The Office of Fair Trading (OFT) had today referred the private motor insurance market to the Competition Commission (CC) for an in-depth market investigation under the Enterprise Act 2002, on the basis that it had reasonable grounds to suspect that there are features of the market that prevent, restrict or distort competition. This follows its provisional decision in May to make a reference (see our previous blog here).

The OFT justified its decision by reference to evidence that insurers of not-at-fault drivers and others (such as brokers, credit hire organisations and repairers) took advantage of the lack of control that insurers of at-fault drivers have over the way in which repairs and vehicle replacement services are carried out to generate revenues through rebates and referral fees and so inflate the costs of insurers of at-fault drivers. This is a long-running issue, which the OFT had previously considered under the Competition Act 1998, without success.

The OFT received 28 responses to the public consultation on its provisional decision, including from industry participants, government, consumer representatives and consumers. These responses did not convince the OFT that its provisional concerns were unfounded, or that a more in-depth inquiry was not justified. Unsurprisingly, most responses from credit hire organisations did not support a reference, but they were outnumbered by those who did. OFT Chief Executive Clive Maxwell stated that “there is no quick fix to these problems“, and therefore an in-depth investigation by the CC was justified.

The CC will now have two years to conduct its investigation, following which it will have the power to impose a range of remedies to address any distortion of competition it finds. These may include imposing undertakings on market participants to change their behaviour, banning specific practices or recommending legislative changes to the Government. Some respondents suggested that cross industry discussions might yet generate a solution, and it remains to be seen how any such discussions will impact on the CC’s investigation.

The OFT’s reference decision and other consultation materials can be accessed here: http://www.oft.gov.uk/OFTwork/markets-work/motor-insurance/