An in interesting article below by Ray Massey of the Daily Mail –
- British drivers paying record premiums
- Competition in car insurance market ‘not working’
- ‘Clear evidence’ that companies are rigging the market
- MPs say some practices are bordering on bribery
Ray Massey, Transport Editor
Counting the cost: Motor insurance firms are to be investigated over a rip-off racket which is leaving British drivers out of pocket
Costs are being artificially inflated by a ?merry go round’ of controversial ?referral payments?, excessively expensive repair bills, and unnecessarily high replacement car-hire car charges.
MPs have even described some of the practices complained of as bordering on ?bribery.’They say soaring whiplash claims are the main cause of the ?runaway cost? of motor insurance adding up to ?90 to every policy.
The OFT says there is clear evidence of the industry – worth an estimated ?9.4billion in the UK – rigging the market to prevent proper competition to the detriment of UK motorists.
It has found evidence of premiums paid by drivers being ramped up outrageously through spiralling referral fees.
Money: Insurance costs for British drivers have risen steeply in recent years
It added that insurers whose driver customers are to blame for a crash have little control over the way in which repairs are carried out.
As a result it has decided to refer the issue upwards for investigation by the Competition Commission which has powers to take enforcement action and levy hefty fines.
The OFT said there was ?no quick fix? to the problems identified and that further investigation was needed.
The commission now has up to two years to report its findings.
The OFT had decided provisionally in May to refer the industry to the Competition Commission pending further evidence after concluding: ?On the basis of the evidence collects, the OFT has reasonable grounds to suspect there are features of the private motor insurance market that prevent, restrict, or distort competition.?
Clive Maxwell, chief executive of the OFT, 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.?
In May, the OFT said the motor insurance market was ?dysfunctional?, with signs that insurers of drivers who are ?at fault? are being taken advantage of by insurers of drivers who are not at fault and by others involved in providing repairs and courtesy cars.
Watchdogs took evidence suggesting that this is inflating the cost of providing replacement vehicles by an average of ?560 a time, while the cost of repairs was ?155 more.
The OFT said after crashes, many insurers of not-at-fault drivers, brokers and repairers, refer the drivers to organisations that tend to charge higher rates in exchange for ?referral fees? of around ?250 to ?400 per hire car.
Bills paid by the insurers of the ?at-fault? drivers can be inflated further because the other drivers are given replacement vehicles for longer than necessary.
Repair bills paid by the insurers of at-fault drivers then pushed up because some insurers receive referral fees and rebates from repairers and suppliers.
Some insurers even have agreements with repairers to charge higher labour rates when repairing the vehicle of the not-at-fault driver.
Such practices boost the revenues of the insurer of the not-at-fault driver as well as pushing up the costs for the insurers of the at-fault driver.
Investigation: The OFT will investigate claims the insurance industry is ripping off British motorists
The higher costs are eventually passed on to drivers through higher premiums.
Last year former Home Secretary Jack Straw told MP watchdogs that motorists were being fleeced by ?2billion a year in unnecessary insurance costs caused by money-grabbing ?parasites? and ?dodgy solicitors? engaged in a controversial cash-for-contacts referral-fee ?racket? which in any other walk of life would be condemned as ?bribery.?
Donna Scully, chairman of the Motor Accident Solicitors Society (MASS) said: ‘We welcome the OFT?s decision to refer the private motor insurance market to the Competition Commission.
?It?s an important and vital step in addressing a complicated sector that isn?t working efficiently or effectively. ?
Claims: Clive Maxwell (pictured) Chief Executive of the OFT said competition does not appear to be working properly in the British car insurance market
She added:?There is still much that needs to be done and it is essential that the whole industry continues to work together and with the government to clean up the system. The best interest of accident victims must be at the heart of every assessment and change in the industry.?
News of the referral comes as Royal Bank of Scotland puts the finishing touches to the stock market flotation of its Direct Line Group insurance arm. But the investigation is not expected to throw the plans off track.
