Office of Fair Trading To Investigate Car Insurance Industry

Update: Since I wrote this article, it has emerged that the government is going to ban referral fees  – the fees paid by claims lawyers to car insurance companies for drivers’ details following an accident.

The Daily Mail has a good infographic that shows how the whole incestuous, money-grabbing cycle of backhanders between insurance companies, garages, lawyers and car hire firms works.

The Office of Fair Trading is to take a look at the car insurance industry to ensure that it is functioning fairly and providing good value to customers.

According to the AA, the average cost of comprehensive car insurance rose by 40% in the year to March 2011. The insurance companies say that this is due to rising costs – especially a massive rise in personal injury claims. Certainly, the facts suggest this has played some part – whiplash claims have risen by 30% since 2009, with more than 570,000 claims made over the last year.

It seems impossible that 30% more people are getting whiplash than they were in 2008 – and some people deny that whiplash exists at all, although I am not sure I would go that far.

[Update 04/11/2011: A new survey of clinicians has found that more than 75% of healthcare professionals believe that the current system of diagnosing whiplash is ‘very open’ to fraud – click here for full story]

Compensation Culture Inflating Costs

Part of the problem is undoubtedly the ‘claim for everything’ culture that has developed around the car insurance industry. Credit car hire, personal injury claims, inflated repair costs – all of these have massively increased the claims costs faced by car insurance companies.

For my money, some of the parasites need to be removed from the car insurance industry – personal injury lawyers who want you to claim for a bruised knee, credit car hire firms wanting to provide an exact match replacement car at exorbitant daily rates and all the rest of it.

What about a return to a system where the insurance company handles the claim directly in a sensible, pragmatic manner? For example, I believe that:

  • Personal injury claims should be the exception, not the rule – most people walk away from RTCs with no more than a few minor cuts and bruises. These don’t require compensation.
  • Car insurance companies should not be allowed to pass customers’ details to personal injury lawyers or credit car hire firms.
  • Courtesy cars, where provided, should be cheap, basic cars provided by the garage repairing the car.
  • Repairs should be carried out by local garages in keeping with the value and age of the vehicle, rather than only by insurance companies’ approved repairers – who often insist on replacing every part and panel possible, even when a repair would be cheaper and equally satisfactory.

What do you think? Has your car insurance premium risen dramatically over the last couple of years? Do you feel that our compensation culture is inflating the cost of insurance needlessly?

Leave a comment below and let us know what you think.

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