The effects of injury claims on the insurance industry
The right of injured victims of accidents to claim compensation as quickly as possible must be balanced with the need to keep insurance affordable for all. Over the past three years, the cost of insurance policies has increased noticeably. This is of concern because it risks forcing people to give up their insurance, or in the case of motor insurance, statistically increases the rate of insurance fraud. However a recent AA Insurance Shoparound survey has shown a 4.1% fall in the cost of motor insurance over last year owing to favourable government reform.
A primary factor to an overall risen cost is personal injury claims, which have proliferated despite a decreasing number of accidents. This increased number of claims, combined with the legal costs associated, adds to the high cost of insurance. According to the Association of British Insurers (ABI), the rise in motor insurance premiums has been caused by the increased claims costs facing insurers. In particular they have claimed that 20% of the average motor insurance premium can be attributed to the cost of whiplash claims. In light of this, it is important to reduce these costs without limiting access to justice for those deserving genuine compensation.
The recent government reform measures following Lord Justice Jackson’s Review of Civil Litigation Costs that took effect in April seek to control these claim-associated costs. By limiting legal fees usually associated with each injury claim, the insurance industry will no longer be faced with a need to push costs up. There has also been a ban on the payment and receipt of referral fees, which affects solicitors, claim management companies and insurers alike.
Apart from keeping claim costs down, it is also crucial to tackle fraud. Fraudulent claims cost the UK insurance industry over £1 billion a year; an amount which is borne by insurance companies and policyholders. Similarly the legal industry and accident management companies suffer financial loss and a loss of reputation from fraudulently instigated claims.
However, insurance companies also have a role to play in keeping insurance affordable. Aviva, the UK’s largest insurance company, is pushing for a proposal that allows whiplash victims to claim directly from the driver’s insurer. This would shorten the process, avoid legal fees and thus keep motor premiums low. Targeting whiplash claims which account for 80% of all injury claims will is a substantial step towards limiting the rise in motor insurance.
David Bott, vice-president of the Association of Personal Injury Lawyers, has also suggested that insurance companies have a tendency to pressure people involved in accidents with their own policyholders to accept compensation where would not usually make a claim. This industry practice increases the payouts given by insurance agencies, and artificially pushes the premiums up. This increase in payouts is counter to the falling number of motor accidents in the country, and the improvements in car safety being made. The Department for Transport reported that there were 341,592 people killed or injured on Britain’s roads in 1989. By 2009, this had dropped to 222,146. This is a trend to be welcomed, and with the reforms working to bring costs down, the insurance industry should not act counter productively.