Drivers ripped off for motor insurance
EVERY driver in Britain is being overcharged for motor cover because insurers are using secret deals to grossly inflate repair bills, an investigation by
The Daily Telegraph has established. Insurers are routinely inflating repair costs by as much as 100 per cent, while receiving undisclosed kickbacks for the difference, it can be revealed.
The system is used by insurers representing drivers involved in accidents that were not their fault, to rip off rival firms representing the “at fault drivers” for repair work.
Across the industry, the process is creating a hidden cost layer potentially affecting all drivers, which could be worth as much as £750million, equivalent to about 5 per cent of the UK’S 34 million drivers’ annual insurance premiums.
Motor insurance premiums reached a record high this year, with the average price paid for comprehensive car cover now £462 a year.
For years, the industry has blamed rising insurance bills on whiplash claims, tax rises and reckless young drivers.
Responding to this newspaper’s findings, the Association of British Insurers (ABI), which represents the UK’S biggest firms, refused to deny that inflated repair bills and secret rebates could also be a factor in soaring premiums.
The ABI said insurers used the system to help them control claims costs, and argued that firms were under no obligation to offer discounts to their rivals, but admitted the cashback system “could work better”.
Since the Competition and Markets Authority (CMA) investigated similar practices across the industry in 2012, but decided to take no action on repair charges, it is understood that virtually every motor insurer in Britain has now adopted a cashback system for repairs. Last night, consumer groups, MPS and repair firms called for an urgent inquiry into the “appalling” secret cashback system.
Kit Malthouse, a Conservative MP who has served on the Treasury Select Committee, said: “This looks like exactly the kind of sharp practice the Prime Minister said she wants to stamp out. I will press for this issue to be on the agenda for the committee and I hope the CMA has a long, hard look at whether its inaction has been in the consumer’s best interest.”
Wes Streeting, a Labour MP who has also served on the committee, added: “This is an appalling practice. Insurance companies need to be hauled over the coals for this.”
James Daley, director at Fairer Finance, said the practice was “anti-competitive”, adding: “A lot of insurers know this is wrong but they can’t back out on their own.”
Jason Moseley, director at the National Body Repairers Association, which represents repair firms, said: “Insurers claim they pay us a market rate for the work but, because they force repairers to pay large rebates, these rates are distorted. This needs immediate investigation with the view for government intervention to prevent the abuse of consumers and body repairers.”
Documents relating to three insurance companies reveal that motor insurers handling “not their fault” claims are routinely charging rival firms representing “at fault” drivers grossly inflated prices for repairs. Papers dated from last year show AXA, representing a “not at fault” customer, instructing a repairer to charge a labour rate 54 per cent higher than the rate paid by other customers. For “prestige vehicles” including Audis, Mercedes and BMWS, the charge was 100 per cent more than the standard rate. Co-op Insurance
documents, dated from this year, show it instructing motor repair firms to charge “not at fault” customers a labour rate 63 per cent higher than is charged for standard jobs.
Ageas, another insurance company, is also in receipt of a stream of regular kickbacks worth 20 per cent of invoiced labour rates, documents from 2016 show.
Meanwhile, a whistleblower has claimed that another of the UK’S biggest motor insurance companies started an initiative called “project max” in 2012, aiming to generate millions of pounds in extra profit through cashback deals. A senior member of staff at another insurer described the system as “shameful”.
An ABI spokesman said: “It is common for a motor insurer to agree what are effectively bulk discounts with car repair companies.
“When an accident occurs and the non-fault insurer initially pays for repairs, they are under no obligation to pass on these discounts to their competitors when they seek reimbursement from the at-fault insurer. The system could work better and the industry welcomed the investigation by the Competition and Markets Authority in this area in 2014, but the CMA chose not to take action.”
An AXA spokesman said: “We were forced to adopt this practice after a series of high-profile court cases ruled the practice was legal. Any rebates received on these claims go to reduce the overall claims pot that we use to calculate premiums.”
A Co-op Insurance spokesman said: “We have sought to influence the insurance industry not to adopt this model, and held off following other insurers for a number of years. We have had little choice but to reluctantly follow suit this year, to enable us to protect the interests of our members and customers.”
Ageas declined to comment.