7:40AM GMT 05 Jan 2013
On a cold December morning in a car park, I smashed my VW Polo into the back of an old Volvo, causing nearly £2,000 worth of damage to my car. Parking never was my strong point.
However, actually behind the wheel was Jim, an expert driver who has worked as both James Bond and Indiana Jones's stunt double. And our exercise was to put the car insurance market to the test, as part of aDispatches documentary on Channel 4.
Along with most drivers, I've seen my car insurance premiums creep up steadily in recent years – well above the rate of inflation. Over the past four years the average annual premium has increased by 89pc to £840, according to the AA.
Whenever I have made inquiries, insurance companies have told me that it is not their fault.
First, there was the scandal of false whiplash claims. According to the Association of British Insurers (ABI), every year 570,000 people put in claims for whiplash – an injury that is notoriously difficult to prove or disprove. This drives up premiums by a total of £2bn, adding £90 to the average driver's premium. Fraudulent motorists are to blame and the good guys pick up the tab, the insurance industry insists.
However, evidence is increasingly emerging that a more systematic problem is bedevilling the industry. So we decided to crash my Polo in order to analyse how the system works.
The first thing nearly every driver does when involved in a crash, even a minor kerbside prang – and there are 125,000 car park incidents every year – is to call their insurance company. The telephone call was revealing. Although the call handler was very helpful, they made it clear that I should drive my car all the way back home, an hour away, to have it mended by their "approved" garage – even though I had taken it to a VW specialist around the corner from the accident.
Why should I drive it back down the motorway? For a start, I was told my local approved garage would be able to offer me "perks", possibly including a courtesy car and free valeting. If I went to the VW specialist, the repairs would not be fully guaranteed, I was told.
I did not realise it, but I was being "steered", as the industry calls it.
Andrew Moody, a former panel beater and now a motoring barrister at Retail Motor Law, said: "With a few clever words from a claims handler the customer will be steered into an approved repairer network, where the focus is firmly on maximising profit for the insurer. In some cases asking to go outside the network might trigger a £200 'non-approved repairer excess' fee. Most consumers are not even aware they have a choice in any of this."
If an insurance company can mend your car in one of their approved garages they can control the costs of that repair. This sounds a reasonable proposition – most drivers would want costs to be kept down if it meant their premiums being reduced.
However, some body shop owners and car makers are concerned that because insurance companies and their agents are primarily concerned about keeping costs down, the safety of drivers is potentially being compromised.
Body shop owners would speak to us only off the record, but Volvo, on its own website, states: "Insurance companies are reducing costs by having non-genuine parts fitted or panels repaired rather than replaced, which may compromise the car's safety integrity." A spokesman for the ABI strongly denied that drivers' safety was ever compromised.
In contrast, when you are the not-at-fault driver – and the insurance company passes on the bill to a rival firm – costs are driven up unnecessarily, it would appear.
Documents submitted by Ford to the Competition Commission, which has started to investigate the industry, suggest that the average price of a repair for a not-at-fault car is £1,530, compared with £1,375 for an at-fault car. Many experts believe that the discrepancy is far wider, however.
When your car is not the one at fault, the insurer does all within its power to grab a slice of the higher costs. The clearest demonstration of this practice is with paint. We spoke to a number of garage owners who said they were forced – or "mandated", in the euphemistic term – to use more expensive paint when mending a not-at-fault car. Each time they did this the insurer got a "rebate" from the paint company.
The body shop owners said the quality of the paint between the expensive brands and cheaper ones was very similar.
In his submission to the Competition Commission, Brian Hecks, who was a major paint distributor, said: "In some cases identical products are supplied [by manufacturers] for each [paint] brand. Brands that are approved by insurance companies, motor manufacturers or claims handlers have experienced greater price rises than other equivalent products that are not approved."
It is not just paint. Insurance companies can receive rebates every time a certain brand of sandpaper or computer software is used.
It is unclear exactly how much money they make from this income stream. Hopefully, the Competition Commission will uncover more details. But Robert Macnab of Trend Trackers, an industry analyst, reckoned that rebates ran to well over £100m a year.
A spokesman for the ABI said: "It is a dysfunctional system and we welcome the Competition Commission inquiry. We've always said referral fees should be banned. Do insurers have commercial arrangements with suppliers to minimise costs? Yes, but drivers shouldn't lose out."
The market certainly is dysfunctional if insurers frequently lose money on actually insuring your car but make a profit from insisting that garage owners use a certain brand of paint or sandpaper. It is a strange state of affairs.
And, as is so often the case, it appears to be the consumer who loses out.