John Fingleton, the Chief Executive of the Office for Fair Trading, said:
Competition in this market does not appear to work well for drivers. We believe the focus that insurers have on gaining the competitive edge through raising their rivals' costs means that drivers pay more than they need to for their motor insurance policies. Because insurers are distracted from competing primarily on the quality and value of service provided to insured drivers, incentives for greater efficiency may be reduced.
The Office of Fair Trading (OFT) is to refer the private motor insurance market to the Competition Commission for practices that, it claims, drive up the cost of premiums. A statement on the OFT website says:
The OFT has reasonable grounds to suspect that there are features of the private motor insurance market that prevent, restrict or distort competition.
This is an inefficient way for the sector to operate, raising the total costs for providing private motor insurance which drivers end up paying.
Insurers are making money from drivers who break down by referring them to a range of emergency services.
For example, credit hire firms pay tip-off fees of around £300 for details about a driver involved in an accident so that they can arrange a courtesy car. The bill is then passed on to the at-fault motorist's insurer for the cost.
Evidence to the Office of Fair Trading suggests credit hire firms charge between £1,200 and £1,500 for the service, compared with £400 to £500 if the insurer organised the vehicle themselves.
Insurers have raised the cost of premiums for millions of drivers in the last few years while profiting from unfair practices, according to a report out today.
The investigation by the Office of Fair Trading finds that when an accident happens, insurers of the driver who is not at fault are selling the details of crash victims to rip-off repair and car hire firms.
The insurer of the driver who is at fault is then forced to shoulder the cost of repair work and replacement vehicles, driving up premiums.
Drivers who are involved in accidents become "hot property" as their details are passed on to garages, breakdown firms and even the emergency services.