28 September 2018

Action taken by government could result in motor insurance premiums falling in 2019 as UK motor insurers react to stop dubious whiplash claims.

The Association of British Insurers (ABI) states that £90 a year is added to the average motor insurance premium as insurers pass the costs of 1,500 whiplash claims per day on to motorists.

The insurance industry maintains that many whiplash claims are fraudulent, fake or exaggerated.

There is no certain physical test for whiplash and doctors diagnose it on the basis of asking questions, which fraudsters can manipulate.  This has resulted in personal injury claims rising by 40% in the past decade, despite cars becoming safer and the number of crashes falling by 31%, according to an ABI spokesman.

The average cost of motor insurance cover rose by 9% in 2017 to a record high of £481, the ABI said, meaning that whiplash costs accounted for 19% of the total.

Government introduced the Civil Liability Bill in August to cut the number and cost of whiplash claims.

The Bill will bring in a set payment scale for claims and whiplash claimants will be able to get only between £225 and £3,725, although courts could increase payouts by up to 20% in exceptional circumstances. It will also stop insurers from settling cases early, before doctors are involved.

Separately to the Bill, the Government wants to raise the limit for personal injury claims from traffic accidents brought through the small claims court from £1,000 to £5,000. This means more whiplash claims would be taken out of the higher courts and handled without the need to involve lawyers.

This would strip out much of the legal fees from the overall cost of whiplash. The ABI said insurers currently paid 50p of legal fees for every £1 of whiplash compensation.

The change would also give unscrupulous law firms less incentive to drum up spurious claims.

The Government will bring in the changes in the Bill by April 2020. But car insurers are likely to begin lowering their premiums sooner than that, once the anti-whiplash proposals are locked down and unlikely to change. The Bill has nearly passed through the parliamentary process and could get royal assent early next year.

However, the benefit of the changes is debated by The Law Society, the trade body for lawyers, said genuine claims would be harder to make under the new system.

UK public backs reforms

Nearly 9 out of 10 people are of the opinion that legal costs for the current personal injury compensation system are too high, according to an independent survey commissioned by the Association of British Insurers (ABI).

The ABI commissioned the survey, conducted by Consumer Intelligence as MPs prepared to debate the Civil Liability Bill in June 2018.  The Bill aims to simplify and streamline personal injury compensation for low value road accident claims and reduce legal costs in the system.

Key findings from the survey conducted by Consumer Intelligence highlighted that:

  • Nearly 9 in 10 (87%) felt that legal costs were too high. For every £1 paid in compensation, on average an extra 50p is paid out in legal fees.
  • Two-thirds feel positive about the proposals to simplify personal injury compensation, including setting up an online process to make a low value claim.
  • 71% would be comfortable about making a claim online, rather than seeking legal representation.
  • A simple claims process was cited as the most important factor when making a low value personal injury claim by 37%. Ability to claim back legal costs was the least important – ranked first by only 7%.
  • Two-thirds surveyed cited a compensation culture environment as the main factor behind the trend of rising motor personal injury claims, despite a fall in the number of road accidents since 2005. This was followed by the activities of claimant lawyers (59%) and claims management companies (58%).

The reforms include increasing the Small Claims Track Limit from £1,000 to £5,000 for road accident personal injury claims; introducing a tariff of fixed compensation for pain and suffering for whiplash claims and developing a simple online process to register a claim.

Leaders of insurance companies representing 93% of the motor insurance market underwritten by ABI members have publicly committed to passing on cost benefits to customers if the reforms are implemented in full.

Source:  ABI