Are motor insurance premiums wrongly inflated?

The Office of Fair Trading ("OFT") suspects so and has made a referral to the Competition Commission. The latter will be shining a light into the dark (and some might say murky) world of those who arrange, pay for and profit from repairing the vehicles of and hiring replacement vehicles to "not-at-fault" drivers (for more information, please refer to the OFT announcement).

The OFT suspects that drivers’ insurance premiums are being inflated by insurers passing on in higher premiums the unnecessarily high costs of repairs and replacement vehicles charged by insurers of not-at-fault drivers (and others involved in the provision of services to not-at-fault drivers). The theory is that those costs are unnecessarily high because the "at-fault" insurers have little control over the way repairs and replacement vehicles are provided to the not-at-fault driver. There are also thought to be potentially anti-competitive (and other) practices going on which artificially inflate those costs.

Those suspicions are not exactly new news. But the suggestion that insurers themselves are involved in these practices rather than simply being the "victims" of the credit hire and associated industries is a more recent one. Are insurers also responsible for increasing the premiums? You will recall the case last year of Kevin Fallows v Harkers Transport [2011] LTL 13 Sept, in which HHJ Platt’s judgment contained some strident views on the practice of one RTA insurer of not-at-fault drivers when passing on the cost of repairs to the at-fault insurer. That insurer was increasing the actual cost to it of repairing its insured’s vehicle by up to 25% by adding an administration charge to the repair bill. You can read HHJ Platt’s comments in full. This case may also have been part of the considerations which have led to the OFT’s latest announcement of referral to the Competition Commission after the conclusion of its interim review into the market.

We await the outcome of that process with interest, although the Competition Commission has up to two years to carry out its work. This is all the more so given the hefty fines which the Commission and the OFT can dish out if the conclusion is that there is or has been deliberate distortion of the market at the cost of the motoring public.

This article first appeared in the Personal Injury Brief Update Law Journal (PIBULJ).