence that insurers behavior has pushed up premiums by drivers by a total of £225 million a year.
It said that associated interests such as mechanics, brokers, credit hire organisations can boost their income through rebates and referral fees and that this activity makes the sector “dysfunctional”. The OFT said the practices resulted in the average repair bill being £155 more than it should be and the cost of replacing a vehicle costs on average £560 more than it should.
The OFT say that the combined practices increase the cost of car insurance for all UK drivers.
Nick Starling, said: “In particular, for too long insurers have faced inflated rates for credit hire cars and excessive hire periods which have led to higher insurance premiums for customers.
"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".
The Competition Commission has up to two years to report its findings.