Time to put a lid on insurer profits resulting from savings from the whiplash reforms
29th August 2018
- The insurance sector has a poor record of passing cost savings to consumers, suggesting that any savings from the reforms will be short-lived at best
- When insurers claim that there have been recent reductions in motor insurance premiums this only refers to new customer accounts, excluding the regular increases on the 70% or so of premiums which are automatically renewed
- The Government should go further and now is the time to consider stronger measures to help and protect insurance consumers to get a better deal from insurers
- Serious consideration should be given to how consumers can benefit from limiting unjustifiable price increases in insurance premiums, encouraging greater switching and limiting price increases on automatic premium renewals, perhaps through a relative price cap.
The Motor Accident Solicitors Society (MASS) is calling upon the Government to go beyond its commitment to provide a means for reporting on the consumer savings made by the proposed whiplash reforms, made during the passage of the Civil Liability Bill in the House of Commons. Instead, the Government should genuinely hold the insurance industry to account on behalf of consumers, who have too often been spun half-truths and delivered only broken promises about supposed cost savings being returned in lower premiums.
“If the savings resulting from the current round of whiplash reforms are as significant as it is claimed – justifying the erosion of an individuals’ right to claim justice following a motor accident – then it is only fair that robust measures are put in place to ensure that the savings are passed on to consumers. Insurance sector promises ring hollow with the experience of past performance and ever inventive new excuses for rising premiums in the face of increased profits.”
The insurance sector has a poor history of passing cost savings to consumers and does not maintain promised cost savings to consumers following short term reductions. Premiums may have fallen in the months following the LASPO Act, but they quickly returned to pre-LASPO levels, whilst claims and costs have fallen.
When insurance companies claim that the cost of motor insurance has reduced, they are usually referring to new business only, ignoring the automatic premium increases applied on renewals (which can account for around 70% of premium policies).
At a time when the number of RTA PI claims has fallen by more than 18% over the last two years (Department for Work and Pensions Compensation Recovery Unit data¹), to the lowest level since 2009, the Government is progressing with an unnecessary and unfair set of proposals. Nevertheless, if the reforms proceed, none of the proposed measures will be implemented until at least April 2020, when the online LIP Portal is due to go live.
There have been some recent statements that the proposed whiplash reforms have already led to premium reductions. Such claims are dishonest and defy logic; the Civil Liability Bill has yet to receive Royal Assent, the reforms will not be implemented until April 2020 and whiplash injuries can take between one and two years to process from the accident until settlement. As the Government has said:
“The average time for a claim to be resolved is currently 12 months. Although we expect to see savings starting from the implementation of these measures, the full estimated savings will take some time to realise.”²
Any “savings”, and given the likely additional costs to insurers of having to deal directly with many of their premium holders, they are likely to be a small amount resulting from the reforms, will not be seen until 2021 or 2022. Claims that further increases in motor insurance premiums are due to fraud and whiplash claims should be treated with extreme scepticism.
Whilst legal costs have been falling for over ten years, the cost of repair bills has risen by 33% since 2013, yet the legal sector continues to be unfairly blamed for “higher claims costs”. The reality is very different. According to consultancy firm EY, rising premiums and falling injury claims saw the UK’s motor insurance market record higher underwriting profits last year than at any point since 1994 (The Actuary³, 29 June 2018). Sector profits have reached around £3.5bn in the last 3 years.
The ABI has acknowledged that even with the proposed changes to the claims process, premiums will continue to increase because of other factors, whether it be the rising costs of repair bills or future increases in the Insurance Premium Tax (IPT). There will always be another and another excuse for increasing motor insurance premiums:
“Civil litigation reform is not done in isolation to the wider economy and wider market…. Those costs will be passed on to consumers through higher car insurance premiums…. What I can say is that premiums will not go up as much if these personal injury reforms are implemented.” (James Dalton, Director of General Insurance Policy, ABI, before Justice Select Committee, 7 February 2017).
MASS welcomes the Government’s commitment to bringing forward measures in the Civil Liability Bill to gather data on the cost savings passed on to motor insurance premium customers. However, the Government should go further and now is the time to consider stronger measures to help and protect insurance consumers to get a better deal from insurers.
Serious consideration should now be given to how consumers can benefit from limiting future unjustifiable price increases in insurance premiums, encouraging greater switching of premiums and limiting price increases on automatic premium renewals. Perhaps it is time that the Financial Conduct Authority (FCA) should consider the potential viability of a relative price cap on future increases in insurance premiums, particularly tighter control on auto-renewals. If consumers can benefit from a price cap in the energy sector, which is highly competitive, has price comparison websites and is subject to changing wholesale prices, then surely it could be perfectly possible in the insurance market to benefit consumers by limiting premium increases?
² Government Response to the Justice Committee’s Seventh Report of Session 2017–19: Small Claims Limit for Personal Injury