Costs of repairs handled by rival non-fault insurers are up to £270 higher


Motor repair costs paid by at-fault insurers are “significantly higher” if the repairs are managed by another company, the Competition Commission has found.

As part of its review of competitive practices in the UK motor insurance market, the Competition Commission says it has found evidence that non-fault repair costs are were up to £300 higher if the repairs managed by a credit repair firm rather than the at-fault insurer.

The costs were up to £270 higher if the repairs were arranged by the non-fault insurer rather than the at-fault insurer.

On average, non-fault repair costs were £200 higher if the non-fault insurer managed the repair instead of the at-fault insurer.

In an update on its investigation, based on evidence and analyses to date, the Competition Commission said: “Our current thinking, based on the evidence we have seen, is that the separation of cost liability and cost control in the provision of post-accident services to non-fault private motor insurance claimants does appear to give rise to a moral hazard problem, whereby the ultimate costs paid by the fault insurer are higher than they would otherwise be.

“We intend to consider this issue further, in particular by considering the effect(s) on competition between insurers and/or between other parties involved in the supply of private motor insurance or the supply of post-accident services, and the effect(s) on consumers of the uplift in costs to fault insurers.”

Referral fees played a role in the higher costs. The Competition Commission found that when an insurer is in the non-fault position, the referral fees it receives from owned or approved repairers are typically not passed on to the rival at-fault insurer, effectively increasing the repair costs charged to the at-fault insurer.

The commission also discovered an “overcosting” of non-fault vehicle write-offs, which it said is achieved by estimated salvage values being set artificially low, increasing payouts by fault insurers.

“The level of the commission payments and referral fees received by non-fault insurers and claims management companies from salvage companies indicates that the extent of the overcosting on average is likely to be up to around £200 per non-fault written-off vehicle.”

The Competition Commission intends to publish 21 working papers relating to its investigation “over the next few weeks”.

The deadline for submissions prior to provisional findings is 16 August and the commission expects to publish its provisional findings in October or November of 2013.

The statutory deadline for the investigation is 27 September 2014.