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 £225 million a year.

The Office of Fair Trading (OFT) has referred the industry - worth an estimated £9.4 billion 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.