The UK Office of Fair Trading has launched a preliminary investigation – known as a call for evidence – into the nation’s insurance companies after car insurance premiums rose 40% over the last twelve months.

The consumer watchdog is probing whether there is genuine competition between the major insurers – and if there is, why it isn’t offering adequate protection for consumers against massive rate rises.

In the past, the industry has been blaming fraud, the so-called “compensation culture” (which must share a room with the “nanny state” and the “me generation” at the Hoary Old Cliché Hotel) and the activities of accident management companies like RTR.

The OFT, on the other hand, will be investigating the impact of price comparison websites like Gocompare.com (some of which are even owned by the insurance companies), the impact of additional products such as legal protection on premiums, how claims are dealt with, approved repairers and the provision of replacement cars.

The results are to be announced in December. Otto Thoresen, Director General of the Association of British Insurers, has welcomed the probe:

“This will give the industry another opportunity to highlight the cost pressures motor insurers are facing, what action is needed to reduce them, and steps the industry is taking to ensure customers get the best deal when buying motor insurance. Rising claims costs from personal injury claims and excessive legal costs, insurance fraud and uninsured driving, coupled with lower investment returns in recent years, have unfortunately led to rising motor insurance bills for many customers. In fact the motor insurance industry has not been profitable for the last sixteen years.”

It’s a sentiment echoed by Louise Ellman, chairman of the all-party Transport Select Committee in Britain’s parliament:

“It shows that this issue is of national importance, where action is needed. I hope that their investigation will shed more light on competition within the insurance industry.”

It will be interesting to see what the Office of Fair Trading’s probe turns up.

By Tristan Hankins

Story source: The Telegraph