Insurers are inflating costs – and you’re footing the bill

It’s only natural to think that your insurer is the one that pays the cost of repairs – that is why  you pay annual premiums, after all – but new evidence has emerged that car insurance companies are systematically rising premiums after falling into a scheme with car hire firms and garages.

It’s no longer news that the Office of Fair Trading has handed down a provisional referral regarding the motor car insurance industry, setting loose the Competition Commission to investigate the matter. However, what many do not know is that the premise of the investigation is quite narrow, dealing only with the way insurers are working to drive up costs for replacement vehicles and the cost of repairs in order to charge higher premiums – even when the driver involved in the accident wasn’t at fault.

Insurers are doing this in order to sabotage their rivals’ bottom lines, but it seems that the executives that decided to follow this line of reasoning didn’t take it to its logical conclusion – that their rivals will do it right back to them.  This means that the industry has become akin to a snake eating its own tail, with insurers trying to drive up costs for each other, resulting in everyone’s premiums going up and with no one actually coming out on top.

The worst part about this whole mess is, even with the increased premium income, the car insurance industry is nowhere near profitable.  In fact, car insurance underwriters have taken a loss for 18 consecutive years; even with the massive car insurance rate hikes that consumers have been hit with, 2010 saw insurers paying out £120 in operating costs for every £100 they collected in premiums.

2011 was nearly as bad, with insurers only paying out £106 for every £100 taken in, but they’re still haemorrhaging cash.  They’re likely to continue to do so until they either raise rates so high that they’re finally turning a profit, or they drive enough people off the roads that no one gets into accidents any more – and either option is a losing one for drivers.

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