What's the use, one might ask, of cheap car deals if the cost of car insurance keeps on increasing to record levels all the time? On average premiums have jumped 21% over the last two years, but for some motorists this figure is much higher.
Many drivers will, therefore, welcome the Office of Fair Trading's decision to investigate the UK's £10 billion vehicle insurance industry.
The OFT says it has "reasonable grounds" to suspect that replacement car hire companies and repair garages were doing their best to restrict competition, thereby pushing up the cost of car insurance for ordinary motorists.
According to the OFT it was difficult for insurers to assess whether or not claims for courtesy cars and repairs were reasonable.
The Office puts part of the blame for the huge increase in premiums at the door of referral fees - commissions received by insurers from third party companies for passing on information about accident victims. The Justice Minister has already vowed to ban this practice, calling it "a racket."
An OFT spokesperson, Sonya Branch, said "In the provision of third-party vehicle repairs and credit hire replacement vehicles to claimants, we suspect companies may be competing to extract money from each other rather than keeping premiums as low as possible."
The OFT expects to finalise the study before the end of the winter. It will also investigate whether insurance companies are neglecting to provide drivers with sufficient information about their legal protection products, which the regulator described as "complex."
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