Car insurers hit by probe into rate rises

SOARING car insurance costs are at the centre of a new investigation by the UK’s competition watchdog, to assess whether insurance firms are raising premiums unnecessarily.

The Office of Fair Trading yesterday said it was so concerned at signs that premiums rose up to 40 per cent in the year to March that it launched a call for evidence to find out the reasons for the hikes.

But analysts said they doubted whether the probe was focused on the right areas and whether the motor insurance industry could be accused of being anti-competitive when it had suffered large losses for decades.

The Association of British Insurers said the industry had not turned a profit for 16 years as claims, particularly personal injury claims from car accidents, rose faster than premiums.

The OFT will look at the use of price comparison websites, use of replacement vehicles and approved repairers after accidents, and the sale of ancillary products such as protected no claims bonuses.

But it will not investigate either the referral fees paid to insurers for customer data, or inflation of personal injury claim costs that insurers say is the reason for the rise in premiums.

“Motor is one of the most competitive markets in the world so it is unlikely consumers are suffering because of limited competition,” said Collins Stewart analyst Ben Cohen.

Shares in insurer Admiral fell 2.4 per cent on fears it could suffer due to its reliance on ancillary revenues and its comparison site

But Shore Capital analyst Eamonn Flanagan said the probe would “cast a light” on features “that cause real concern to those even within the industry” and “have been blamed for the very high levels of claims inflation over the past few years”.