Car insurance investigation - The OFT in the UK has reffered the car insurance market to the Competion Commission to investigate an apparently inefficient market.
In essence the OFT is claiming that insurers of non fault drivers are inflating costs of claims, it is alleged, as a way of taking cut of these inflated prices.
I believe the OFT is claiming that this practice is leading to higher car insurance premiums for everyone.
The heart of the matter seems to be that at fault insuers are more or less powerless to stop themselves from being overcharged, whether it be through providing the non fault drivers with expensive car rental or simply jacking up the price of repairs.
But I believe their interpretation of the issue in the car insurance industry is fundamentally flawed
I believe their analysis of the car insurance industry is flawed for one simply reason, at fault insurers are by no means obligated to pay for “unreasonable” costs. It also strikes me as strange that the word fraud is so easily brought into the subject of fronting and yet the term is not used to deal with apparently blatant overcharging.
While the cost of the repair is harder to assess the issue of car hire expenses, which seems to be a big part of their argument, is easy to asses for value.
Car hire must be one of the most competitive businesses in autmotive industry and not only that, car hire costs are published ad nauseam on the website of car hire companies.
If an insurance company claims they are being fleeced for car hire costs by the non fault driver it is extremely easy for them to prove their case. In short, I believe it is highly unlikely that inflated car hire costs are an issue.
With regards to repair costs. This is not a new phenomenon. And if inflated repair costs were becoming more of an issue
Then I believe proactive insurers could easily come up with a solution.
For example, insurers could pool their business together to fund a scheme in which they built a network of independent repair specialists that were approved by the car manufacturer for example. This would ensure that garages were completely neutral, at the end of the day these repair specialists would be competing for the car repair business of this network and the only way they could compete is on price, ie providing the lowest repair costs.
The quality aspect could be overseen by the car manufacturer or their local dealer.
This is just one example of a possible solution.
I do not pretend to be an expert in the accident repair field and at the same time I am sure the neither is the OFT.
In short, the insurance industry and the repairers are the most qualified parties to work out the most “efficient” way of dealing with this “problem”.
For a government body to believe they know better than the industry itself is absurd but sadly, so typical.
The fact is, the bigger this “problem” becomes and the more fat that is put onto car insurance premiums, the more opportunities present themselves for new entrants to come into the market to fix the “obvious” inefficiencies.
The OFT wading in can only lead to more government regulation and can only lead to it being more difficult for new entrants to enter the car insurance market. The exact opposite of what the OFT wants to achieve.
If any more evidence was needed with regards to the uncometiveness of the car insurance industry, check out this article by Adrain Flux insurance which highlights how apparently smaller insurance companies are actally sub brands of the big market players.
I would say the last thing the car insurance needs is more regulation and more barriers to entry, I suggest the OFT stays out of the issue and lets entrepreneurs deal with any “inefficiencies”.
In fact, looking at the Adrian Flux article I would take a different view of the situation and that would involve asking if there was collusion between the major insurers which is allowing the practices highlighted by the OFT to continue. I mean the issue seems to be so obvious, you would think insurers would be taking their own legal action, why is the taxpayer having to fund the legal bills through the OFT?
In essence the OFT is claiming that insurers of non fault drivers are inflating costs of claims, it is alleged, as a way of taking cut of these inflated prices.
I believe the OFT is claiming that this practice is leading to higher car insurance premiums for everyone.
The heart of the matter seems to be that at fault insuers are more or less powerless to stop themselves from being overcharged, whether it be through providing the non fault drivers with expensive car rental or simply jacking up the price of repairs.
But I believe their interpretation of the issue in the car insurance industry is fundamentally flawed
I believe their analysis of the car insurance industry is flawed for one simply reason, at fault insurers are by no means obligated to pay for “unreasonable” costs. It also strikes me as strange that the word fraud is so easily brought into the subject of fronting and yet the term is not used to deal with apparently blatant overcharging.
While the cost of the repair is harder to assess the issue of car hire expenses, which seems to be a big part of their argument, is easy to asses for value.
Car hire must be one of the most competitive businesses in autmotive industry and not only that, car hire costs are published ad nauseam on the website of car hire companies.
If an insurance company claims they are being fleeced for car hire costs by the non fault driver it is extremely easy for them to prove their case. In short, I believe it is highly unlikely that inflated car hire costs are an issue.
With regards to repair costs. This is not a new phenomenon. And if inflated repair costs were becoming more of an issue
Then I believe proactive insurers could easily come up with a solution.
For example, insurers could pool their business together to fund a scheme in which they built a network of independent repair specialists that were approved by the car manufacturer for example. This would ensure that garages were completely neutral, at the end of the day these repair specialists would be competing for the car repair business of this network and the only way they could compete is on price, ie providing the lowest repair costs.
The quality aspect could be overseen by the car manufacturer or their local dealer.
This is just one example of a possible solution.
I do not pretend to be an expert in the accident repair field and at the same time I am sure the neither is the OFT.
In short, the insurance industry and the repairers are the most qualified parties to work out the most “efficient” way of dealing with this “problem”.
For a government body to believe they know better than the industry itself is absurd but sadly, so typical.
The fact is, the bigger this “problem” becomes and the more fat that is put onto car insurance premiums, the more opportunities present themselves for new entrants to come into the market to fix the “obvious” inefficiencies.
The OFT wading in can only lead to more government regulation and can only lead to it being more difficult for new entrants to enter the car insurance market. The exact opposite of what the OFT wants to achieve.
If any more evidence was needed with regards to the uncometiveness of the car insurance industry, check out this article by Adrain Flux insurance which highlights how apparently smaller insurance companies are actally sub brands of the big market players.
I would say the last thing the car insurance needs is more regulation and more barriers to entry, I suggest the OFT stays out of the issue and lets entrepreneurs deal with any “inefficiencies”.
In fact, looking at the Adrian Flux article I would take a different view of the situation and that would involve asking if there was collusion between the major insurers which is allowing the practices highlighted by the OFT to continue. I mean the issue seems to be so obvious, you would think insurers would be taking their own legal action, why is the taxpayer having to fund the legal bills through the OFT?
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