The UK’s car insurers are in the headlines (and all over TV and radio) again as politicians try to get to the bottom of why motor premiums are so high. A new report divides the blame between insurers themselves, unscrupulous ambulance chasers and bent consumers.
MPs represented in the cross party Transport Committee have called on the insurance industry to abandon what it dubs “sharp practices” in the management of car accident claims as a way of curbing the “runaway” cost of motor insurance premiums. The cross party Transport Committee has also called for the Government to impose a higher threshold for the payment of any compensation in whiplash cases.
In a report that follows up the Government’s response to the committee's March 2011 report on the cost of motor insurance, the Transport Committee warns that the spiralling cost of motor insurance is primarily the result of market dysfunction and also the escalation of uncontested claims for whiplash injury.
Launching the latest report, Louise Ellman, chair of the Transport Committee said that insurers, solicitors and claims management companies have themselves driven up the cost of motor premiums by encouraging people caught up in road accidents they did not cause to claim for personal injury, car hire, and other legal costs.
“Although we strongly support access to justice, drivers should not be railroaded by cold callers into launching legal action. The insurance industry must abandon sharp practices that push up premiums such as passing drivers' personal data to other parties or taking secretive referral fees from solicitors, garages and car hire firms," Ellman said.
The rise in personal injury claims is the other big reason identified by the committee for the rise in premiums, citing in particular the extraordinary surge in claims for whiplash.
New research by UK car insurer LV= says almost two-thirds of GPs (60%) have seen an increase over the last two years in the number of patients they believe are feigning and exaggerating injuries in an attempt to make a fraudulent compensation claim. Nearly nine out of 10 (87%) GPs say at some point they have seen someone who was completely making an injury up and almost all GPs interviewed (96%) said they have been visited by someone they thought was exaggerating an injury.
Many of these claims are for whiplash, an injury where diagnosis is often subjective and therefore very costly for insurers to challenge. Ellman says the threshold for receiving compensation in whiplash cases should be raised and, if the number of such claims does not fall significantly, the Government should bring forward primary legislation to require objective evidence – both of a whiplash injury and of it having a significant effect on the claimant’s life – before compensation is paid.
The select committee questioned the effectiveness of the Government's recent decision to ban referral fees relating to personal injury cases, particularly once rules restricting the ownership of law firms are relaxed. It continues to point the finger at insurers and the racket exposed last year relating to some insurers selling information on accidents. (Note LV= is at pains to point out it does not sell policyholder details.)
"The Government should ensure that the new legislation is implemented in a manner that will prohibit insurers from receiving referral fees across the board rather than simply in relation to legal action,” Ellman said. “Greater transparency is also essential. To expose the 'merry-go-round', the Government must oblige insurers to provide clear information to consumers about how and where they pay referral fees.”
The committee summed up its report by calling on the Government to:
* Review how well the 'pre-action protocol' and 'online portal' established to handle low value insurance claims have operated since their introduction in 2010. Results should be published within six months.
* Establish a cross-departmental ministerial committee on reducing the cost of motor insurance and publish a plan to address each aspect of the problem.
* Send a clear message to the insurance industry that it expects 2008 data protection legislation to be fully respected and impose stricter penalties for any breach.
* Initiate an investigation of cold calling undertaken to generate personal injury claims and then examine the legal and regulatory options for curtailing this activity.
* Lastly, the committee confirms that previous recommendations related to the cost of insurance for young drivers will be followed up further in a forthcoming inquiry on road safety.