After declaring that it would be looking into rising car premiums this September, the Office of Fair Trading (OFT) has now launched a full scale investigation into car insurance costs as a response to an overwhelming public outcry in the nation.
The areas of concern include insurers selling their policy holders’ details to solicitors and stoking up claims against themselves. Other areas include the cost of replacement cars and accident repairs.
An executive in the OFT, Sonya Branch, was quoted as saying: “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.”
She continued, “By carrying out a market study, we aim to clarify whether a market investigation reference to the Competition Commission is appropriate.”
However, the new findings revealed by OFT suggest that car insurance premiums have not been rising as rapidly as has been previously claimed.
OFT’s investigation have shed some light over some of the practices leading up to rising car insurance rates.
Car hire firms offer replacement cars to non-faulty drivers for the time being while their cars are being repaired. At the same time, they charge substantially more than the amount the insurer would be liable to pay had he arranged for a temporary car himself.
Also, the specialist car hire firm pays referral fees to the insurers, breakdown firms and insurance brokers for the information of those policy holders’, who have been involved in accidents and may be in dire need of a temporary car hire.
Certain garages also pay referral fee to the insurers to do the repair work on the damaged cars of their policy holders.
In return, the insurance company quotes higher costs for parts and paint, along with elevated labour costs so that the garages can get their own handsome bonus.
All these expenses are paid for by the insurance company of the faulty driver who was involved in the claim.
All these factors are the source behind the rise and rise of car insurance premiums everywhere.
The AA has conducted a research that reported the rise of average premiums by almost 40% till the month of April.
However, OFT debunked the former’s findings, claiming that premium costs had risen by 12% in the year 2009-2010, and another 9% during the first 9 months of 2011.
In a statement, OFT said: “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.”
The OFT also said that, regardless of the inaccurate evidence gathered by the AA, there is still cause for worry in the car insurance comparison front, since the highlighted problems had the potential to get premiums skyrocketing.