I’d just gone on holiday when the report of the House of Commons Transport Committee, “Cost of motor insurance: whiplash” emerged but have now had time to study it. What a cracking good read, especially for those of you who wonder about the integrity of the statistics you hear and see about the cost of the ‘compensation culture’.
For a long time motor insurers have battered us with stats to prove that vast numbers of fraudulent claims are generating unnecessary cost to the motoring public, making fat-cat lawyers fatter and generally wreaking havoc within a system that the insurance industry could otherwise run in a scrupulously fair and efficient manner…
The Committee set itself the question, amongst others:
“Whether it is correct to say that the costs of whiplash claims add £90 to the average premium and, if so, what proportion of this additional cost is due to “exaggerated, misrepresented or fabricated” claims?”
Having looked at various data gathered by government departments the Committee observed:
“It is apparent from the information now provided by the government that the number of whiplash claims has fallen since 2010-11 and is now lower than at any time since at least 2007-08.”
So, what did insurer representatives have to say? Some of the exchanges between Committee Chair Louise Ellman MP and, first, James Dalton, head of motor insurance at the ABI are highly entertaining:
“Q147 Chair: …We have heard very loudly over a long period of time from the Association of British Insurers that a large proportion of claims are fraudulent or exaggerated. Are you telling me that you can’t give us a figure?
James Dalton: I can give you a figure for fraudulent claims.
Q148 Chair: What is that figure?
James Dalton: The figure for fraudulent claims is around 7%. That doesn’t take into account exaggerated claims. In terms of the issues that we are focusing on in this Ministry of Justice consultation in relation to improving medical evidence—
Q149 Chair: Mr Dalton, you are not talking to the Ministry of Justice; you are talking to the Transport Select Committee. I am putting a question to you because I want more information about statements that the Association of British Insurers, whom you are here to represent, has made.
James Dalton: As I said, 7% is about the number of known fraudulent claims, but we don’t know and it is very difficult to capture how many exaggerated claims there are very difficult to capture how many exaggerated claims there are.”
Perhaps David Fisher, catastrophic and injury claims technical manager at AXA Insurance might be more help:
“Q154 Chair: You are taking your information from your reading of medical reports rather than an examination of claims that have been made to your company.
David Fisher: Obviously all the claims will be examined.
Q155 Chair: Have they been examined?
David Fisher: Yes; well, not all the claims. We do sample claims and that drives the low-speed impact and the phantom passenger figure that I have given of 15%. Exaggeration claims, unless they go to court, are more difficult to identify.
Q156 Chair: But, in your evidence, your company or you talk to us about the compensation culture.
David Fisher: Yes.”
So, no. The Committee reached the conclusion that:
“There is no authoritative data publicly available about the prevalence of fraud or exaggeration and no consensus about what constitutes fraud. The government has described the UK as the “whiplash capital of the world” but this cannot be conclusively proved or disproved from the information available.
There is scope for the insurance industry to provide better data about fraudulent or exaggerated claims so that there is a better evidence base for policy decisions.”
It’s nothing new to those of us in the industry that insurers create their own statistics one way or another. Director of Claims at Aviva, Dominic Clayden was questioned by Karen Lumley MP:
“Q182 Karen Lumley: How do they get the information that these people have had accidents? Do they get them from you?
Dominic Clayden: No. Whether it is a claims management company or whatever, a fraud ring doesn’t—
Q183 Karen Lumley: I am not talking about a fraud ring; I am talking about people who get whiplash. How do people get hold of them?
Dominic Clayden: You are probably best to ask the people giving evidence later. My understanding is that it is by advertising.
Q184 Karen Lumley: You don’t sell details on to them?
Dominic Clayden: Not to accident or claims management companies, no.
Q185 Chair: Are you absolutely sure about that?
Dominic Clayden: Do I refer claims to solicitors? Yes.
Q186 Karen Lumley: Do you sell those details on?
Dominic Clayden: Not since the change in the law in that situation. I do not receive a referral fee.
