This article originally appeared in Modern Claims Magazine, Issue 19, May 2016
We know that repetition can be persuasive when seeking to influence individuals or a debate. Listening to Lord Faulks, the Justice Minister, speaking at the recent APIL conference, my growing sense of foreboding for the future rights and interests of accident victims was accompanied by one of those moments of realisation. The arguments being used to justify the Government’s proposals on banning general damages for whiplash claims and raising the small claims track limit are the same outdated and self-interested arguments that the insurance sector has been peddling remorselessly for years. Conveniently ignoring the fact that the sector is now entirely different to the one of 10 years ago, the arguments are repeated again and again ad nauseam. So they must be true, right?
Thankfully the claimant sector is not rolling over and taking this unchallenged. The main representative bodies – APIL, MASS and Law Society – are working together in what has been dubbed the Strategic Alliance to develop, as far as possible, a co-ordinated response to the proposals. Working together with a range of others, particularly Access to Justice, they are preparing the vital evidence and arguments needed to (hopefully) blow holes in the insurers’ case over the coming months. The insurance sector may have the advantages of speaking with generally one voice, a deeper war chest and a supportive Government, but claimants have what should be the unassailable principle of justice on their side.
Finding the balance
The Government, insurers and lawyers all agree about the root cause of the problem. Fraud is a scourge that has blighted the sector for too long and must be tackled with all our energies. Action to target fraud must not, however, affect how an accident victim is treated and their basic right to seek recompense for injuries sustained through no fault of their own. To dismiss the majority of claims, however legitimate, as “unnecessary” should be considered nothing short of a scandal and rejected out of hand.
To seek to effectively abolish virtually all claims in order to capture a tiny minority that are potentially fraudulent is grossly disproportionate and runs contrary to any meaningful definition of justice. There is undoubtedly fraud in benefit claims, but no-one would argue that an appropriate response would be to scrap all benefit payments in order to catch the minority of benefit fraudsters. This position is as illogical as it is unfair.
Abolishing the right to damages caused by someone else’s negligence would be grossly unfair and is equally riddled with irrational thinking. Under the proposals, a pedestrian struck by a motor vehicle would be entitled to claim compensation for soft tissue injuries, but a driver of a vehicle struck from behind by somebody recklessly exceeding the speed limit would not. Outside but hit by the car, you can claim, sitting inside and hit by another car you could not.
The insurers case, adopted by the Government, is based upon a few basic arguments: the number of claims is too high, there are few accidents and so there should be fewer claims, they are costing insurers too much who then have to pass these costs back to consumers and there is too much fraud in the system. End of argument; case closed.
Well no actually. Motor PI and whiplash claims have fallen by 70,000 claims a year since their peak in 2011-12, having progressively fallen for four years in a row. The number of claims per year was falling even before LASPO was implemented in April 2013.
The number of road traffic accidents reported to the police has indeed fallen in recent years, but there still hundreds of thousands of unreported accidents resulting in lesser injuries. The Department of Transport (DfT) estimates that there were in the region of 650,000 “slightly injured” in 2014. The DfT statisticians even attach a 95% confidence level to their estimates. This corresponds closely with the total whiplash claims in 2014-15. We all welcome that there are fewer deaths on British roads, but there remain a large number of accidents at lower speeds on busier roads in more crowded cars.
The costs attributed to whiplash vary greatly and are largely unsubstantiated. According to the ABI’s own unpublished figures, claims costs have actually fallen 29% since 2010 with the amount paid out annually by motor insurers falling from £8.3 billion in 2010 to £5.89 billion in 2014 – a decrease and saving to insurers of £2.41 billion. Damages have not increased proportionally as fast as the proposed new small claims limit; damages awarded today may be the same or less than awards made in the early 1990s.
In 2012 the ABI put the level of fraud at 7%. In 2015, one insurer put the figure at 11%. Solicitors – both claimant and defendants – have put the level of suspected or alleged fraudulent claims in the range of 1-3%. Whatever the true level, there is clearly unanimous agreement that the vast majority of claims are legitimate. Insurer fraud figures combine both proven and what it calls “suspected” fraud, based on a number of highly questionable criteria. When the figures are separated, the incidence of proven fraud drops to 0.2% of all motor claims of which only some will be for whiplash or other soft-tissue injuries.
The Government is living on false hope if it believes that reduced costs for insurers equating to £40-50 per average motor insurance policy will be passed back to consumers. Whilst legal costs have been progressively falling for over ten years, motor insurance premiums have risen and fallen and risen again, reflecting the cyclical nature of insurance and a highly competitive market. Having failed to permanently pass previous cost savings to consumers, premiums are now nearly back to pre-LASPO levels. Blaming a fictitious “compensation culture” or the laughable concept of rising legal costs for once-more rising premiums should be dismissed out of hand. There will always be a new excuse for maintaining or raising motor insurance premiums to protect insurers profits.
HM Treasury has acknowledged that that there is no mechanism by which the Government can force insurers to pass on the supposed savings from reduced motor insurance premiums to consumers. Public “commitments” from a handful of insurers to pass any savings to consumers should be treated with skepticism at best and derision at worst.
It is a myth, pure and simple, that the insurance industry never makes any profit from selling motor insurance policies. According to the ABI’s own figure, from 2010 to 2014, insurers have made an aggregate saving on claims costs of £6.68 billion, motorists have paid £353 million more in premiums and annual claims costs have decreased by 29%.
Admiral Group make £134.24 (28%) profit from the sale of every motor policy, which is up 45% on the amount of profit they were making pre-LASPO. If Admiral, instead of profiting from the LASPO reforms, had kept its 2015 profits at pre-LASPO levels, its policyholders would have paid £40-50 less per policy. In 2015 Direct Line made £91.18 (24%) profit from the sale of every motor insurance policy, which is considerably more than the £64.64 (16%) profit per policy they were making pre-LASPO in 2012. Instead of passing on the LASPO savings to their motor policy holders, they kept the money and increased their profits.
The right way
Fraud is a complicated problem and there is no simple solution. According to the National Fraud & Cyber Crime Reporting Centre there are 152 recognised forms of fraud. Tackling endemic fraud requires a fundamental shift in its perception and how we deal with it as a crime. It requires industry collaboration and a range of practical measures that will progressively dissuade and combat fraudulent or potentially fraudulent claims. But raising the small claims limit and scrapping the right to general damages for whiplash are not the solution. They will result in a variety of highly damaging consequences that will wrongly prevent or impede the ability of accident victims to seek the justice that they deserve. I know that the claimant sector will collectively resist these proposals with every ounce of its reserves of strength. Fair and proper justice for accident victims is one argument I am happy to see repeated for ever more.