It's official: we're spending too much on our car insurance

An investigation by the Competition Commission has confirmed we are paying unnecessarily high costs for car insurance.

Drivers are paying too much for their car insurance, a report from the Competition Commission has confirmed.

It says the £11 billion industry is not working well for motorists.

One of the major reasons is the confusing way in which insurers decide who pays for repairs after a car accident.

If there is an accident, the insurer of the driver who is at fault has to arrange and pay for a replacement car and any repairs. In the words of the commission, "This separation of control and liability creates a chain of interactions which result in higher costs" for everyone.

It's estimated that these faults are adding between £150 million and £200 million onto premiums every year.

Alasdair Smith, CC Deputy Chairman, said: “‘Our provisional view is that many drivers of the UK’s 25 million privately registered cars are footing the bill for unnecessary costs incurred during the claims process following an accident. These costs are initially borne by the insurers of at-fault drivers, but they feed through into increased car insurance premiums for all drivers.”

Today’s report from the Commission comes after a year-long investigation into the car insurance industry, prompted by a referral from the Office of Fair Trading (OFT).

Post-accident repairs in the UK are often sub-standard, the Commission’s research also revealed, which is pushing up the price of claims, and in turn insurance premiums.

A final report will be published September 2014 which will include recommendations on how the car insurance market needs to be changed. Interested parties have until 17th January to respond and a provisional report will be published on 7th February.

Comparing car insurance

The report has criticised insurers for not giving enough information to those buying car insurance. This is making it harder for drivers to compare like-for-like products and to get the best price possible.

Comparison websites were also mentioned. Smith said they are leading to increased competition in the market which is beneficial to everyone. But in some cases insurers are adding in clauses to make sure their insurance quotes are the same across different websites.

These are known as ‘most favoured nation’ clauses, and in some instances, where insurers state that the same price needs to appear across all websites, they could be reducing competition.

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Pushing down premiums

A number of potential solutions have been suggested for fixing the car insurance market.

The main issue which needs to be tackled is the separation of cost control and liability. This could be changed by either making a driver’s own insurer responsible when they need a new car or repairs to the car, or by giving the at-fault driver more control when managing claims.

Caps should be placed on repair costs and compulsory audits needs to be introduced to make sure the repairs meet certain standards.

Customers need better and more comprehensive information when comparing insurance add-ons, both on comparison websites and insurers’ own sites. Clauses where insurers insist the same price is offered across comparison websites should be prohibited.

How to pay less for your car insurance

The easiest way to cut the cost of your car insurance is to shop around each year to ensure you get the best price. That means combining comparison sites like lovemoney.com with your own quotes from insurers like Aviva and Direct Line which don't appear on comparison sites.

There are lots of other measures which can cut down the price. Downgrading your car, increasing your excess, adding a second driver and parking off the road will all help to cut your costs.

For more tips read 25 ways to cut your car insurance

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