OFT To Investigate Soaring Motor Insurance Premiums

Sep 29 2011

As the AA reports an average increase of 40 per cent in comprehensive insurance premiums, the Office of Fair Trading has pledged to investigate the rising cost of motor insurance premiums.

 

Consumers are being encouraged to shop around for good deals and compare life insurance, as well as home and vehicle policies, but the truth is that premiums have increased significantly and the consumer has gained very little in return.

 

The AA's reported 40 per cent increase in the average cost of a comprehensive insurance policy occurred between March 2010 and March this year, with young drivers having been hit particularly hard. With the average driver aged between 17 and 22 paying an annual premium of £2,431; this figure represents a shocking increase of 64 per cent in the last 12 months.

 

The Office of Fair Trading, the government watchdog, has now launched an investigation to identify and address any consumer or competition issues, which may be causing the price of insurance premiums to soar.

 

Insurers say that there are many factors to blame for the price hikes; two major causes of increased costs include the growing number of personal injury claims and an increase in the prevalence of insurance fraud.

 

Graeme Trudgill, head of corporate affairs at the British Insurance Brokers Association, said "If you have an accident in a car, you are now encouraged by all sorts of different people to make a claim against the other party." He added that the massive increase in personal claims and compensation cases has forced insurance companies to hike up their prices.

 

Otto Thoresen, director general of the Association of British Insurers, also supported the insurance industry, saying that companies had not benefited from increased premiums; he said the insurance industry had not made a profit for the last 16 years and suggested that the OFT investigation was an opportunity to identify pressures faced by motor insurers.

 

Labour MP Jack Straw highlighted the problem of referral fees in June, calling for an end to the "racket"; he was referring to the business of selling details of incidents to personal injury lawyers and claims management companies, which is estimated to be worth £3 billion.

 

News of the Office of Fair Trading investigation has been welcomed by consumer group Which?. Senior researcher, Dan Moore, said "It's about time the OFT looked into this. It is important that the insurance industry does not take advantage of the fact that it is a legal requirement to have motor insurance by charging whatever they like."

 

He added that he felt the industry needed to do more to provide affordable insurance policies for young and new drivers, as current premiums were far too high. The increase is simply not affordable for young people, as many are finding it difficult to find jobs and cope with rising levels of student debt.

 

In contrast, Simon Douglas, director of insurance at the AA, said that it was completely normal for prices to rise; he added that the insurance industry was operating in a normal way and compared the increase in insurance prices to gas bills, which have soared over the last 12 months. Douglas stated, in an interview with the Guardian, "The gas companies have been experiencing higher supply costs and the insurance companies have been experiencing higher claims costs." He added that companies try to keep prices the same for as long as possible, but eventually they have to be increased.

 

An investigation into the cost of motor insurance is already being carried out by the Commons transport select committee and now, the OFT will launch their own exploration of the issue. If issues are identified, the OFT can launch a full inquiry and refer the motor insurance industry to the Financial Services Authority, although it is hoped that insurance providers will offer to address any problems before it reaches this stage.