OFT probe: the possible outcomes

Another day, another probe into motor insurance.

Insurers have already been put under the microscope by the Transport Select Committee over car insurance and its high cost. Now the Office of Fair Trading (OFT) is swinging into action, using its powers under section 5 of the Enterprise Act.

It will ask questions on price comparison sites, ancillary products, how approved repairers are arranged and the cost of insurance in Northern Ireland.

The OF T is asking the industry to respond by mid-October and then it will publish a report in December.

Worst-case scenario

There are a range of possible outcomes from the OFT probe, according to law firm Reynolds Porter Chamberlain (RPC).

The most serious outcome would be for the OFT to make a referral to the Competition Commission.

The commission would then carry out a review lasting up to two years, with a thorough investigation on the aspect that has been referred. The OFT would have to consult the insurance industry before making the referral.

RPC partner Stephen Smith says: “That would be an in-depth, warts-and-all investigation. They would have identified a specific area of concern where they felt there was an affect on competition.”

Careful response

The OFT could recommend voluntary action for the industry to follow, such as the terms of insurance offered on price comparison sites to be the same as direct.

Another outcome could be a ‘half-way house’ option, which would be to follow up with a more in-depth market study that could, once again, result in a referral to the Competition Commission or a voluntary action recommendation.

Smith believes that industry chiefs will now be assessing their strategy of response.

He says: “What one would expect is that they will be looking carefully at how they would respond. You could ignore it, but then you’re not driving the agenda.

“If you respond, you need to be careful to ensure that you are responding fully because it is a criminal offence to give false or misleading information.”