Rationale
The rationale is economic and administrative efficiency: While an insurer may be able to pursue a recovery from the party responsible for an accident or from its policy-holder, this is a costly administrative procedure. The knock-for-knock agreement simplifies recovery claims among insurers and, over time, attributes costs fairly among insurers.
However, knock-for-knock agreements between insurers have been criticised as unfair on the party not responsible for an accident. If, for the sake of administrative ease, an insurer pays out to repair damage done to its policy-holder's own car instead of pursuing the party responsible for the accident for all relevant costs, an effective claim is recorded against that policy-holder's insurance record. In this way, knock-for-knock agreements can result in policy-holders finding unexpectedly, when they come to renew their insurance, that they face higher premiums regardless of responsibility for an accident they were involved in.
Read more about this topic: Knock-for-knock Agreement