The Office of Fair Trading’s (OFT) has said it will refer the UK's private motor insurance market to the Competition Commission for further investigation over concerns that it is not working well for motorists.

Earlier this year, the OFT provisionally found that the insurers of drivers responsible for accidents (at-fault drivers) appeared to have little control over the way repairs and replacement vehicles were provided to ‘not-at-fault drivers’ – creating an opportunity for costs to be inflated.

The BVRLA believes the increasing cost of compulsory motor insurance is the biggest threat to the profitability and sustainability of the vehicle rental industry.

‘It is disappointing that politicians and the OFT have had to get involved to improve the competition in the sector, which could have got its own house in order,’ said the association’s chief executive, John Lewis.

‘We believe insurance companies should take greater control of vehicle downtime and costs to manage claims effectively. A credit hire organisation will simply provide a car for as long as one is needed to help the not-at-fault car owner. One solution could be to provide a courtesy car as standard for all policy holders.’

Legal expert Andrew Moody, managing director of Retail Motor Law, added: ‘I applaud the OFT for making this bold move – it is good news for small businesses and consumers. May’s provisional announcement was a clear signpost but now the industry knows where it stands. The Competition Commission has strong and wide ranging powers, so it will be very interesting to see what happens next.

‘I recently spent two years compiling a report on what I saw as questionable practices within the UK vehicle refinishing industry, specifically the agreements that certain paint manufacturers and distributors enter into with insurance and accident management companies. It is hard to escape the conclusion that some major operators are throwing their weight around, inflating prices to the detriment of smaller companies and, ultimately, increasing costs to the motoring public via higher premiums.’