Aviva hopes for ‘fundamental’ change from investigation

Norwich-based insurance giant Aviva yesterday welcomed an investigation into the motor insurance market by the Competition Commission after a report found the market was 'dysfunctional' and pushed up premiums by �225m a year.

The firm – which has its general insurance business in Norfolk – said credit hire and repair had been a source of 'excessive' costs which did not benefit insurers or consumers.

The report by the Office of Fair Trading (OFT) found premiums paid by drivers are being ramped up because of referral fees and the fact that insurers of at-fault drivers have little control over the way in which repairs are carried out.

This dysfunctional system inflated the cost of providing replacement vehicles by an average of �560 a time, while the cost of repairs was �155 more.

OFT chief executive John Fingleton 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.'

The report found that the system does not work efficiently because the insurers of at-fault drivers foot the bill for repairs which are organised by the insurers of not-at-fault drivers. It said after crashes, many insurers of not-at-fault drivers, brokers and repairers, refer the drivers to organisations that tend to charge higher rates in exchange for referral fees of around �250 to �400 per hire car.

The bills paid by the insurers of at-fault drivers can be inflated further because not-at-fault drivers are given replacement vehicles for longer than necessary. Aviva said that it hoped the Competition Commission would bring fundamental reform which would help reduce cost pressures. An Aviva spokesman said: 'The referral of the credit hire and credit repair markets to the Competition Commission for investigation is a welcome step – credit hire and repair have been a source of excessive costs which do not benefit insurers or consumers. We have been calling for significant reform of these markets for many years to reduce claims costs. As the OFT says, there is no 'quick fix' and it is our hope that the Competition Commission will bring fundamental reform which will help reduce cost pressures – and therefore premiums – for our customers.

'We would also like to see the ban on referral fees that will apply from next April to include credit hire firms.'

The Association of British Insurers' director of general insurance Nick Starling welcomed the investigation.