Motor insurance market referred to Competition Commission

The Office of Fair Trading (OFT) is referring the UK’s private motor insurance market to the Competition Commission.

The OFT had provisionally decided to refer the market to the Competition Commission in May this year after a market study gave it reasonable grounds for suspecting that there are features of the market that prevent, restrict or distort competition.

It 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.

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.

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.

“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.”

Retail Motor Law (RML) welcomed today’s announcement. Andrew Moody, managing director of RML, said: “I applaud the OFT for making this bold move – it is good news for small businesses and consumers.

“The Competition Commission has strong and wide ranging powers, so it will be very interesting to see what happens next.

“I recently spent two years compiling a report on what I saw as questionable practices within the UK vehicle refinishing industry, specifically the agreements that certain paint manufacturers and distributors enter into with insurance and accident management companies.

“It is hard to escape the conclusion that some major operators are throwing their weight around, inflating prices to the detriment of smaller companies and, ultimately, increasing costs to the motoring public via higher premiums.”

The Competition Commission has up to two years to report its findings. If it finds that features of a market are harming competition, it has powers to impose remedies to address the situation.