Compensation culture is driving up your insurance premiums

Growing compensation culture, the greed of 'ambulance-chasing' middlemen and the unscrupulousness of many insurance companies are pushing motor insurance premiums to unsustainable levels, Moneywise can report.

Making a claim for personal injury following an accident is becoming standard practice, even if drivers haven't really been injured. Four years ago, there were 552,000 personal injury claims resulting from motor accidents, according to statistics from the Department for Work and Pensions.

Last year, there were 741,000 - a rise of 43%. And around 60% of all traffic accidents now result in a personal injury claim, compared to 20% seven years ago.

Robin Reames, director of claims for AXA, the insurance giant that owns Swiftcover, says: "The number of personal injury claims has leapt up remarkably. Half of our costs are now related to minor whiplash injuries and this is the most significant reason why premiums have risen 30% across the board."

Insurance loopholes

Indeed, 'The Great Car Insurance Swindle', a BBC Panorama programme broadcast in July, reported that around 1,000 claims for whiplash - the neck injury commonly associated with motor accidents - are being made every day. The difficulty is that as whiplash doesn't show up on x-ray or other scans, it is difficult for doctors to assess the condition accurately.

They often have to take the patient's word for it, leaving the condition open to abuse.

Insurance fraud in general is estimated to cost the industry £2 billion a year, adding around £44 to every consumer's premium. Insurance premiums for young people in particular have risen 64% in the last year alone, with fraudulent insurance claims one of the biggest contributors to this shocking rise.

Don't unknowingly commit insurance fraud

According to the Insurance Fraud Bureau, the not-for-profit body funded by the insurance industry tasked with tackling insurance fraud, around 30,000 motor crashes are either staged or induced each year as part of so-called 'crash for cash' fraud. This alone leads to £350 million in false insurance and personal injury claims.

AXA, meanwhile, reports that the average number of passengers per car in an accident has risen from 1.1 to 1.7 in recent years. This could be down to more young motorists driving their friends around - but it could also indicate a rise in claims for personal injury to entirely fictitious passengers.

Reames says: "A typical claim per person runs at around £5,000, meaning that the additional 'half a person' has added approximately £2,500 to each claim. We've uncovered £2 million worth of fraudulent personal injury claims already this year. This compensation culture is sadly growing out of control.

"People view the opportunity to claim for personal injury now as an entitlement, but it's a vicious circle because it just puts premiums up even further."

Targeting victims

If you've ever received an anonymous text telling you you could win £3,750 following your 'accident' and inviting you to reply with the word 'CLAIM', you're not alone. This kind of unsolicited message has been on the rise and is against the law.

Yet businesses harvesting leads for personal injury compensation lawyers and claims management companies are happily flouting the rules because the rewards are so great.

As things stand, you can make a personal injury claim up to three years after an accident, even if the claim has been settled.

Claims companies are targeting 'no-fault' accident victims and encouraging them to 'reassess' their health condition with the lure of compensation. They can do this with impunity because claimants don't have to prove they were actually injured.

Often claims management companies will take pot luck and contact potential claimants at random, but sometimes they are given access to an insurance company's books in return for substantial fees - up to £1,000 per referral - a practice AXA believes should be banned.

"Some insurers are known for farming out insurance claims to third parties such as solicitors and credit hire companies", says Reames.

"And some brokers will also pass on details when a claim is made to whichever body will pay them commission. We've taken a stand against this practice, but we're the only insurance company that has," he adds.

Motor insurance is compulsory by law so there's no escaping it. Consequently, there is a vast captive market ripe for exploitation by a whole chain of companies competing for details of accident victims.

How it works...

Here's how it works. Someone crashes into the back of your car. As it wasn't your fault, the onus will be on the other party's insurer to pay for the damage to both cars. The police turn up at the scene and deem one or both cars unfit to drive, so they order a vehicle recovery lorry to come and take them away to the police pound.

The police often receive a referral fee from the recovery company for giving it the work, typically £5 to £25. For example, West Midlands Police admitted to receiving £25 per referral and made nearly 25,000 referrals in 2009, according to a Freedom of Information request made by Swiftcover.

If only three-quarters of those referrals earned commission, West Midlands Police coffers were better off by almost £500,000 from a practice many insurers feel is totally unnecessary. (Not all police forces co-operated in the insurance company's research.)

Then the insurer often has to pay for its own recovery lorry to pick the car up from the police pound, incurring further costs and delays.

Meanwhile, other parties are itching to grab the 'no-fault' driver before their insurance company does. For example, if you don't have comprehensive insurance, you may not be entitled to a replacement vehicle while your car is being repaired.

This is where credit hire companies step in, offering to set you up with a lovely replacement car, the cost of which they claim back from the defendant's insurance company.

Of course, it's in their interest to put you in an expensive car and prolong the period of hire, so they can claim more.

The darker side

But how did the credit hire company know you'd been in an accident in the first place? The alarming truth is that there is an entire parasitic industry based on forwarding such details (so-called referral fees) for money.

Insurers and brokers often sell on details of no-fault claims to claims companies, credit hire companies, personal injury lawyers: anyone who may benefit from milking the claim for all it's worth. Vehicle recovery firms will also earn referral fees for passing on details of an accident.

And shockingly, Andrew Wigmore, spokesperson for the Claims Council - which represents 120 claims management firms in the UK - says: "We are aware that police officers, nurses, doctors, ambulance men and women have sold details of accident victims to claims companies. For low-paid workers such as the police and nurses, it is very tempting if you are offered between £50 and £100 just to pass on someone's details."

In June, Justice Minister Jonathan Djanogly admitted that referral fees have got out of hand, but refused to say the government would ban them outright. Instead, it wants to transfer the cost of litigation to the claimant rather than the defendant. Currently, 'no win, no fee' lawyers make it easy for claimants to go to court safe in the knowledge that it won't cost them a penny.

The whole system needs an overhaul - and fast - or law-abiding motorists will continue to pay an increasingly heavy price.   

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What should you do if you are injured in an accident?

Not all personal injury claims are fraudulent, and someone genuinely injured in an accident may have a legitimate claim for loss of earnings due to time off work. In these cases, securing the advice of a personal injury specialist is a good idea, especially given that the defendant's insurer may contest the claim.

Check first whether you have legal expenses insurance with your policy and whether you can choose your own lawyer or have to use one chosen by your insurer. Bear in mind that lawyers on an insurer's panel may have paid it to be on the list, so it doesn't necessarily mean they'll be the best.

Major players in the personal injury claims sector include law firms Minster Law, Lyons Davidson, and Cogent Law.

Marek Bednarczyk, partner at Hart Brown, solicitors specialising in personal injury claims, says: "The best policy is usually to try to obtain the services of a local personal injury specialist. They ought to be able to deal with your claim on a face-to-face and personal basis. They will be concerned to make sure that their local reputation remains good and will do their best for you." 

If you know of a well-regarded local firm that's also a member of the Solicitors Regulation Authority Personal Injury Panel, persuade your insurer to let you use it.

You can find a local lawyer through the website of the Association of Personal Injury Lawyers (, whose members have to abide by a code of practice. But go for a member that has been accredited with an extra indicator of quality.

Don't just go with the first claims company that happens to call you. These firms tend to carpet bomb the market, looking for easy wins. You're unlikely to reach anything other than a standard settlement. And they may not even be qualified lawyers.