In April, it was reported by the AA that car insurance prices were rising faster than ever, having increased by 40% in just one year. The report has resulted in the Office of Fair Trading (OFT) deciding to investigate the claims and, if they are found to be accurate, to determine the reasons for the rapid increases in costs. In particular, the watchdog wants to find out if consumer issues or competitiveness are contributing factors.
It is beginning the investigation, by firstly asking insurers and other companies involved in the industry to provide data concerning all aspects of the insurance industry, including the part played by price comparison websites. Additionally, it will look into additional services and products provided by insurers such as courtesy cars. Statistics regarding regional differences in prices will also be gathered as the OFT has received reports that the car insurance premiums in Northern Ireland are higher than anywhere else in the UK.
This evidence will be collected over the next five weeks and the results of the investigation will be published at the end of the year. Whether or not any further examination of motor insurance premiums is carried out is dependant on the results.
Back in April, when the AA first reported the significant rise in car insurance costs, the average premium for comprehensive cover was £892, whilst for third party policies it was £1,533.
The director general of the Association of British Insurers, Otto Thorensen has held insurer’s compensation systems responsible for the increasing costs and suggested that if insurance premiums are to remain competitively priced this system needs to be reviewed. He explained that increasing personal injury claims, insurance fraud and uninsured drivers are costing insurers a great deal of money which consequently has led to the increasing premium costs. He went on to inform that for the past 16 years, the motor insurance industry has been largely unprofitable as the amount that is paid out in claims exceeds the income received from policies.
The Justice Secretary, Jack Straw, will be all for this new investigation as he has previously suggested the insurance industry needs to be restructured and claimed that secretive transactions made by insurers such as forwarding policy holder’s details on to personal injury lawyers without consent in return for commissions, are what has led to the increasing premiums.
Similarly, Paul Evans, chief executive insurer of Axa UK, has expressed his opinion that our country is sinking into a culture of compensation claims. He described how £8m is spent by the NHS every year on treatment for legitimate whiplash injuries however, in contrast £8bn was forked out by insurers towards compensation claims regarding whiplash.
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MAAT and ICPA accountant, with a passion for making accountancy and bookkeeping accessible. Other interests include cloud-based software development for web and mobile access, keeping fit, reading, and entrepreneurship.