How personal injury claims are skewing insurance premiums

In a report from the Actuarial Profession, it was found that despite a significant decrease in accidents, personal injury claims had increased by over 18% over the recent years. So why are these rising and what impact are they having on insurance premiums?

In 2011 there were 11% fewer accidents reported than the previous year. This, you would think, is pretty good news for drivers and insurance companies alike. However, despite improved safety on the roads, there appears to be a disproportionate hike in the number of injuries being reported and claimed.

Ambulance chasers driving claims culture

One possible reason for this imbalance is the rise in the ‘no win, no fee’ claims culture. Whilst victims of crashes have been able to gain compensation for any injuries they sustain for many years, public awareness of law firms offering assistance has grown exponentially in recent times. Adverts can be seen on televisions, billboards and the Internet, all of which carry the same underlying message – where there’s blame, there’s a claim.

Some claims management companies (CMCs) even target claimants directly. Whilst the law has been tightened, including a ban on referral fees in personal injury cases, solicitors still appear to be able to secure personal details of those who have been involved in collisions to encourage them to make a claim. They can achieve this via texts, emails and unsolicited phone calls. Often referred to as ‘ambulance chasing’, this type of direct approach has coincided with the hike in claims.

So with the pressure to make claims increasing, it perhaps shouldn’t come as a great surprise that more people are taking advantage of CMCs. However, this does have a negative impact on the wider public. After all, somebody has to pay for those claims, and in recent times this has been the policyholders.

Is whiplash increasing policy prices?

Insurance companies have borne the brunt of the compensation culture. Where they may previously have only had to cover the cost of repairs, they now have to pay for whiplash, trauma and time off work. Earlier last year it was announced that annual premiums had increased by an average of £130 in just 12 months (Source: Guardian, 2012). With accidents falling in the same period, these rises can largely be attributed to the rising cost of claims.

To quantify this a little, the Association of British Insurers announced that whiplash claims topped £2 billion in 2011, adding £90 to the cost of every motor insurance policy. That’s over a fifth of the total cost of the average quote, which now stands at £440 (Source: All About Money).

Many point the finger of blame at Government legislation, including the Access to Justice Act 1999 (Source: Guardian, 2011 & Government Legislation, 1999). This was brought in to make it easier for people to gain legal advice without the need for subsidies from the state. However, it has subsequently opened the door to solicitors offering these ‘no win, no fee’ services, creating a commission-led compensation culture. With both parties able to earn significant sums from potentially minor injuries, policy holders are paying the price.

Initiatives such as the proposed ban on referral fees may reduce some claims. However it could also close the door on those who genuinely have cause for a claim. It’s a fine line that legislators and insurance companies have to tread. If policy rates increase too much, then people may choose to do without a car entirely – reducing income from road tax and fuel. If claims keep increasing but cover remains the same, then insurers will feel even more pain. Therefore, finding a solution isn’t likely to be quick or easy for motorists, insurance companies or the lawmakers.