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After a recent outcry in relation to the rising costs of insurance premiums and subsequent referral fees, the OFT has been prompted to starting looking into the issue. It found that insurers were stoking up claims against themselves by selling details of their policy holder’s accidents to solicitors.
The OFT is also set to examine the cost of accident repairs and replacement cars where they suspect companies may be “competing to extract money from each other rather than keeping premiums as low as possible and providing car owners with value for money.”
Despite rising concerns, so far the OFT are able to report that the cost of motor insurance is not rising as fast as previously claimed. Although the AA reported in April that average premiums had risen by 40 per cent in the year to date, the OFT has revealed that premiums have only gone up by 12 per cent between 2009 and 2010, and by a further 9 per cent in the first nine months of 2011.
The OFT has also gathered further evidence, aside from referral fees, which it cites could affect premiums in the future. More motorists are opting to hire replacement cars from specialist firms whilst their cars are being repaired which is costing the insurer an average of £1,200 and £1,500 per claimant. The solution is for insurers to offer claimants a like-for-like replacement for customers themselves which would cost them a lot less, between £400 and £600.
The next stage of the OFT’s inquiry could lead to the rising cost of motor insurance being investigated by the Competition Commission which has the power to enforce new regulations. As it stands, the government has already banned the payment of referral fees in personal injury cases in England and Wales.
The Association of British Insurers (ABI) said it welcomed the OFT’s forthcoming study, and hoped it would lead to lower costs and premiums for motorists.
Nick Starling of the ABI said: “The industry has long said that there are unnecessary costs in the system and that there are inefficiencies that need to be addressed – from personal injury to credit hire to credit repair – and we are pleased that the OFT have recognised this in their report.”