Car insurance rip-offs, scams and lies

The Office of Fair Trading has announced it's looking into why car insurance premiums go up and up each year. But you don't have to wait for its report to find out the reasons - we can tell you why right now.

Last week the Office of Fair Trading announced plans to look into the reasons why car insurance premiums are on the up.

The cost of comprehensive policy rose by as much as 40% in the year ending 31 March 2011 and the consumer watchdog says it wants to “establish the full facts, the reasons behind any increase, and whether there are any consumer or competition issues that need to be addressed to improve the functioning of the market.”

And so it should. This is because despite what insurers tell us about the increased cost of claims, the truth is not as straightforward and it doesn’t make insurers look good.

Personal injury claims

Shockingly, the number of bodily injury claims received by insurers rose by 72% between 2002 and 2010 – yet the number of road accidents actually fell.

This is mainly because of a scam cooked up by insurers and no-win-no-fee lawyers. Basically if you have a minor accident and report it to your insurers it will more than likely flog your details to an ambulance-chaser. For this it receives what’s known as a “referral fee”.

The next thing you know a “claims management company” will inundate you with texts and calls trying to convince you that if you’ve had an accident that’s not you fault and been injured you’ll be entitled to compensation.

They’ll often advise you to make a claim for whiplash which is notoriously difficult to prove. If you decide to go ahead the claims management company will hire a solicitor to do the legal work involved with making a claim against the other driver’s insurer. If you win the case the insurance company will have to pay up, paying you compensation and covering both sets of legal fees.

So how does the insurer recoup its losses? By increasing premiums for all its customers, of course.

Industry experts say legal fees add about £4.1billion to insurance costs – or £121 per policy.

Fortunately this month also saw justice secretary Ken Clarke announce a ban on referral fees, something ministers had previously resisted demands for.

Crashing for cash

Another reason why car insurance premiums keep going up is the increase in “crashing for cash”. This normally takes the form of a staged accident whereby two vehicles deliberately knock into each other, or a deliberate action by a motorist to force an innocent driver to crash into them, such as braking suddenly so they are hit from behind.

The cars’ passengers – and there are often several – then claim for injuries they don’t have, especially whiplash. According to the Association of British Insurers, in 2009 over 2,000 dishonest insurance claims worth more than £16million were detected every week.

And shocking statistics from Moneysupermarket back in July show that 1.3million motorists would consider staging a crash or already have done so.

But getting found out can have dire consequences. Once you’ve been convicted of insurance fraud you’ll find it nigh-impossible to get cover in the future and if prosecuted the worst case scenario could see you end up in prison.

Uninsured driving

Honest drivers who fork out for car insurance are also subsidising those who don’t bother buying cover even though a minimum of third party cover is a legal requirement in the UK.

Official figures show the cost of compensating the victims of accidents involving uninsured drivers is £500 million a year, paid for by honest motorists through their insurance premiums.

New Continuous Insurance Enforcement (CIE) rules mean all car owners need to have insurance whether they’re driving their car or not. It is now an offence to keep a vehicle without insurance unless you have notified the DVLA that your vehicle is being kept off the road and have a valid Statutory Off Road Notification (SORN).

Sneaky fees

As well as bumping up premiums to line their own pockets, insurance companies have other ways of costing you money. For example, many insurers are also guilty of hitting drivers with sneaky fees to cover administrative tasks which in reality bear no resemblance to the actual cost incurred.

Take Admiral for instance. Its car insurance business boosted profits by 28% in the first half of 2011. But the insurer charges a raft of sneaky fees including a £17 fee for sending out new documents, £47.50 for cancelling a policy mid-term, £22.50 for cancelling in the 14-day cooling off period and £5.95 for paying by credit card.

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More: The great car insurance rip-off| The whiplash scam that’s costing you £££