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
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
"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
"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.