How Insurers Could Bring Down Car Insurance Premiums Without Overhauling Personal Injury Claims

Insurers blame personal injury solicitors and ‘compensation culture’ for the rising cost of motor insurance.  The Association of British Insurers (ABI) has blamed the compensation system for encouraging people to exploit compensators with fraudulent and exaggerated claims, which sees “millions of honest customers” dealing with increased insurance premiums.

When asked for brass tacks, the insurance industry has manipulated data to suggest that the tiny proportion of fraudulent compensation claims means the whole personal injury compensation system needs to be overhauled. It is inherently very difficult to fully assess the cost of insurance fraud – while the ABI has said that fraud adds £50 to the average person’s car insurance policy every year, a close analysis of data indicates that this figure may be closer to £6, or 0.5% of the cost of a car insurance policy, with the ABI admitting that 93% of all claims thought to be completely honest.

The Competition Commission has been looking into how to reduce the cost of car insurance, and rather than pointing the finger at personal injury claims – as they have just undergone a transformation through the referral fees ban and other Ministry of Justice recommendations – the commission instead highlighted a series of problems with the car insurance market.

These include that:

–          At-fault drivers’ insurers pay the bills, while non-fault insurers arrange for repairs and replacement cars, separating liability and the control of replacement vehicles and repair costs. The Competition Commission estimates that this hikes up premiums by between £150 million and £200 million annually.

–          Repairs are not performed to expected standards

–          Consumers are not informed about add-on insurance products

–          Price comparison websites can mislead consumers about what insurance product is the cheapest, with ‘wide’ Most Favoured Nation (MFN) clauses increasing premiums and reducing market competition

The Competition Commission provisionally found that many drivers are therefore paying unnecessary costs incurred during the motor vehicle accident claim process, which are initially borne by at-fault drivers’ insurers but eventually affect all insurers.

It is now looking into a range of strategies that should improve the way the market functions for consumers, including:

–          Capping replacement vehicle and repair costs

–          Auditing repairs

–          Making drivers’ insurers responsible for replacement vehicles

–          Providing at-fault insurers with more control over the cost of claims

–          Improving information about add-ons on price comparison websites

–          Banning wide price-parity MFN clauses on these websites

In response to the Competition Commission’s report, the ABI said:

–          The commission’s inspection analysed just 0.001% of the number of insurance company-arranged vehicle repairs the average year sees

–          The data this inspection uncovered is at odds with insurers’ complaints data

–          It will consider improving the clarity of policies so consumers can understand their entitlements following motor vehicle accidents

–          Prohibiting wide MFN clauses will benefit consumers

–          Insurers will work with price-comparison websites to help customers understand add-ons

–          It agrees at-fault insurers should have greater control over the costs of replacement vehicles and the claim they are handling

The Competition Commission is now acting interested parties to email before January 17th 2014, and will make a report on its findings by February 7th.