Many people have been in shock this year when their annual car insurance renewal document lands on the doormat. Premiums have risen by as much as a third this year if reports by some major UK car insurers are to be believed. This has even led to former Home and Foreign Secretary Blackburn MP Jack Straw to write to the Times today calling for a reform to the motor insurance industry.
So what has gone so wrong? Why are we paying more for motor cover?
Well first we were told it was uninsured drivers, two million of them apparently, that were pushing up the costs of car insurance because the Insurance Companies were having to pay more into the collective fund, administered by the Motor Insurance Bureau, to cover the costs of claims against drivers with no cover.
So after much pressure from interested parties, the Continous Insurance Enforcement legislation has been passed but to date we see no evidence of reduced premiums.
Then we are told that criminal gangs (mostly johnny foreigners if the British press is to be believed) are fraudulently staging car crashes that are adding to claims costs. Given the amount that Insurance Companies have invested in detecting fraud in recent years, Insurance Blog cannot believe that these claims are more than marginal costs.
Next we are told that the actual reason for increasing car insurance costs is the amount that has to be paid out in claims and held in reserve for personal injury claims due to road traffic accidents.
Could we be somewhere near the truth? The problem with this is that given the latest figures, in 2009 the number of road accidents involving personal injury was 31% down on the average for 1994-98 primarily due to better car and road safety.
So it’s not the number of claims but the costs of claims. The cost of personal injury claims to Insurance companies has doubled in the last ten years from £7bn to £14bn.
So why are the costs of PI claims rising so fast and leading to expensive car insurance for us all?
Well Mr Jack Straw would have us believe that its all the fault of the Claims Management companies that have sprung up in recent years, the so called ambulance chasers. Claims management companies collect details of claims and typically sell these onto solicitors for a fee ranging from £100 to £1000 per case.
Mr Straw has called these a racket and demands that referral fees should be banned as was proposed by Lord Jackson in the 2009 report on court costs prepared for Mr Straw’s government.
Yes, maybe those who refer the accidents to the claims farmers for a fee such as the insurance companies themselves, hospitals, police and repair garages, should be denied the introducer fee but do you really believe that an extra hundred pounds or so is the reason for £7 billion pounds worth of extra claims expense? Who really is benefiting from these PI cases?
Insurance Blog thinks that this is all smoking mirrors, and that the real reasons for the increasing costs of claims and car insurance are something quite different, even though they are mentioned in the Jackson Report, and they are:
1) The ridiculous fees charged by Solicitors. How can any profession especially one that just creates more work for itself justify charging £150 to £200 per hour? Solicitors costs should be fixed for civil litigation as they are for criminal at around a quarter of what they currently charge. Civil Solicitors are the racket and social pariahs!
2) The question of proportionality. How on earth can the UK courts allow claimants to bring cases that run up solicitors and expert witness costs on both sides that are often 1000% more than the value of the claim. (see the figures in the Jackson Report appendices)
This is morally wrong and makes a joke of British Justice. No costs for both parties combined should ever be allowed to exceed the value of a claim and where an award for damages is less than the amount claimed then costs against the defence should not be awarded.
Mr Straw like when he was Home ‘Class B’ Secretary has failed to grasp the real facts and jumped on the populist bandwagon of lets attack the claims management companies and conditional fee arrangements (CFA).
Access to justice at a fair rate should be written into humans rights law and if you were injured you would be glad of a CFA. Because Solicitors charge exhorbitant rates, a CFA is often the only way to get justice if you’ve been injured by someone else.
As for cheaper car insurance, shop around, compare car insurance quotes and if you don’t want to pay more at renewal ask the Insurance company what its current claims exposure is!