Thursday, 7 June 2012

Praise Be: the OFT has a go at Backhander Britain


At last, a breath of fresh air in the debate about the insurance industry. It came last week in the form of the Office of Fair Trading’s report on private motor insurance. Make no mistake: for those of us who have been banging the drum for reform, the OFT’s report was just what the doctor ordered, all the more so because it came in the midst of a barrage of spin about supposedly bogus whiplash claims and their dire effect on motorists’ premiums.

But the OFT report is not merely welcome because of its timing. Its clarity and sense are as impressive as its provisional decision to refer what it describes as the “dysfunctional” UK market in private motor insurance to the Competition Commission for full investigation. Transport Committee chair Louise Ellman applauded the report, describing it as “a major step forward” and declaring that the Committee ought to engage in the ensuing consultation process with a view to making “the strongest possible case for the referral”.

It is to be hoped that referral duly comes to pass. The insurance industry has mutated into an industry where profiteering sometimes seems to be the insurers’ sole motivation. Karl Tonks, the chairman of the Association of Personal Injury Lawyers (APIL) summed up this highly regrettable state of affairs:  “What the OFT calls ‘dysfunctional’ and ‘inefficient’ actually reveals a host of grubby practices to line insurers’ own pockets, to the tune of an extra £225 million on car insurance premiums last year.”

This is the truth that the insurance industry dare not allow to be uttered. Premiums keep rising and insurers blame everyone but themselves for what is happening. The reality is that real change – to the consumer’s benefit – entails a root and branch reappraisal of how the insurance industry operates. This, in turn, entails confronting the unpalatable fact that here, in a core service sector which affects us all, backhander Britain is alive and well.

Thankfully, the OFT report begins the process of tackling this. It reveals the shoddy practices that those of us who practise in this area see all too often, including the ramping up of repair costs and the charge of hiring replacement vehicles. In effect, insurers collude with vehicle hire companies and repairers (for example, paint and car parts suppliers) to inflate charges, and why? Because they’re in for kickbacks – and because higher costs for a claim will help to dent a rival’s profitability.

The OFT report is welcome, but any investigation by the Competition Commission won’t begin until autumn and may then take up to two years. Why not, in the interim, a voluntary abolition across the board of the insurer practices uncovered by the OFT?

We can be justly proud of Queen Elizabeth II and last weekend’s Royal Jubilee, but Backhander Britain is not something to proud of. Hats off to the OFT for lending significant authority to those of us who’ve had enough.