Insurance relief for Scots motorists

Sunday 7 October 2012

Motorists can look forward to lower insurance premiums following the decision by the Office of Fair Trading (OFT) to refer the private motor insurance market to the Competition Commission (CC).

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The OFT's investigation into the market found compelling evidence that insurers "compete in a dysfunctional way that may push up premiums for drivers by £225 million a year".

The inquiry focused on the cost of repairs and replacement vehicles after an accident. Let's say you crash into another vehicle and you are at fault. Your insurer is now liable for the repairs to the other car, plus a replacement vehicle for the innocent driver. However, your insurer does not organise those repairs or the car hire. Instead, the insurer of the blameless driver makes the arrangements – and that's the problem.

The OFT discovered that many insurers receive referral fees of between £250 and £400 from car hire firms in exchange for business. Drivers also appear to keep hold of their replacement vehicles longer than necessary. The result is inflated costs and the widespread practices could pump up the price of replacement vehicles for no-fault drivers by about £560 a time. Some insurers receive referral fees from repairers as well as paint and part suppliers. They might also agree with their approved repairers to charge higher labour rates for drivers who are not at fault. The deals appear to be inflating the cost of repairs by about £155, all of which leads to higher premiums. Clive Maxwell, chief executive of the OFT, says: "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."Evidence of murky dealings in the motor insurance market comes shortly after the Government announced its intention to ban referral fees in personal injury claims in an attempt to curb the "compensation culture". The ban comes into force in April 2013 and applies only to England and Wales. However, the knock-on effect on premiums is expected to spread throughout the UK.The current system, in which personal injury details are sold on by insurance companies to lawyers, is thought to encourage drivers to claim for spurious injuries – mostly whiplash. The cost of whiplash claims has now reached £2 billion a year, adding £90 to the cost of each motor policy. Dominic Clayden, claims director at Aviva, the UK's biggest insurer, says: "We believe the announcement by the OFT is an important and welcome step in bringing the necessary reform to the motor insurance market to strip out excessive costs in connection with credit hire, repair and non-fault personal injury claims that have driven claims costs and motor premiums skywards. "We are particularly pleased the OFT has expanded the scope of its referral to include non-fault personal injury claims, which have increased in recent years despite a long-term decline in the number of accidents on our roads."Only by fundamentally reforming the law and current practices applicable to all players in the motor claims market can we reduce cost pressures – and therefore premiums – for our customers."A fall in the price of motor insurance would be welcome by drivers who have endured record premium increases. Over the two years to March 31, 2012, the average quote for a comprehensive policy soared by nearly 50%, according to the AA. However, there are signs that some insurers are bringing down the cost of premiums. A recent study by MoneySupermarket found that car insurance premiums fell by 10.6% over the past 12 months, bringing the average premium down to £478. Falkirk and Stirling have enjoyed some of the biggest price cuts in the country at 13.2%, bringing the average premium down to £309.49. Scottish towns also feature in many of the top spots for cheapest car insurance premiums: eight of the top 10 towns for cheap car insurance are in Scotland, with Perth in the number one slot at £285.95.Kevin Pratt, insurance expert at MoneySupermarket, says: "Although every part of the UK has benefited from the downward trend in car insurance prices, the average cost of cover varies considerably across the nation."Drivers in greater London suffer the highest car insurance premiums in the UK, with average prices of £748. But motorists in south Scotland have the cheapest premiums of £309 on average – 59% less than the price paid by drivers in greater London."But experts warn that further price falls could take time to filter through. Pratt says: "The investigation by the CC could take up to two years, so it is unlikely motorists will benefit in the near future. There is also no guarantee that the current downward trend in premiums will continue. I urge those who receive their car insurance renewal soon to act quickly to benefit from the lower car insurance prices being offered."

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Insurance relief for Scots motorists

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