The Office of Fair Trading (OFT) has decided to refer the car insurance industry to the Competition Commission.
In a report issued in May the OFT said it found evidence that insurers compete in a “dysfunctional way” that could push up premiums for drivers by £225 million a year.
Today it has decided that the matter needs more investigation and has passed the matter over to the Competition Commission, which will conduct an inquiry and will report in two years’ time.
The OFT’s earlier report said that the structure of the market could be making costs and premiums too high. It found evidence that insurers of at-fault drivers have little control over the way in which these repairs and vehicle replacement services are carried out or the associated costs. That led to an inflated cost of providing a replacement vehicle to not-at-fault drivers while their own car is being repaired.
"Competition appears not to be working effectively in the private motor insurance market," said OFT chief executive Clive Maxwell.
"The insurers of at-fault drivers appear to have little control over the bills they must pay, and this may be leading to higher costs for them and ultimately higher premiums for motorists."
The OFT found that replacement cars cost £560 more on average than an adequate price, and on average repairs were £155 more than required.
The Association of British Insurers agreed with the OFT’s findings. Nick Starling, ABI’s Director of General Insurance said: “For too long insurers have faced inflated rates for credit hire cars and excessive hire periods which have led to higher insurance premiums for customers. Regulation of all players in the market to tackle excessive costs is needed”.