OFT (Office of Fair Trading ) probes car insurance market as premiums soar

The Office of Fair Trading today launched an investigation into the motor insurance market, amid suggestions that companies are unfairly ramping up premiums.

Car insurance rates have soared in the last year, in some cases by as much as 40% according to the consumer watchdog. It is concerned that insurers may be abusing their market position, taking advantage of already stretched motorists to boost profits.

The OFT is issuing a "call for evidence" as it probes the industry. The role of price comparison sites such as gocompare.com and confused.com in particular will come under the spotlight.

Admiral, which owns confused, saw its shares sold off sharply today as news of the investigation emerged. The stock lost 34p to 1363p.

The move is the latest blow to an insurance sector that already feels under the cosh. Large insurers feel they are operating in an intensely competitive environment that has forced it to keep premiums lower than they should have been for years.

Now, buffeted by rising claims - some of them fraudulent, insurers claim - they have had to put rates up.

They say that last year, for every £100 they took in premiums, they paid out £117 in claims.

The House of Commons select committee on transport is also investigating car insurance.
One insurer said: "The car insurance industry is getting it from all sides."

A spokesman for the AA, which sells cover as an intermediary comparing the prices of a panel of insurers said: "Clearly, in any industry where you see price rises of 40% you are going to expect some form of collusion is going on, but this is not the case with insurance. I'd compare it very much with the household gas price rises we've seen, except where they have put prices up due to the cost to them of wholesale gas, insurance companies have had to put theirs up because claims costs have risen so sharply."

Fact 

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The OFT said the call for evidence represented a quick look into the market that may lead to a full inquiry if consumer or competition issues are found. It also has the power to refer the industry to the Financial Services Authority, but the OFT could look for voluntary action from insurance companies to assuage any concerns.

As well as looking at price comparison sites, the OFT will also consider the provision of credit hire replacement vehicles to drivers involved in accidents that are not their fault, additional products sold by insurers and their use of panels of approved repairers.

by Evening Standard