Why car insurance premiums will jump 25%

The decision to rule in favour of the RSA and its `in-house' repair costs is bad news for motor insurance premiums.

A High Court judgement on the repair charging practices at Royal & Sun Alliance (RSA) means car insurers will have to increase the cost of premiums to cover a 25% increase on accident repair charges.

The case

The case involved a dispute about a costly repair bill from the RSA that the at-fault insurance company refused to pay.

Usually when a car is damaged in an accident the repairs are carried out by an approved garage and the insurer paying for the cost is sent an invoice of charges. But RSA uses its own subsidiary company called RSA Accident Repairs Limited to repair vehicles damaged in a crash.

The size of the bills submitted by the RSA has been contested by a number of insurers who claim the company is profiting from the in-house repair work by adding on costs and fabricating the price.

The ruling

The new High Court ruling, decided last week, overturned a previous decision by Romford County Court and determined that the RSA had used its accident repair arrangements fairly.

Mr Justice Cooke said that as long as the bill sent to the at-fault-driver’s insurance company is similar to what would have been payable if an individual had arranged the repairs personally, it does not matter if the repair actually should have cost less given the industry's buying power.

Adrian Brown, RA's chief executive, told us he was pleased the RSA’s approach had been ‘vindicated’ and sees the ruling as a way to resolve the issues that exist within the motor market.

The implications

But the legal victory means that the rest of the insurance world has to adapt to the motor repair practices at the RSA, so the cost of motor insurance will likely go up.

Allianz Insurance - one of the insurers that contested the original case - claims that the decision could add 25% to even minor motor repair bills , causing a knock-on effect to premiums.

Other parties have said the entire sector may have to follow suit to avoid being at a commercial disadvantage through increased repair costs.

Clearly the case sets a dangerous precedent for insurers to start setting the cost of repairs without any thought of value for the customer.

This is a peculiar development considering the recommendation from the Office of Fair Trading (OFT) last month to refer the industry to the Competition Commission after research uncovered evidence that private motor insurers are “preventing, restricting and distorting competition”, potentially causing premiums to go up by £225 million a year through questionable repair practices.

The OFT's concerns were that rather than competing on the quality and value of repairs, there is an emerging trend for insurers to compete by increasing costs of rival insurers by any means possible. At-fault drivers have little control over the way in which these repairs and vehicle replacement services are carried out or the associated costs but all drivers may end up paying the price in the end with higher premiums.

What are your thoughts on the High Court ruling vindicating the RSA? Will premiums rise as sharply as predicted? Let us know in the comment boxes below.

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