The Office of Fair Trade (OFT) has announced that it is going to investigate escalating car insurance costs - which increased by up to 40% over the last year.
The government watchdog will require insurance companies to provide justification for the abnormally high increases. The OFT will specifically investigate why insurance premiums in Northern Ireland are so high compared to the rest of the UK. It will also examine the role price-comparison websites played in the process.
The OFT called for evidence yesterday, which might be the start of a full inquiry.
Insurance companies were quick to explain the increases. The Director of AA Insurance, Simon Douglas, responded by saying "The OFT inquiry appears concerned that there has been collusion within the industry over premiums, but in our view that is not the case."
According to the Director General of the Association of British Insurers, Otto Thoresen, the increase in premiums was the result of lower investment returns, exorbitant legal costs, the increasing cost of personal injury claims, uninsured driving and insurance fraud.
He claimed that there was intensive competition in the industry, which was further fuelled by price comparison websites. Thoresen added that by 2009 insurance companies were only receiving £100 in premiums for every £123 they paid out in claims.
The Office of Fair Trade is allowing a 30-day period for insurance companies and other interested parties to give evidence. It will then compile a report that will be released in December this year.
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