Competition Commission to assess competition in the private motor insurance market

The Commission was tasked with looking into the issue after the Office of Fair Trading (OFT) determined that its referral of the matter to the body was "warranted". The OFT affirmed its provisional view that it has "reasonable grounds for suspecting that there are features of the market that prevent, restrict or distort competition" after holding a consultation on the issue.

"The OFT's market study provisionally found that the insurers of drivers responsible for an accident ('at-fault' drivers) appear to have little control over the way repairs and replacement vehicles are provided to the 'not-at-fault' driver," the OFT said in a statement. "This may enable the insurers of not-at-fault drivers, and others such as insurance brokers, credit hire organisations and repairers, to engage in practices which appear to result in the cost of replacement vehicles and vehicle repairs provided to not-at-fault drivers being higher than they might otherwise be."

"Having considered the responses submitted during a public consultation process, the OFT continues to hold the view that a market investigation reference to the Competition Commission is warranted," it added.

Earlier this year the OFT said that the "dysfunctional way" that some insurers operate may be causing drivers to pay as much as £225 million more in car insurance premiums than they otherwise might. The OFT said that some insurers may be artificially driving up the cost of car insurance premiums because they are charging more than is due for dealing with driver claims in the aftermath of accidents.

At the time the OFT said its market study had revealed that referrals to credit hire organisations, and providing replacement vehicles for "longer periods than necessary", had led to the cost of providing 'not-at-fault' drivers with replacement vehicles being £560 more expensive on average for each such claim.

In addition, the study showed that an average £155 extra is being levied on the cost of repairs to 'not-at-fault' drivers' vehicles because some insurers receive fees and rebates after referring claims to paint and parts suppliers. The inflation in the repairs cost is also due to some insurers charging higher labour rates through agreements they have with "approved repairers", the regulator had said.

"Competition appears not to be working effectively in the private motor insurance market," Clive Maxwell, OFT chief executive, said. "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."

"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," he added.

Under the Enterprise Act, the OFT can refer a market to the Commission if it has reasonable grounds for suspecting that features of that market prevent, restrict or distort competition in that area. The Commission has up to two years to report its findings and can impose remedies to address problems if it finds that features of a market are harming competition.