What the OFT 2? Investigating rising vehicle insurance

Fast forward from the end of Spring 2011 to the beginning of Autumn. The domestic and commercial vehicle insurance industry have had all summer to get their stories straight to justify to the Office of Fair Trading why the UK’s car and van insurance premiums have been escalating at rates between 7 and 8 times higher than that of inflation throughout the year.

In real terms that’s a third up on 2010 – for every £75 you were contributing to your van insurance last year, that same proportion this year would cost you £100! It doesn’t take a genius to work out that, as a business running an entire fleet of light commercial vehicles, this year’s van insurance budget needed to be a whole lot bigger than it ever had been. At a time when many businesses have been going to the wall, that’s a bitter pill to swallow for the UK’s stuttering economy.

Recognising that very fact, in stepped the government and the OFT, opening their preliminary investigation on the 8th September.

There were several key areas which the investigation would drill down into, although one of which will have already had legislation introduced in order address it by the time the enquiry had commenced. That is the continuous insurance law, inaugurated on the 20th June.

the arguments for and against, m’lud

One of the insurance industry’s biggest defences for the increases is the fact that the rises in car and van cover has its roots in the amount of payouts that have had to be made for incidents involving uninsured drivers. However, since the middle of the year, it has become illegal to own a car and not have it insured, whether it stands on a drive all year or not. That means extra income for domestic and commercial vehicle insurance providers from an additional 1.4 million motors, the figure that has now been estimated for cars and vans using UK roads without cover, some 500,000 fewer than in previous years.

What that could mean for motorists, according to the Association of British Insurers, is that the insurance industry will be covered for half a billion pounds worth of payouts that they were not previously. This has to help in the constant search for cheap van insurance, but how will the OFT find? More on that subject in a separate article.

The OFT will also look into the role played by price comparison sites, replacement/courtesy vehicles, insurance companies’ continued use of approved mechanics in the case of repairs and nature of those relationships, especially as December has seen the change in the legislation meaning that warranties will remain valid if ‘like‘ components are now fitted as replacements, other than those specifically made by the manufacturer or an approved supplier. Also, many insurance policies differ greatly from provider to provider, especially regarding ancillary products, sold in addition to standard motor insurance cover; this will be addressed, likewise.

In additional defence, the ABI will state that staged accidents have played a role in premium increases, the ‘no win, no fee’ practise that has seen personal injury claims rise, mounting legal costs and other types of fraudulent claims.

Ding, ding. The gloves are off. The ref will have a tough call if this one goes to a split decision, for sure.

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