Q187 Chair: But you did before then.
Dominic Clayden: Absolutely. We have been a strong advocate of the ban on referral fees and the reduction of the legal fees that go with it. It is the nature of the system. The reality is that, to remain competitive in a market where something is legal, we referred and took a referral fee. We still refer people to solicitors but we do not take a referral fee.
Q188 Chair: We have had quite a lot of evidence saying that insurers themselves often generate claims. The Government have said that they would like to see you, the insurance companies, address behaviours that encourage excessive and unnecessary claims within their own business models. It appears that the Government think that you are the people who are generating the claims. Are they wrong?
James Dalton: As Dominic has said, the system has changed very recently.
Q189 Chair: But before it changed you were guilty of this, were you?
James Dalton: The industry has long said that there is a dysfunctional compensation culture in the UK and that we are part of the problem.
Q190 Chair: What I am putting to you is that part of that dysfunctional system is the behaviour of the insurance companies. That is what the Government say.
James Dalton: Yes; and we have admitted that the insurance industry has played a part in that dysfunctional system, which is why we made a very strong case for the banning of the payment and receipt of referral fees.”
To put it another way, having been caught with their hands in the cookie jar, as Karl Tonks described it (See Business as usual) insurers have now cleaned up their act?
Er, well…no. The Committee went on to hear about pre-med offers and reported:
“We were surprised to hear that insurers will sometimes make an offer to personal injury claimants even before a medical report has been received. We also note that our previous recommendation on making the links between insurers and other parties involved with claims more transparent has been ignored. Insurers must immediately get their house in order and end practices which encourage fraud and exaggeration. If not, the government should take steps to protect motorists.
Although it may make economic sense for an individual insurance firm to settle a claim without medical evidence or to pay out even if fraud or exaggeration is suspected, the industry as a whole is damaged, and motorists pick up the bill in the form of higher premiums.”
Still market-making, then. Little surprise that the Select Committee was sceptical about insurers’ claims that premia would fall as a result of the costs cuts they had urged upon Government:
“We recommend that the Government explain how it will monitor whether or not motor insurers honour their commitment to ensure that any cost reductions resulting from proposed legal reforms are passed through to consumers in the form of lower premiums.”
Will the ABI respect the view of a cross-party select committee? Apparently not. Dalton insisted in his blog following the report “We don’t need the Government to monitor whether insurers are delivering on our commitments..”
No, they don’t – because they already have ministers prepared to shut out any other views and dance to insurers’ tune. Not only was the Committee surprised at what the Government had been prepared to do without any reliable statistical basis, but it said:
“We were disappointed to hear from witnesses from the legal profession that they had not been invited to the Prime Minister’s summit and nor are we aware of any substantive contact with DFT ministers. This is particularly surprising given that legal reforms were clearly under discussion.”
The big agenda here is to raise the small claims limit and get lawyers off the scene so that insurers can take advantage of unrepresented claimants and undersettle their claims (see Whiplash backlash). The Committee recognizes the serious menace here:
“We believe that access to justice is likely to be impaired, particularly for people who do not feel confident to represent themselves in what will seem to some to be a complex and intimidating process. Insurers will use legal professionals to contest claims, which will add to this problem.
It would be financially difficult for many solicitors to assist litigants fighting personal injury claims using the small claims procedure, given the limited fees available.
…we are concerned that some claims management firms might find a way to enter the process, fuelling another boom in their activities.”
This has so long been the agenda of insurers. Third party capture is another subject in itself but for an overview on the importance of the small claims limit see Five grand.
Anyone who thinks perhaps this may have been a catharsis should take into account the claim by Dalton in his post-roasting blog that the report “reflects how finely balanced views are on whiplash reform”.
And this truly is the problem. Little wonder that the verdict of the parliamentary select committee is:
“Transparency breeds trust and confidence in the market. Unfortunately, the motor insurance sector remains as opaque as ever. This needs to change.”
And the cow jumped over the moon.