Car insurers may face a difficult couple of years after having been reported to the Competition Commission by the Office of Fair Trading who consider that the car insurance market is dysfunctional.

In an article reported on the BBC website the OFT the main reason for the report was that “Competition appears not to be working effectively in the private motor insurance market,”  This is particularly so when considering the actions of insurers following accidents when they appear to “lose control” of the cost of claims.

The investigation which will now follow will unearth all the practices adopted by insurers who are chasing a slice of the car insurance pie worth an estimated £9.4 billion annually. It is felt that the motorist is not having his consumer interests best served where cost of claims are increased out of all proportion by credit hire and other cost associated with claims. The way insurers of non-fault drivers will sell on cases to solicitors and make referrals to hire firms in return for commissions will be uncovered.

All these costs inevitably get transferred to premiums and it is the individual motorist who ends up paying. The referral to the Competition Commission is seen by many as long overdue.

The Government has already acted to stop the practice of insurers selling details of accident victims to solicitors by introducing an Act of Parliament to ban this practice from April 2013. This new investigation will go much deeper and may well lead to further restrictions on a business that until now has had few real constraints. Hopefully this will lead to the real reason for increased premiums being uncovered leading to a subsequent reduction of premiums.