On 31 May 2012, the Office of Fair Trading ("OFT")
announced that it has provisionally decided to refer the private
motor insurance ("PMI") market to the Competition
Commission for an in-depth review.
The OFT's press release describes the competitive dynamic
on this market as "dysfunctional". Its fundamental
concern is that insurers of "at fault" drivers may have
little control over the cost at which post-accident repairs and
vehicle replacement services are provided. The OFT's research,
found in a market study report, suggests insurers of "not at
fault" drivers and others (brokers, credit hire organisations
and repairers) inflate the costs of insurers of at fault drivers
and this makes for an inefficient and anti-competitive
marketplace.
What are the anti-competitive practices
identified?
The OFT's market study specifies certain practices which result
in higher bills for at fault drivers, including the
following:
- Not at fault drivers are often referred to credit hire organisations that tend to be more expensive, with the insurer, broker or repairer which makes the referral receiving a fee.
- Not at fault drivers receive replacement vehicles for longer periods than necessary.
- Repairers (including paint suppliers and small parts suppliers) pay referral fees and rebates to insurers, which end up being paid by the insurers of at fault drivers.
- Insurers' approved repairers charge higher labour rates which are also passed on to insurers of at fault drivers.
Overall, the OFT's view is that PMI market players ought to
focus on quality of service rather than "on gaining the
competitive edge through raising rival insurers' costs and
increasing their own revenues."
What will happen next?
The decision to refer to the Competition Commission is provisional
only, with yesterday's announcement starting a consultation
period which will end on 6 July 2012. The OFT expects to announce a
definitive decision by October 2012.
The OFT acknowledges that there is unlikely to be a "quick
fix" here. This is a large industry, of relevance to almost
all consumers and involving complex third-party relationships. A
two-year Competition Commission review seems likely and, if it goes
ahead, could lead to significant regulation of the PMI market.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 01/06/2012.