THE motor insurance industry is to face a full-blown investigation after competition watchdogs said the market was not working well for consumers and found premiums were being pushed up by £225m a year.

The Office of Fair Trading (OFT) has referred the industry – worth an estimated £9.4bn in the UK – to the Competition Commission after discovering at-fault drivers had little control over the way in which repairs are carried out and replacement vehicles provided to not-at-fault drivers.

It said the practices were ramping up premiums, potentially by around £10 per policy.

The OFT, which provisionally decided to refer the industry to the Competition Commission in May, said there was “no quick fix” to the problems identified and that further investigation was needed. The commission now has up to two years to report its findings.

Clive Maxwell, chief executive of the OFT, said: “Competition appears not to be working effectively in the private motor insurance market.”

News of the referral comes as Royal Bank of Scotland puts the finishing touches to the stock market flotation of its Direct Line Group insurance arm.

But the investigation is not expected to throw the plans off track.

In May, the OFT said the motor insurance market was “dysfunctional“, with signs that insurers of at-fault drivers are being taken advantage of by insurers of not-at-fault drivers and others involved in providing repairs and courtesy cars.