Today?s report says :?The OFT remains of the view that the potential consumer detriment is significant, taking into account there are approximately 23 million policy holders and that the impact of the features has been, and in the absence of a market investigation could continue to be, felt over a number of years.?
It says ?features it has identified are likely to be leading to higher costs which are passed on to consumers in higher insurance premiums?. The cost of repairs and replacement vehicles to not-at-fault drivers alone is worth about ?1.4billion a year.
On the evidence it concludes: ?The OFT has reasonable grounds for suspecting that a feature or a combination of features of the market or markets for the supply or acquisition of private motor insurance and related goods or services in the UK prevents, restricts or distorts competition in connection with their supply or acquisition.?
A referral upwards to the Competition Commission? for a full market investigation is therefore ?an appropriate response to the scale of the problem.?
Tackling excessive costs
The Association of British Insurers (ABI) welcomed the referral to the Commission to ?tackle excessive costs? and help bring down premiums for 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.?
But Martin Andrews, Director General of the Credit Hire Organisation (CHO) which provides replacement cars for insured drivers said: ?We continue to have serious concerns as to the long-term impact it may have on the motoring consumer and their right to mobility after an accident that was not their fault.?
‘We could see premiums soar as insurers try to make up losses as they are forced to pay out for replacement vehicles’– Martin Andrews, Director General of the Credit Hire Organisation
He said:?We could see premiums soar as insurers try to make up losses as they are forced to pay out for replacement vehicles; or insurers will find ways not to provide replacement vehicles and not-at fault drivers will be forced to ?make do? and catch the bus. ?
He insisted:?The consumer will lose out, and hundreds of years of case law, establishing the consumer?s rights in the event of an accident, will be over-turned.?
Critics and MPs have blamed ?ambulance chasing lawyers? and claims companies for the rise in so-called ?cash for crash? claims.
The influential Commons? Transport Select committee has already criticised a ‘dysfunctional’ system which runs on a ‘merry go round’ of so-called ‘referral payments’.
It also highlighted ‘aggressive’ marketing techniques by the no-win-no fee firms, concluding that soaring car insurance premiums were being fuelled by a boom in ‘abhorrent ambulance chasing’ by no-win-no-fee personal injury claim firms.
And it criticised a scandalous cash-for-contacts culture that means within? days or even hours of an accident, motorists’ personal details are being? sold and re-sold on for under the counter ‘fees’ of up to ?1,000 a time – to lawyers, medical experts and accident management companies.
Motorists are then bombarded with hard-sell calls from ‘no-win, no-fee firms’ and other offering to act on their behalf.
‘Ambulance chasing lawyers’
In July the AA revealed that car insurance had burst through the ?1,000 barrier for the first time after an ?epidemic? of bogus whiplash and ?cash for cash? claims.
The booming claims culture is adding to the rises as ?ambulance-chasing lawyers? push up the cost of premiums.
The average fully comprehensive car insurance now costs ?1,034 ? up 8.5 per cent on a year ago when it was ?955.
But it more than doubled in just four years from July 2008 when the average fully comprehensive policy cost just ?509, according to the benchmark AA British Insurance Premium Index.
The Daily Mail has revealed how insurance companies are selling details of their clients to ‘no-win, no-fee lawyers’ for up to ?1,000 per person and in some cases up to ?10,000.
Some 80 per cent of claims are for ‘whiplash’ which is conveniently undetectable by scans or X-rays.
Liverpool is the? whiplash capital of Britain with one in every 50 residents making compensation claims.
MPs on the all-party Commons Select committee have also warned of a ?2billion a year ?whiplash epidemic?.
They say soaring whiplash claims are the main cause of the ?runaway cost? of motor insurance adding up to ?90 to every policy.…More at Rip off motor insurance firms who ramp up cost of policies with ‘merry go … – Daily Mail