Insurance Claims – Impact on us?
We have seen a lot of changes in the claims insurance industry in the last few months that have had a huge impact, we saw the change of the legal landscape of referral fees, reductions on fixed fees and government intervention.
- The UK has the largest insurance industry in Europe and the third largest in the world.
- The UK insurance industry generates 22% of total EU premium income.
- The UK insurance sector is responsible for investments of £1.8 trillion, equivalent to 25% of the UK’s total net worth.
- Insurers paid out £12.5 million every day in property claims, of which £9.1 million were domestic and £3.4 million were commercial.
- The industry paid out £1.19 billion in domestic and commercial claims in 2012 as a result of flood and storm damage.
- Insurers detected over 124,000 cases of general insurance fraud in 2012, saving £1.1 billion, the highest amount ever recorded
So what has changed?
Last April we saw the introduction of some of the most significant changes to the civil litigation framework that we have seen in a number of years. The Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) 2012 came into force, introducing much needed reform to a dysfunctional system.
This act was put in place to change the behaviour/ Reform the “no win no fee” system and the “have a go” compensation culture it encouraged. Even though the Act has been in place just under a year, many in the market are still adjusting.
While a few law firms have ceased operations, others have merged which has led to greater economies of scale in the market. It is more likely that law firm closures are to do with firms failing to adapt sufficiently quickly in the evolving legal market.
This could also be by the fact that there seems to have been no lack of willing buyers for the PI book of business of those firms that are looking to sell. The negative impact on access to justice that many claimant solicitors predicted has simply not happened.
One of the most significant change of the LASPO Act was its ban on referral fees. The ban aims to ensure that in a fast-changing and regularly-evolving legal environment, the interests of consumers come first, both in accessing compensation and also in making the claims system as cost efficient and effective as possible. Giving consumers and stakeholder’s confidence in their insurers and the new legal framework.
Of course people are trying to get around this ban, due to referrals financial rewards by trying to find new schemes and way around the ban.
Reduction in the fixed costs and exemption to the portal
Other major reforms that were introduced were those to the Portal. Fixed recoverable costs were reduced and the Portal’s scope extended to cover EL and PL claims and all claims up to £25,000.
The Government recognised the negative impact that excessive legal fees were having on premiums for hard-pressed motorists and consulted not once but twice on what the level of fees should be. And then had to defend their decision in court.
Insurers made the case for reform, supplied robust evidence and the Government took action on what was clearly an unsustainable fee model.
Impact on premiums
There has been much needed reform introduced over the past year. But the Government’s objective has been to strip out unnecessary costs and reduce fraudulent personal injury claims, with the overall objective of reducing car insurance premiums while maintaining access to justice for genuine accident claimants.
How has this effected premiums?
According to Rob Cummings speech/ABI figures
Portal figures show the number of claims has fallen since the implementation of LASPO in April. It was no surprise that there was a 30% increase in claims through the Portal in March and April 2013 compared to the same period in 2012. And that needs to be remembered when considering annual claims numbers overall rather than simply claims numbers in the post-LASPO environment.
And although claims frequency may be going down – and the overall picture is still unclear – the cost of claims has not seen a corresponding reduction. Fixed fees have reduced but that’s happened at the same time as awards for general damages have increased. The Judicial College Guidelines and the Simmons v Castle decision have together driven up general damages awards by around 20%.
Insurers are also reporting increases in the number of rehabilitation and psychiatric referrals since the reduction in fixed fees was introduced. This is an issue the Transport Select Committee are currently looking into.
These reports will often add little value to the claim, as the claimant will often have only suffered a minor soft tissue injury. Furthermore, they can add over £2000 in additional costs, which puts increased pressure on premiums. What’s more, they are often obtained from a medical agency within a claimant law firm’s business structure raising further questions about the report’s necessity.
Motor insurance claims for whiplash appear to be on the rise, with Britain becoming more litigious than the US, according to new figures.
The report also said that a number of claims made last year were for accidents in 2011 and 2010, suggesting that a high volume of back-dated claims have been filed. This is known as “claims farming”.
Mr Brown said: “The data we have collected for the last four years show a decrease in the number of accidents and you would expect that to correspond with a decrease in the number of TPI claims.
“Instead we have seen an increase in injury claims. This could mean that people are driving less safely. However, police data show that the number of motor accidents involving casualties has decreased. The other conclusion that you can draw is that claims farming is on the increase.”
The Government recognised the significant problem that exaggerated and fraudulent whiplash claims represent. Particularly the £90 that whiplash claims add to the average motor insurance premium. That is why the Government committed to working with the industry to help tackle the problem and is continuing to do so.
I think that significant change has been implemented and the civil litigation landscape will continue to evolve. The ability to make the system more efficient and more effective is an opportunity not to be missed.
We need to continue to improve behaviours and strip unnecessary costs out of the system. In an environment where the cost of living continues to rise, consumers will see the benefits of continuing reform through lower car insurance premiums.
So how are these changes effecting you? Your company? What are your personal experiences on this? What are your thoughts on these changes?
References https://www.abi.org.uk/~/media/Files/Documents/Publications/Public/2013/industry%20data/UK%20Insurance%20Key%20Facts%202013.ashx https://www.abi.org.uk/~/media/Files/Documents/Publications/Public/2013/industry%20data/Data%20Bulletin%20Funds%20held%20in%20Life%20and%20Pension%20Products%202012.ashx The figures were based on analysis of third-party motor claims, looking at data from around 95 per cent of the UK motor insurance industry. https://www.abi.org.uk/News/Speeches/2014/03/Rob-Cummings-speech-at-the-Claims-Magazine-Conference-2014