The UK car insurance market is to be investigated by the Competition Commission after the Office of Fair Trading (OfT) branded the it "dysfunctional".
The OfT found that insurance premiums are so expensive due to referral fees and the fact that at-fault drivers have little control over the way in which repairs to damaged cars are made.
£225m a year is added to drivers' premiums, the OfT has said, with repair costs being inflated by around £155 on average and the cost of a replacement car inflated by £560. Naturally, these inflated costs are ultimately paid by the driver.
The car insurance system was under scrutiny last year over the issue of referral fees. Under these, insurers boost the price of their premiums by selling details of their policy holders' accidents to lawyers, who then encourage the drivers to sue for injuries such as whiplash.
Repairs made to damaged vehicles are artificially high as the repairers and car hire firms which provide replacement vehicles charge inflated prices and the insurers receive a high fee for their services.
John Fingleton, OfT chief executive said, "Competition in this market does not appear to work well for drivers. We believe the focus that insurers have on gaining the competitive edge through raising their rivals' costs means that drivers pay more than they need to for their motor insurance policies."
