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Regulators investigate motor insurance kickbacks scheme

Article by Simon Christopher
Posted: 3/6/2012 - Last updated: -
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The car insurance market is facing a formal investigation after regulators described it as "dysfunctional".

The Office of Fair Trading plans to ask the Competition Commission to carry out a complete probe into claims that insurers allow premiums to artificially rise through dubious deals with garages and hire car firms.

The investigation will look specifically at the prices charged for repairing cars and supplying courtesy cars to customers after a crash. The problem is that its the insurer of the "not-at-fault" driver who arranges these services, but the insurer of the "at fault" driver that pays for it.

The allegation is that some insurers receive kickbacks from the garage or hire car firm for choosing their services, which are then charged at unfairly high rates. The OFT believes that on average this inflates a repair charge by £155 and a courtesy car cost by £560.

It's also suggested there's such a lack of competition among insurers that the firms paying these charges simply pass on the costs in the form of higher premiums. The total cost of the practice to customers is thought to be around £225 million.

The referral to the Competition Commission is currently provisional, with the OFT set to confirm the decision in October. Any probe would likely take around two years to complete.



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