Private Motor Insurance Market In Line For Competition Commission Review

On 31 May 2012, the Office of Fair Trading ("OFT") announced that it has provisionally decided to refer the private motor insurance ("PMI") market to the Competition Commission for an in-depth review. The OFT's press release describes the competitive dynamic on this market as "dysfunctional". Its fundamental concern is that insurers of "at fault" drivers may have little control over the cost at which post-accident repairs and vehicle replacement services are provided. The OFT's research, found in a market study report, suggests insurers of "not at fault" drivers and others (brokers, credit hire organisations and repairers) inflate the costs of insurers of at fault drivers and this makes for an inefficient and anti-competitive marketplace. What are the anti-competitive practices identified? The OFT's market study specifies certain practices which result in higher bills for at fault drivers, including the following:

Not at fault drivers are often referred to credit hire organisations that tend to be more expensive, with the insurer, broker or repairer which makes the referral receiving a fee. Not at fault drivers receive replacement vehicles for longer periods than necessary. Repairers (including paint suppliers and small parts suppliers) pay referral fees and rebates to insurers, which end up being paid by the insurers of at fault drivers. Insurers' approved repairers charge higher labour rates which are also passed on to insurers of at fault drivers. Overall, the OFT's view is that PMI market players ought to focus on quality of...