A Competition Commission investigation into referral fees would prove an expensive distraction
I wonder if the Competition Commission can deal with too much competition (is there such a thing?) rather than the anti-competitive practices it more usually handles.
The Office of Fair Trading (OFT) seems to think so, judging by its provisional decision to refer the private motor insurance market to the Competition Commission because of certain practices that it believes distort competition. The OFT argues that insurers compete in a “dysfunctional” way, resulting in motorists paying up to £225m a year more than they should, or as one paper put it: an extra £10 on each motor policy.
If the costs are correct they do not represent a material distortion and would be a distraction from addressing issues that will make a real difference.
The claims process for motor insurance may be dysfunctional in many ways, but it does provide a much better customer service than it used to. I can remember the days when getting a motor claim paid was a nightmarish process full of delays and frustration – not at all user friendly.
What we need to see is the correct balance between offering a service and keeping costs in check. We need to address all the real issues that will provide a first-class service for motor claims while retaining a strong but competitive market.
Biba, in its submission to the OFT, has already identified an eight-point plan to reduce the cost of motor insurance. The main focus needs to be on reducing the £2bn cost of whiplash claims, which cost every innocent motorist £90, and on implementing appropriate regulation of claims management companies.
We agree with the OFT that a ban on referral fees would not automatically mean that the credit hirer rates would be reduced, and we encourage each insurer to challenge the third party claims costs to cut out any fraud or exaggeration.
Nor does Biba believe that the “first party” model discussed by the OFT would be a suitable solution. But we do agree that improvements to the General Terms Agreement (GTA) could lead to lower overall claims costs.
Ultimately, we don’t need the extra expense and delay associated with a lengthy Competition Commission investigation of the market before we finally get round to addressing the issues. We know what the problems are. What we need is consensus and a commitment to make the changes that will ensure we maintain the best service to customers while driving out fraudulent and inflated costs once and for all.
Eric Galbraith is chief executive of Biba.