The Association of British Insurers (ABI) has welcomed a decision by the authorities to refer the car insurance company to the Competition Commission.

The industry representative body said that the review by the commission will help bring reforms in the industry, which is described as dysfunctional by many and will help in reducing high premiums for the customers.

The Office of Fair Trading (OFT) has indicated in May that it might refer the car insurance industry that is worth £ 9 billion to the Commission. Clive Maxwell, the OFT's chief executive concluded that even after a public consultation, appropriate solutions have not emerged to fix the car insurance industry and an in-depth investigation by the commission is necessary.

The OFT has found that the car insurers compete in a dysfunctional way for customers and this may increase the premiums by £225m a year for vehicle owners in the UK. It also said that third parties including brokers, credit hire organizations and repairers might be able to boost their income through rebates and referral fees. The problems caused repair bills to be higher by as much as £155 each time.

According to estimates, all the unfair practices add extra £10 a year to the cost of insuring a car and a review is needed to halt the unfair practices prevalent in the industry.