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It has cited that the higher car insurance premiums stem from the cost paid out for courtesy cars and repairs by the insurers of the motorists who have caused the accident. However, the commission has discovered that post-accident repairs are often shoddy.
Following a referral from the Office of Fair Trading (OFT), the Commission has been studying the £11billion private motor insurance market for more than a year and it has since agreed with the OFT that the system is not working at all well for motorists.
The OFT found that car insurance premiums were being pushed up because the insurer of a driver who was not to blame in an accident was arranging a replacement car or repair whilst the at-fault driver’s insurer was footing the bill.
Martin Andrews from the Credit Hire Organisation said: “This separation of control and liability creates a chain of interactions which result in higher costs for replacement cars and for repairs being passed on to at-fault insurers.
“The Commission estimates the extra premium costs to be between £150m and £200m a year.
“There is insufficient incentive for insurers to keep costs down even though they are themselves on the receiving end of the problem.”
The Commission is currently considering ways to fix the problem, with a final report expected to be published by September 2014. Options include a cap on the cost of replacement vehicles, or making an insurer of the not-at-fault driver responsible for providing the replacement vehicle. Alternatively, the insurer of the at-fault driver could manage the claim.
Other concerns raised by the Commission, affecting drivers of 25 million privately registered vehicles in the UK, included “too many” substandard repairs following an accident and limited information about add-on insurance products making it harder for motorists to identify the best value product currently on the market.
The Commission will consider the idea of compulsory audits of repairs and the requirement of clearer information on price comparison websites. It believes that premiums could be reduced by £6 to £8 per policy if changes were made to the claims process.