The great car insurance swindle?
We all thought it was too good to be true, and it would appear, given recent comments by Janet Connor, Managing Director of AA Insurance, that we were right all along.
After a downward trend in the cost of motor insurance premiums in the UK from 2011, car insurance premiums are on the increase again, in spite of the promises made to the Government that prices would continue to fall following the ban on referral fees being paid by solicitors to insurance companies to take on claims, and in spite of the introduction of swathing fixed fees for the overwhelming majority of personal injury claims with the introduction of the Legal Aid, Sentencing and Punishment of Offenders Bill (LASPO).
Following on from reductions in insurance premiums approaching 10% on the high of around 2011, the latest AA British Insurance Premium Index indicates a 0.2% rise in the average annual quote for a comprehensive motor policy in the last 3 months of 2014.
Janet Connor says she expects insurers to push for increases, as a continuing rise in the number of personal injury claims pursued against insurers makes current premium prices “simply unsustainable”. She claims that marginal increases in the average number of claims received per month (she quotes an increase from an average of 66,000 to 71,000 per month) equates to a greater costs liability to insurers, and that therefore higher premiums will follow.
“LASPO” was introduced in direct consultation with the insurance industry in part to introduce substantial reductions in the overall burden of legal costs paid by insurers settling personal injury claims. The introduction in fixed fees in personal injury claims valued at £25,000 or less, so more than 90% of the total, has led to massive overall savings for insurers compared with what they were paying to solicitors before the introduction of the bill. Contrast her comments with the findings from the latest report from the Institute and Faculty of Actuaries, who record this week that legal fees for personal injury cases worth up to £100,000 fell by some 65% in 2013, with an overall reduction of 14% in the cost of third party injury claims. Contrary to what the AA claim, the Institute’s own findings confirm an overall decrease of 10% in the frequency of new personal injury claims over 2013. David Brown, for the Institute, quoted; “The effect of legal changes such as LASPO continues to be felt across the industry. This has not just meant a reduction in legal costs, but, at least for now, fewer claims being brought following a decline in the number of claims management companies.”
The insurance industry pushed relentlessly for swathing cuts in legal costs for personal injury claims as part of the introduction of LASPO, with the promise to Government that savings to insurers would result in an ongoing downward trend in insurance premiums. The Claimant lobby was always sceptical, suggesting that, in the same way a leopard never changes its spots, the insurance industry would not be prepared to tolerate reduced premiums for any longer than they felt they could get away with.
Premiums are on the rise. Our suspicions are realised. The leopard never changes its spots.