Law Society chief executive Desmond Hudson has called for immediate reform of the insurance industry after a damning report by the Office of Fair Trading. The consumer watchdog last week reported the industry to the Competition Commission after finding that motorists are being charged too much after an accident.

The decision had been widely expected following a report by the OFT in May that found evidence that competition in the sector was prevented, restricted or distorted.

‘Dysfunctional’ practices over the way repairs and replacement vehicles are provided to not-at-fault drivers following an accident inflate premiums by £225m a year in total, according to the original report.

Hudson said: ‘Insurers have for years blamed everyone but themselves for the rising cost of car insurance – policymakers, lawyers, drivers. The OFT clearly believes that the sector needs to put its own house in order.’

The insurance industry has promised to work with the commission to implement reforms. The Association of British Insurers said regulation of all players in the market was needed to tackle excessive costs.

The Competition Commission will have up to two years to report, and has the power to impose a ban on referral fees being paid by credit hire organisations and repairers to insurance companies.

Clive Maxwell, chief executive of the OFT, said there was no ‘quick fix’ to the distortion of the insurance market and that a more in-depth investigation was required.