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Insurance companies taking us for a ride

Finally, it’s been acknowledged that insurance companies are ripping us off.

The Office of Fair Trading (OFT) has referred the private motor insurance market to the Competition Commission as it found our premiums could be being unnecessarily pushed up by £225m a year.

The OFT says insurers compete in a “dysfunctional way” by raising their rivals’ costs as a means of gaining the competitive edge, and, as we all know, the higher an insurer’s costs, the more we’re hit in the wallet.

Currently in an accident, the at-fault driver’s insurance company has to cover the cost of repairs and replacement vehicles for the not-at-fault driver. Makes sense. But, and here comes the sneaky bit, the at-fault’s insurer has no control over these repairs or the choice of replacement vehicles, so the insurer for the not-at-fault driver will do everything it can to bump up these costs, making it on average £560 more expensive each time.

The OFT’s report found that after a crash, many insurers of not-at-fault drivers, refer the drivers to organisations that charge higher rates in exchange for referral fees of around £250 to £400 per hire car. So, one insurer is making money through referrals, while the other is losing money through inflated repairs. And you can be sure each insurer returns the ‘favour’ when the tables are turned. Definitely dysfunctional!

The bills paid by the insurers of at-fault drivers can be inflated even further by holding on to replacement vehicles longer than necessary. Another devious trick we’re paying for!

The OFT told us something else we already knew – the market would work better if insurers competed on the quality and the value of their service, rather than playing games trying to raise their rivals’ costs and increasing their own revenues through referral fees.

John Fingleton, Chief Executive of the OFT said there’s no “quick fix” for the problems but a more in-depth investigation by the Competition Commission, which has further powers to act on any findings, may be necessary. Yeah, we’ll say!

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