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UK car insurance industry to face Competition Commission probe
The Office of Fair Trading (OFT) announced on Friday (28th September) that it has referred the UK car insurance industry to the Competition Commission and recommended that a full investigation be undertaken.
Following its own lengthy investigation into practices in the industry, the OFT concluded that insurers have inflated the cost of repairs and hire vehicles by £225m ($360.9m) and that this is negatively impacting the country’s motorists. The OFT’s Chief Executive succinctly summed up the issue: “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 announcement has raised hopes that lower premiums could be on the horizon, a change for which British road users have been yearning for a long time. When one looks at the numbers, it is not difficult to see why.
The UK car insurance industry was valued at $21bn in 2011 as premiums soared. Between 2009 and 2010, the average premium increased by 12% and in the first three quarters of 2011, by a further 9%. In fact, data published by the AA in July of this year showed that the average premium exceeded £1000 ($1,604) a year for the first time ever with insurers blaming bogus whiplash claims and crash for cash scams. Whiplash injury claims alone added an estimated £90 ($144) to every premium in 2011.
A small glimmer of hope has emerged for motorists with price comparison site MoneySupermarket.com releasing data that shows a 10.6% drop in premiums so far in 2012, but there are fears this respite may be short lived, particularly for women. New EU legislation which prevents insurers charging men more than women becomes effective in December and the AA has announced that it expects this to increase the average premium by 25% for female drivers.
Any ruling from the Competition Commission could therefore be crucial if keeping a car on the road is to remain affordable for some people. If it does not result in lower premiums and costs continue to skyrocket, the consequences for the industry could be catastrophic and an industry described by AA Director of Insurance Simon Douglas as “in turmoil” could reach crisis point. Motorists and insurers alike now await the findings with feelings somewhere between eagerness and anxiety.
For a more in-depth understanding of non-life insurance in the UK, see our industry profile here