Soaring cost of car insurance leads to inquiry

The increase came on top of a 12 per cent rise during 2009 and 2010, largely because of the costs associated with personal injury claims. Rising premiums are said to be pricing many drivers out of the market

But the investigation will focus mainly on third party non-injury claims, which involve vehicle repairs and the provision of a replacement car.

David Ward, Liberal Democrat MP for Bradford East, who has campaigned against high insurance premiums, welcomed the OFT study, which will run alongside a similar investigation by the House of Commons Transport Committee.

More than 1,000 constituents responded to an online survey set up by Mr Ward earlier this year, disclosing details that showed their annual premiums had increased by an average of 63 per cent since 2009, from £552 to £897.

He also started an online petition to parliament calling for more affordable cover, tougher policing of uninsured drivers and tighter regulations on claims companies.

Premiums are high in Bradford because the city is a hotspot for staged accidents, in which drivers deliberately crash to claim payouts. It led to fears from industry experts that Yorkshire may soon see an “uninsurable generation” of young drivers. Premiums in the county rose by over three per cent between April and June alone, according the AA figures.

Mr Ward said: “I am delighted that the OFT is taking this issue seriously and conducting a thorough investigation.

“This is a complex problem and every aspect needs to be looked at in turn if we are going to see lower premiums in places like Bradford.

“Some of the industry’s practices obviously aren’t working in the best interests of consumers, and the arrangements around credit hire cars are a clear example of that.

“The OFT needs to stamp out this kind of behaviour to ensure that motorists are paying a fair price for their car insurance.”

Motorists’ groups and insurance industry bodies also welcomed the OFT’s investigation, which is expected to report back in the spring.

A spokesman for the AA said: “We welcome the inquiry because car insurance premiums have a big effect on people’s pockets.

“The OFT has been conducting interviews with insurance brokers for some time but now it is clearly in focus and it will be interesting to see where it goes.”

Nick Starling, Director of General Insurance at the Association of British Insurers, said: “We are particularly encouraged that the OFT recognises the highly competitive nature of the market and the scale of the personal injury problem facing motor insurers – something we have been arguing needs to be rectified for years.

“The industry has long said that there are unnecessary costs in the system and that there are inefficiencies that need to be addressed – from personal injury to credit hire to credit repair – and we are pleased that the OFT has recognised this in its report.”

Shadow Transport Minister John Woodcock said: “With average insurance premiums at an eye-watering £921, motorists need urgent action so they are not priced off the roads.

“Young people, in particular, face eye-watering average insurance costs of £2,400 a year, putting a huge barrier in the way of their ability to take up employment and training opportunities, particularly in rural areas.”

He added that the Government had failed to get a grip on the problem. “By rejecting out of hand our proposals to bring down insurance premiums, they have shown just how out of touch they are with the rising costs facing motorists,” he said.