Motorists could see their car insurance premiums fall by £40 a year thanks to a clampdown on dubious whiplash claims that’s being considered by the Ministry of Justice (MoJ).
If the rule changes floated today go ahead, the MoJ estimates claims will fall by £1 billion per year. Insurance companies have pledged to pass on the savings in full to drivers.
Over the past decade, whiplash claims have increased 50%, despite UK road accidents falling over the same period. The MoJ says this is has been “fuelled by a predatory claims industry that encourages minor, exaggerated and fraudulent claims.”
The UK is home to the “weakest necks” in Europe, according to LV=, which claims the UK has more whiplash claims than any other EU country.
Fraudulent claims have contributed to average motor premiums in the UK rising 9% over the past year to £440, according to MoJ estimates, though the hike has been exacerbated by rising insurance premium tax.
Justice Secretary Elizabeth Truss says: “For too long some have exploited a rampant compensation culture and seen whiplash claims as an easy payday, driving up costs for millions of law-abiding motorists.”
What’s the plan?
To cut down the cost of fraud for honest drivers, the government intends to cap compensation for minor whiplash, for which a typical claim is currently £1,850, at just £425. To be eligible for compensation, drivers will also need to provide a medical report as proof of injury.
Insurers may also be banned from settling claims without medical evidence. One whiplash claim is currently paid every minute, on average, in part because fraudsters expect insurers to pay out instead of paying the legal and administration costs of fighting the claims.
To reduce the legal costs, the government may also allow injury claims of up to £5,000 to be taken to the small claims court. Currently, the cap is £1,000 for personal injury claims in the small claims court.
A standard tariff of compensation for more serious claims may also be introduced.
Ms Truss adds: “These reforms will crack down on minor, exaggerated and fraudulent claims. Insurers have promised to put the cash saved back in the pockets of the country’s drivers.
“We are tackling the incentives which have created this compensation culture so that all drivers can save money on their motor insurance policies.”
What does the industry say?
The recommendations were welcomed by the insurance industry. Martin Milliner, general insurance claims director at LV= says: “The UK is known as the ‘whiplash capital of the world’ so it’s vital that the Government implements these proposals without delay to ensure consumers can start getting a fairer deal as soon as possible.”
James Dalton, spokesperson for the Association of British Insurers, says: “The insurance industry has campaigned long and hard to tackle the impact of whiplash-related claims on honest motorists.
“Introducing a range of measures, such as limiting the compensation payable for these injuries, will help create a more honest system that doesn’t reward those who want to exploit it. If implemented, these reforms will ease some of the pressure of recent increases in Insurance Premium Tax and repair costs are already putting on premiums.”
“Tackling whiplash fraud will not eradicate car insurance problems”
However, Kevin Pratt, consumer affairs expert at MoneySupermarket, warns that the changes might not be enough to curb rising costs for drivers.
He says: “Anything that tackles this problem is worthwhile and it is crucial that insurers pass on every penny of savings by reducing premiums.
“But we should not conclude that tackling whiplash fraud will eradicate problems in car insurance pricing. Insurers are still using auto-renewal to push through price increases, hitting loyal customers year on year.” For more on this read Are you stuck in a car insurance loop?
He adds: “We’ve seen premiums rise by 14% in the past year, partly because of whiplash, partly because of insurance premium tax and partly because insurers want to boost their profits from this class of business. That makes it more important than ever for all policyholders to shop around to get the best deal every year.”
Our poll earlier this year revealed nine in ten Moneywise users actively seek better car insurance deals.
However, it’s concerning that 4% of Moneywise users may be paying too much for their car insurance because they either accept the new quote, no questions asked, or let the policy renew automatically.
Mr Pratt says: “We should also not forget that whiplash is a genuine injury in many accidents, causing pain, upset and inconvenience for victims. Care must be taken to protect their interests in any action taken to bring the fraudsters to book.”