OFT gives provisional green light for in-depth review of private motor insurance market

The OFT announced last week its provisional decision to refer the private motor insurance market to the Competition Commission (CC) for in-depth review.

This culminates a process which began in September 2011 when the OFT issued a call for evidence, before narrowing its focus to credit hire and repair in December when the OFT launched its market study.

Whilst some of the OFT’s statements are intentionally headline-grabbing (‘dysfunctional’ market, premiums increased by £255 million a year in total), the underlying issues are more prosaic and of little surprise to those familiar with the industry. In fact, the OFT’s announcement is part of a wider commitment encompassing Government, the OFT and the industry to tackle increasing claims costs, whether driven by fraud, inflated bodily injury claims or other features of the market such as the way in which repairs and credit hire replacement vehicle claims are handled, particularly for those drivers not-at-fault in any multi-party road traffic incident.

The OFT’s provisional conclusion does not come as a surprise, given that the OFT commenced the market study in December with a statement that it believed the legal test for a market investigation reference to the CC had been met. The report confirms this view, concluding that the issues are complex, that solutions need to be comprehensive to address all of these complexities and that further in-depth investigation is necessary to ensure that any proposals do not give rise to unintended consequences. Reference to the CC is appropriate because no quick fix solutions are available to the problems that exist and since the CC has “a range of additional tools at its disposal”.

The provisional decision to refer is now subject to consultation, with responses invited by 6 July 2012 and the OFT is then expecting to make a final decision on a reference in October 2012.