Motor's future still uncertain after OFT report

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The news that the OFT will refer the credit hire and repair costs issue to the Competition Commission has been welcomed all round. But it remains to be seen how it will resolve it

The Office of Fair Trading’s (OFT)’s announcement today on credit hire and vehicle repair costs confirmed what many were expecting – that the watchdog is likely to pass the issue on to the Competition Commission.

Although insurers started the practices that hike the cost of motor insurance, the ABI has welcomed the OFT probe. Once insurers of not-at-fault drivers started to raise costs for the insurers of at-fault drivers, everyone had to follow suit or lose out.

Now the situation has evolved into a Mexican stand-off, with insurers unable to fix the problem by themselves and the policyholders ultimately losing out.

The subject proved to be so intricate that finding a solution has perplexed the OFT. The report said that “there is no readily implementable, comprehensive solution available due to the complexity of the competition issues, the large number of diverse market participants with different business models and incentives, and the need for a remedy that addresses the features identified and applies to all market participants”.

That said, the OFT report did have some kind words for insurers’ attempts to curb the problem. It praised insurers’ efforts to capture the not-at-fault driver’s claims quickly, challenge the bill for not-at-fault claims and form loose agreements to sort out the issue among themselves. The ABI general terms of agreement between insurers and credit hire companies was also praised.

The OFT is now consulting on whether it should pass the issue to the Competition Commission. Early signals from insurers indicate that they would back this. If so, the Competition Commission is likely to launch its own consultation and investigation. That will take time – some sources have said that this could take 18 months before any action is taken.

However, the OFT would not have even considered passing the issue on if it thought finding a solution was impossible. The question now is what the Competition Commission will do, and how long it will take to do it.