US Edition 
Car insurers referred to Competition Commission
The car insurance industry will be investigated by the Competition Commission over concerns that the cost of repairs and courtesy vehicles is being artificially inflated and raising the cost of premiums by £255m a year.
The Office of Fair Trading (OFT) announced this morning that it had referred the UK motor insurance industry to the competition watchdog over concerns that it is "not working well for motorists".
The OFT looked at the sector in May and decided that there was reasonable grounds to suspect the industry of restricting or distorting competition. It found that the insurers of drivers who caused an accident had little control over how repairs and courtesy cars were provided to the driver who was not at fault, leading to a situation where costs were being artificially inflated.
Shares in insurers fell on Friday, with Admiral and RSA dropping 1.8pc and 1pc repectively.
The artificially high cost of repairs and hire cars could be pushing up premiums by £255m every year, said the OFT. The cost of rectifying each accident could be £560 higher than necessary.
After an accident the insurer of the driver not at fault often refers the case to a hire company in return for a fee of between £250 and £400. Fees are also paid in many cases for referrals to car repair companies and parts suppliers.
It was also found that certain insurers have agreements in place with repair companies that charge higher labour rates when working on the car belonging to the driver who was not at fault.
After holding a public consultation the OFT has now referred the matter to the Competition Commission for a full investigation. The commission will now have two years in which to compile a report.
Clive Maxwell, chief executive of the OFT, said: "Competition appears not to be working effectively in the private motor insurance market. The insurers of at-fault drivers appear to have little control over the bills they must pay, and this may be leading to higher costs for them and ultimately higher premiums for motorists.
"Having publicly consulted on our provisional decision, we are still of the view that there is no quick fix to these problems, and that a more in-depth investigation by the Competition Commission is therefore appropriate."
The referral comes as the Royal Bank of Scotland gears up for a £2.6bn initial public offering of its insurance business Direct Line, which is expected to price either Friday or Monday.