The provisional findings of an investigation by the UK Competition Commission into the £11 billion private motor insurance market, have found that it is not working well for motorists and repair quality is often poor due to insurance cost pressures. The Commission is now looking at ways to reduce the cost of premiums and make the market more functional.

The commission says there is a "complex chain" involved in the settlement of non-fault claims and that this is increasing the costs of replacement cars and repairs which in turn is passed on to the insurers of at-fault motorists. This eventually results in higher motor insurance premiums for all drivers. The commission also found that, following an accident, too many repairs are not completed to the required standard. The provisional report also mentions findings on problems with the sale of add-on products to consumers and with the relationships between price comparison websites and insurance companies.

Commenting on the provisional report Alasdair Smith, CC Deputy Chairman and chair of the private motor insurance investigation group, said, “Our provisional view is that many drivers of the UK’s 25 million privately registered cars are footing the bill for unnecessary costs incurred during the claims process following an accident. These costs are initially borne by the insurers of at-fault drivers, but they feed through into increased car insurance premiums for all drivers. In most cases, the party managing the accident claim, typically a non-fault insurer or intermediary, is not the party liable to pay the costs of the claim. There is insufficient incentive for insurers to keep costs down even though they are themselves on the receiving end of the problem.” He added, “We also have concerns about the quality of post-accident repairs because too many repairs are substandard. We are now considering a range of possible measures, some of them far-reaching reforms, to ensure that the market better serves the interests of customers.”

The Commission estimates the extra premium costs could be as much as £150 million and £200 million a year. This is mainly due to excessive costs charged by non-fault insurers or claims management companies in relation particularly to car hire, but certain repair and administration costs. The Commission did not consider personal injury claims, as changes have already been proposed by the Ministry of Justice in this area.

Possible remedies outlined in the report include;

• Tackling the problems associated with separation of cost control and liability either by making a driver’s own insurer responsible for providing a replacement vehicle or by giving at-fault insurers greater opportunity to take control over managing claims.
• Caps on the costs of providing a replacement vehicle and on repair costs
• Compulsory audits of repair quality;
• Improving claimants’ understanding of their legal entitlements in the event of an accident.

To produce the report the CC gathered evidence from more than 100 parties including multi-party hearings, individual hearings and written submissions, conducted two consumer surveys and commissioned a post-accident repair assessment conducted by MSXI.

The report makes some very interesting observations regarding the reasons why a consumer may not always receive an accident repair of the highest quality and it stresses that in many instances customers fail to receive accident services of the quality to which they are entitled by law. It says often that, “Insurers and other claims managers procuring repairs, replacement cars and write offs do not have the necessary incentive to ensure that claimants get the quality of service to which they are entitled.” It also states, “Claimants may not be sufficiently well informed to judge whether they receive the quality of service to which they are entitled either because they are not aware of their legal or contractual rights, or because they do not have the technical skills to assess quality.”

Very significantly the Commission also says that evidence from repairers suggests that excessive pressure on costs could be leading to ‘cutting corners’ on repairs.  Independent assessment of the cars by experts indicated that the proportion not repaired to pre-accident condition is considerably higher than suggested by consumers themselves.

The report goes on to say, “The market is not working well in the following ways; competition between repairers to obtain business from insurers is focused on low cost rather than high quality of repair; that is, repairers are insufficiently rewarded for offering a high quality of repair. In a well functioning market, repairers would be sufficiently incentivized to provide claimants with repairs up to the legal standard.” It adds, “Insurers do not have the necessary incentive to ensure that claimants get the quality of service on repair to which they are entitled, for instance because reputational effects are weak.”

This is the first time a report of this nature has highlighted the impact that continuous reductions in the price insurers are prepared to pay for repairs is having on repair quality and customer service. It will be next September before the full findings are published, but at least the provisional assessment appears to sympathise with the plight of accident repairers and clearly highlights the major dysfunctionalities in the insurance motor claims market.