Private motor insurance: Report on the market study and proposed decision to make a market investigation reference - May 2012

Purpose of the market study

This market study was launched in December 2011 following a three month call for evidence on the UK private motor insurance market. The information gathered during the call for evidence gave the OFT reasonable grounds for suspecting that there are features of the market for private motor insurance in the UK that are preventing, restricting or distorting competition. The OFT suspected that these features were increasing the cost of repair and replacement vehicle claims made by drivers that were not at fault for road traffic accidents, causing higher motor insurance premiums.

The aim of the market study was to gather further evidence before consulting on whether or not to make a MIR to the Competition Commission. In particular, the OFT aimed to clarify whether the scale of the problem is sufficient to warrant exercising our discretion to make a MIR and whether it would be more appropriate to address competition issues by way of a MIR or by other action by the OFT or other bodies.


The OFT has provisionally decided to refer the UK market for the supply or acquisition of private motor insurance and related goods or services to the Competition Commission for a market investigation after it found insurers are competing in a dysfunctional way that may be pushing up premiums for drivers by £225 million a year.

After a road traffic accident the at-fault driver's insurer is responsible for meeting the cost of repairs and replacement vehicles for the not-at-fault driver. However, the OFT found that insurers of at-fault drivers have little control over the way in which these repairs and vehicle replacement services are carried out or the associated costs. Instead, insurers of the not-at-fault drivers and others, such as brokers, credit hire organisations and repairers, exploit this lack of control as an opportunity to generate revenues through rebates and referral fees and so inflate the costs of at-fault insurers. This is an inefficient way for the sector to operate which raises the total costs for providing private motor insurance.