The debate over dual pricing on personal lines raged last year, with a small group of brokers referring the issue of dual pricing of motor insurance to the Office of Fair Trading (OFT).

The brokers wanted the practice condemned under the Competition Act 1998.

The OFT, however, dealt a hammer blow to the brokers by dismissing their complaints. And it added that insurers setting up cheaper direct operations was good for the customer.

Gordon Herbert of the OFT's competition policy division said at the time that "products sold through brokers will not always be directly comparable with products sold through insurers' direct operations and it is to be expected that any difference in the level of cover provided will affect the premiums offered."

He accused complainants of using wild examples rather than more standard ones and pointed out that some price differentials favour the broker channel, which still accounts for the bulk of the motor market.

He added: "We have not found any evidence that insurers are subsidising products sold through their direct channels from their intermediary business."

Even where price differentials did exist on a like-for-like basis, Herbert said that they were justified: "There is no evidence that these differences are unjustified or seek to discriminate against the intermediary channel."

Despite the decision the debate raged and was further fuelled in December when Royal & Sunalliance's direct arm sent letters out to micro-businesses already insured through brokers saying "no middleman, so the price you pay is lower."

RSA Business Insurance Direct had posted 40,000 letters and at the time another 40,000 were ready to be sent out. The company's commercial development director Rod Kitchen insisted the letters were not a marketing campaign but a "test."

Brokers groups rounded on RSA but Kitchen insisted that the bulk of commercial business would still come through the broker channel.