28 September 2012Print This Post

Competition Commission to investigate "inflated" cost of credit hire in motor insurance

Scully: important and vital step

The way insurers, brokers, credit hire organisations and repairers deal with vehicle repairs and replacements are to be investigated by the Competition Commission after a reference by the Office of Fair Trading (OFT).

Following a provisional decision to make the reference in May, the OFT said that nothing in the 28 responses received had dissuaded it from the conclusion that the market is not working well for motorists.

Its original market study gave reasonable grounds for suspecting that there are features of the market that prevent, restrict or distort competition because the insurers of drivers responsible for an accident “appear to have little control over the way repairs and replacement vehicles are provided to the ‘not-at-fault’ driver”.

The OFT said: “This may enable the insurers of not-at-fault drivers, and others such as insurance brokers, credit hire organisations and repairers, to engage in practices which appear to result in the cost of replacement vehicles and vehicle repairs provided to not-at-fault drivers being higher than they might otherwise be.”

Insurers told the OFT that credit hire costs can add as much as £13 to the cost of a premium, although three credit hire organisations argued that the OFT had failed to identify sufficiently any cost inflation and to establish a connection with premium increases.

The study has not looked at personal injury referral fees as that was covered in the Legal Aid, Sentencing and Punishment of Offenders Act 2012.

OFT chief executive Clive Maxwell 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.

“Having publicly consulted on our provisional decision, we are still of the view that there is no quick fix to these problems, and that a more in-depth investigation by the Competition Commission is therefore appropriate.”

In a statement, Donna Scully, chair of the Motor Accident Solicitors Society, said she welcomed the reference: “It’s an important and vital step in addressing a complicated sector that isn’t working efficiently or effectively. 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 Competition Commission has up to two years to report. If it finds that features of a market are harming competition, it has powers to impose remedies to address the situation.

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