U.K. Regulator Starts Inquiry Into Motor Insurance Premiums

A British antitrust regulator is starting a probe into rising U.K. private motor insurance premiums, ahead of possible action to improve the way the market works.

The Office of Fair Trading will gather evidence about annual price increases over the next five weeks and work with the Ministry of Justice and the Financial Services Authority during the inquiry, it said today in a statement. The OFT plans to publish its findings in December, it said.

“The OFT 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,” it said today.

Motor insurance premiums in the U.K. have risen 40 percent in the past year to about 900 pounds ($1,435) following soaring claims costs and rising fraud, according to the Automobile Association Ltd. Insurers have helped fuel these costs by selling customers' details to no-win no-fee lawyers, who then encourage accident victims to claim.

Most Affected

Admiral Group Plc, which has 2 million U.K. motor insurance customers, may be the most affected by the probe, according to Eamonn Flanagan, a Liverpool-based analyst at Shore Capital Group Ltd. Admiral owns the confused.com price comparison website and gets half its profit from administration fees and policy add-ons such as legal cover.

“This could prove quite uncomfortable for Admiral, which owns one of the largest aggregators and whose profitability relies heavily on the sale of ancillary products,” said Flanagan, who has a “sell” rating on the stock.

Admiral dropped 2.4 percent to 1,364 pence in London trading, making it the worst-performing member of the FTSE 350 Nonlife Insurance Index today.

Axa SA, the U.K.'s seventh-largest motor insurer, in June said it would “lead by example” and banned payments from lawyers for customers who have been injured in an accident.

--Editors: Jon Menon, Francis Harris