LMA urges OFT to take top down look at motor insurance costs

The Lloyd’s Market Association has urged the Office of Fair Trading to outline the underlying causes of escalating motor insurance costs when it publishes its upcoming findings on the sector.

The OFT has said it will publish in December the initial findings, gleaned from a call for evidence on motor insurance costs that it has carried out over the past three months.

LMA Underwriting Manager David Powell said: “When presenting their findings, I urge the OFT to take into consideration all the factors contributing to the recent increase in motor premiums. Legitimate factors such as low investment returns are inevitable in the current economic climate. However, the OFT should recognise that the motor insurance market is loss-making and that largely unnecessary costs faced by insurers are pushing up prices for customers.

“Claims farming has led to a doubling in personal injury claims frequency since referral fees were permitted in 2004. Inflated legal costs and recoveries, unnecessary credit hire costs, fraud and uninsured drivers are the major factors pushing up costs for customers.

“Jack Straw’s 10 Minute Bill recognises the huge costs that the ‘claims industry’ has created for compensators, and whilst insurers are not likely to support restrictions in postcode underwriting, Mr Straw has made some welcome proposals to reduce the scope for abuse and fraud regarding the whiplash claims epidemic.”

 “The OFT has an ideal opportunity to explain to customers, government and the media that unless action is taken to address the underlying factors that are pushing up motor insurance costs premiums will continue to rise. The LASPO Bill, to reduce legal costs and ban referral fees, must be enacted swiftly, and fixed legal costs must be significantly reduced so that savings can be passed on to customers. The industry must also re-structure to remove the unnecessary and inflated costs caused by credit hire, and further regulation should not be ruled out.”