By Chris Vellacott and Li-mei Hoang
LONDON Dec 17 Car insurance in Britain is too expensive because of complexity in the claims process and a lack of incentives to keep costs down, according to the country's competition watchdog.
Britain's Competition Commission said on Tuesday a complex chain for the settlement of non-fault claims - which involve drivers making claims for damage caused by others - resulted in higher premiums for all drivers.
It criticised the system for providing replacement vehicles and repairs for drivers whose cars were damaged in an accident, sending the bill to the at-fault driver and their insurer who have no control over the process despite having to pay for it.
The watchdog said this helped to push up premium costs by up to 200 million pounds per year which are ultimately shouldered by consumers across the entire 11 billion pound ($17.9 billion) motor insurance market.
"There is insufficient incentive for insurers to keep costs down even though they are themselves on the receiving end of the problem," the Commission said.
Suggested reforms by the Commission include capping replacement car costs, compulsory audits of repair quality and greater transparency on pricing.
The Association of British Insurers (ABI) welcomed the report, saying the current system benefited the providers of replacement cars to the detriment of insurers and their customers.
"We have long argued that there are a number of non-insurers in the system adding unnecessary costs onto insurance claims. And for too long, these excessive costs have meant consumers paying more in premiums than necessary," the ABI said.
In Britain's car insurance market, dominated by firms like Aviva, Direct Line and Admiral, tough competition has already driven down prices.
According to the AA Insurance Premium Index, prices have fallen more than 12 percent since the start of the year.
Steve Treloar, a director in Aviva's retail arm said any reforms recommended by the Competition Commission are likely to lead to further price falls.
"Given the market is so intensely competitive those changes would very quickly get passed on to consumers," he said.
British lawmakers are also looking at ways to root out fraudulent claims for whiplash injuries which are also seen as keeping premiums too high.
False and exaggerated motor insurance claims could represent more than 60 percent of all claims for whiplash, a committee of legislators said in a report released in July.
Meanwhile, the ABI criticised another Competition Commission finding that too many repairs to vehicles following accidents are sub-standard, saying it was based on a non-representative sample.
"The Commission's findings are largely based on an inspection report which contains fundamental flaws and is based on an analysis representing 0.001 percent of the 1 to 2 million vehicles insurers repair each year," the ABI said.
"This is a tiny sample size on which to make sweeping recommendations about the future of the market."
The Commission also highlighted concerns that a lack of competition between price comparison websites may be helping to keep insurance premiums higher.
The Competition Commission is due to publish its final report by Sept. 27, 2014.