OFT starts vehicle repair and credit hire probe

The OFT has launched an investigation into the provision of third party vehicle repairs and credit hire replacement vehicles to motor accident claimants.

It follows responses to the OFT’s recent call for evidence into the increases in rivate motor insurance premiums.

The evidence gathered by the OFT suggested that private motor insurance premiums paid in the UK rose by around 12% between 2009 and 2010, and by a further 9% in the first three quarters of 2011.

The responses indicated that a key factor in these increases has been a rise in the costs associated with personal injury claims, the OFT said.

However, the increased cost of third party non-injury claims, which include credit hire replacement vehicles and third party vehicle repairs, are also factors which have had a notable impact.

The OFT said that as a result of this, it has “reasonable grounds for suspecting that there are features of the UK’s private motor insurance market that restrict and distort competition relating to the provision of third party vehicle repairs and credit hire replacement vehicles to claimants”. The OFT claims:

• Private motor insurers responsible for meeting third party claims for credit hire replacement vehicles and/or vehicle repairs appear to have only limited control over the choice of provider and appear to find it difficult to assess the extent to which the costs claimed are reasonable.
• Rival private motor insurers, brokers and credit hire providers may therefore have the opportunity, and the incentive, to carry out practices which allow them to generate revenues through referral fees, while simultaneously inflating the costs that the third party insurer has to meet. This in turn may contribute to car owners having to pay higher premiums.

The OFT said it also has concerns about the sale of motor legal protection cover to car owners and has called on the FSA to work with private motor insurers, as soon as possible, to ensure car owners have access to appropriate information when purchasing this cover.

The OFT is concerned about the complexity of the product offering, and that the way it is being sold may make it difficult for car owners to assess the product’s value for money.

The OFT also looked specifically at the prices of motor insurance premiums in Northern Ireland, which it found were approximately 11% than in the rest of the UK.

It said this may be partly explained by the fact that fewer consumers in Northern Ireland shop around for motor insurance - 55% compared to 73% of consumers in Great Britain.

The OFT also received evidence that suggests there are higher personal injury compensation levels and higher legal costs associated with claims in Northern Ireland, as well as more frequent accidents.

Sonya Branch, OFT senior director of services, infrastructure and public markets, said: “Our call for evidence has enabled us to gather information swiftly and efficiently so that we can now focus on specific features of the market that we are concerned could be restricting or distorting competition.

“Our concerns relate to the provision of third party vehicle repairs and credit hire replacement vehicles to claimants, where we 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. By carrying out a market study, we aim to clarify whether a market investigation reference to the Competition Commission is appropriate.”

The OFT expects to complete the investigation by Spring 2012.