Bond Pearce

On 14 December 2011 the Office of Fair Trading (OFT) announced its plans to launch a market study into private motor insurance in the UK. The study is to focus on the provision of third party vehicle repairs and credit hire replacement vehicles to claimants.

The study comes off the back of a call for evidence from the private insurance industry in September of this year. Concerns were raised that parties responsible for meeting third party claims for credit hire replacement vehicles or vehicle repairs only have limited control over the choice of provider and appear to find it difficult to assess the reasonableness of the costs involved.

In recognition of those concerns, the OFT has said that 'rival private motor insurers, brokers and credit hire providers may therefore have the opportunity, and the incentive, to carry out practices which allow them to generate revenues through referral fees, while simultaneously inflating the costs that the third party insurer has to meet.'

Sonya Branch, the OFT Senior Director of service, infrastructure and Public Markets, commented:

'"Our call for evidence has enabled us to gather information swiftly and efficiently so that we can now focus on specific features of the market that we are concerned could be restricting or distorting the market…

"Our concerns relate to the provision of third party vehicle repairs and credit hire replacement vehicles to claimants, where we suspect companies may be competing to extract monies from each other rather than keeping premiums as low as possible and providing car owners with value for money. By carrying out a market study, we aim to clarify whether a market investigation reference to the Competition Commission is appropriate".

If the matter is passed to the Competition Commission, further investigations will be undertaken to consider whether the companies in question operate against the public interest and, if so, whether this could be remedied by price control applied to the companies, leading to a reduction to the cost of repairs and credit hire.

The market study is due to be completed by Spring 2012.

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