UK regulators have today launched an investigation of the car insurance market, saying that competition was not working properly and pushing up costs for consumers.
The Office of Fair Trading is Britain's main consumer watchdog.
It said it had decided to refer the industry to the Competition Commission for an investigation that could take up to two years.
"Competition appears not to be working effectively in the private motor insurance market," the OFT's chief executive Clive Maxwell said.
"The insurers of at-fault drivers appear to have little control over the bills they must pay, and this may be leading to higher costs for them and ultimately higher premiums for motorists," he added.
The OFT had in May provisionally recommended that the sector be investigated on the grounds that "dysfunctional" competition between car insurers was inflating the cost of car insurance.
The watchdog is concerned that insurers whose customers are involved in accidents that they do not cause provide them with replacement vehicles and repair services that cost more than the market rate, pushing up costs for the at-fault drivers' insurers.
The OFT referral comes as Britain's biggest motor insurer, Direct Line prepares to price its initial public share offer which is expected to value the business at around £2.5 billion sterling.
Direct Line's owner, Royal Bank of Scotland, is selling Direct Line to satisfy conditions set by European regulators for approving the government aid it received in the 2008 crisis that left it 82% state owned.
