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OFT provisionally refers car insurance market for “dysfunctional” and “inefficient” competition

By  |  June 1, 2012

The OFT has provisionally decided to refer the private motor insurance market to the Competition Commission. The decision is founded on evidence that insurers “compete in a dysfunctional way” that results in increased premiums amounting to £225 million a year.

Specifically, the insurance market is believed to operate inefficiently because insurers of not-at-fault drivers are able to exploit the lack of control insurers of at-fault drivers have over repairs and services. The situation is seen, according to the OFT, as “an opportunity to generate revenues through rebates and referral fees and so inflate the costs of insurers of at-fault drivers.” Competition is thus dysfunctional, as it does not depend on competing over the quality of services.

Full content: OFT Press Release

 

Related content: Contingent Commissions in Insurance: A Legal and Economic Analysis (Richard Epstein, NYU School of Law, University of Chicago Law School)

 

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