Car insurance falls come to an end
The downward plunge in the average quoted car insurance premium ‘bounced off the bottom’ during the third quarter of 2014, according to the latest benchmark AA British Insurance Premium Index.
Over the three months ending 30 September, the Shoparound average quote for a comprehensive car insurance policy, increased by just 1.2% or £6, to £531 – the first rise since early 2012.
Nevertheless, this premium is still 14.4% lower than at the same time last year.
But the average of all quotes (market average) rose much more steeply, by 4.2% over the quarter, to £891. This suggests that while there continues to be keen competition amongst the cheapest car insurance providers, claims pressure is pushing premiums up. It also shows that by shopping around, buyers could save significant sums.
The Shoparound index is an average of the five cheapest premiums returned for each in a nationwide basket of ‘customers’ representative of the UK car insurance market with quotes taken from brokers, direct insurers and price comparison websites. The market average is an average of all quotes.
Janet Connor, managing director of AA Insurance, says that the Index results bring to an end the downward trend in premiums that began at the end of 2011.
“Insurers reduced prices in anticipation that the reforms then promised by the Ministry of Justice in its Laspo (Legal Aid, Sentencing and Punishment of Offenders) measures would cut the number of fraudulent and exaggerated personal injury claims – particularly whiplash injury.
“But the truth is, falling premiums had more to do with competitive tension than any benefit afforded by reforms. Premiums are, on average, now similar to their 2010 level and are no longer economically sustainable.”
Recent industry research suggests that claims management companies and law firms are finding ways to get around the Laspo measures.
Many insurers report a surge in the number of lower-value ‘cash for crash’ claims where a driver deliberately brakes in order to cause a following vehicle to crash into the rear. The driver then claims from the innocent party’s insurance company for whiplash injury to themselves as well as sometimes-fictitious passengers.
This suggests that there is a growing number of opportunistic attempts at cash for crash fraud.
Most claims are successful because diagnosis of soft tissue damage, typical of whiplash injury, is difficult and relies on the patient’s testimony. A defending insurer will find it difficult to disprove that injury took place and will have to foot the bill for compensation as well as legal costs. The cost of meeting such claims is estimated to add around £90 to the typical cost of a car insurance policy.
In addition, figures released by the ABI last month suggest that in 2013, over 180,000 attempts were made to obtain cheaper cover by providing false information or withholding details such as past convictions.
Says Janet Connor: “Insurers are getting better at detecting both claims and application fraud (where those applying for cover are ‘economical with the truth’) yet the number of attempts to make a deceitful buck from insurers shows no sign of falling.
“These are serious issues for the industry and it’s not acceptable that the majority of honest people have to stump up to pay for the dishonesty of others.”
Janet Connor says that opportunities have been missed for more legal reforms to stem the tide of fraud and suggests:
Prohibition of whiplash claims for low-speed impacts, a successful measure in Germany and France.
The planned-for independent medical panels, which will be paid for by the insurance industry to assess whether a whiplash claimant has been genuinely injured, should take into account the circumstances of the collision and evidence such as vehicle damage.
Compensation for successful claims should be paid direct to providers of medical rehabilitation rather than to the claimant. Genuine sufferers would welcome such a move, but it would not appeal to an opportunist
The small claims court limit increase from £1,000 to £5,000, originally in the raft of Laspo reforms; should be reconsidered. This would stop a large number of fraudulent injury claims.
The imminent introduction of ‘My Licence’ which will invite those applying for car insurance to provide their driving licence number could reduce the number of fraudulent insurance applications and reduce insurers’ costs. But adoption of the process by insurers and use by customers remains voluntary.
“My view is that many opportunities have been missed,” says Janet Connor. “As a result, I believe that this small upward move in premiums will lead to further modest increases over coming months. My hope is that increases will be cautious: it is much better that premiums rise gradually than customers eventually face another series of massive price increases as happened in 2009/10.
“How far they continue to rise, however, will depend on how effective the recent reforms eventually prove to be.”