From the BBC
The Commission has been studying the £11bn private motor insurance market for more than a year, following a referral from the Office of Fair Trading (OFT).
It agreed with the OFT that the system was not working well for motorists.
It found that premiums were pushed up because the insurer of a driver who was not at fault in an accident arranges for a replacement car or repair, but the at-fault driver's insurer foots the bill.
"This separation of control and liability creates a chain of interactions which result in higher costs for replacement cars and for repairs being passed on to at-fault insurers," it said.
"The Commission estimates the extra premium costs to be between £150m and £200m a year.
"There is insufficient incentive for insurers to keep costs down even though they are themselves on the receiving end of the problem."
Uh, what? The people picking up the tab have no incentive to reduce the cost? Really? Shareholders and managers of insurance companies would rather throw money at someone than have a bigger house? OK, you might say, the insurers will ultimately pass that onto their customers, but then, we have companies competing with each other to win customers. If they want their customers they have to be competitive with premiums, and that means making sure that their competitors don't take the piss.
The Commission believes that premiums could be reduced by £6 to £8 per policy if changes were made to the claims process.
So what we're dealing with here is the sort of amounts on a claim that no-one can be bothered wasting staff time and costs actually arguing about.
Insurers (in my experience) are pretty good at knowing the approximate cost of things. They often even insist on dealing with certain suppliers, e.g. one of the big hire car companies. And some of this includes setting the price at the higher end so that people aren't wasting their time arguing about the cost. So, maybe you get a car that costs £10/day more than it should, because it isn't worth people arguing the toss over a claim amount less than £50. And if you try to push the prices down, you'll just create more people arguing over cost which will frequently cost you as much as that.
If anyone really wanted to lower insurance costs, they'd be trying to get the government to drop their 6% insurance premium tax on car insurance.
