James Daley

By James Daley

Car insurance has become very expensive over the past few years, and while premiums are now starting to fall again, it’s still a big financial outlay for many families – setting them back hundreds of pounds a year.

The truth is, it shouldn’t be nearly as costly as it is. But a multitude of failures in the system have driven up costs – and regulators and industry alike are struggling to get them down again.

While the biggest contributors to inflated premiums are the soaring cost of personal injury claims, and the growing amount of fraud, there’s also a plethora of smaller problems – some of which the Competition & Markets Authority has been investigating over the past two years.

The blame game

Chief amongst the CMA’s list of gripes is the fact that when two people are involved in an accident, the insurer of the one who’s at fault is on the hook for the bill, but it’s the insurer of the person who wasn’t at fault that arranges the repairs and sorts out temporary car hire for their client.

Because they’re not picking up the bill, the insurer of the customer whose not at fault has no interest in keeping repair and car hire costs to a minimum. And according to the CMA, this could be costing the industry as much as £214m a year – costs that tend to be recouped by simply charging customers more for their insurance.

After a two year investigation, the CMA published its final report at the end of last month, concluding that while this remains a serious problem, it can’t think of a way to fix it. So it’s not going to do anything at all.

A green light for bad behaviour

Talk about weak regulation. Surely, the CMA’s job is to clean up markets. How on earth can it keep a straight face while identifying a £200m problem and then telling consumers that it doesn’t think it’s worth bothering with the kind of radical solutions which might be required to fix it?

Furthermore, by side-stepping the issue, it effectively gives a green light for those who are abusing the system to push things further. It may be a £200m problem today, but it will surely now only get worse.

While the report does include one decisive piece of action – a ban on comparison sites preventing insurers from offering their products cheaper elsewhere – the rest of the report is rather limp.

The CMA rightly seizes on the issue of insurance add-ons – and the fact that comparison sites make it difficult for people to make proper comparisons between packages of insurance products. But its remedy is a loose call on the FCA to take another look at the issue.

Let’s hope the FCA at least grasps the nettle here. It’s thematic review into comparison site published in the summer showed little appetite to get stuck into the problems around this sector.

One thing’s for sure. If our regulators don’t rise to the challenge of helping clean up the insurance industry, no one will. Even if companies want to change, there’s few that are willing to sacrifice legitimate profit streams in an industry where margins are thin.