After initial proposals were released back in 2016 the UK government is finally on the verge of bringing changes to the personal injury law into force. The Civil Liability Bill is currently going through the House of Lords and should the rubber stamped into UK law in the short term. This will impact the way in which whiplash claims are calculated, the evidence required and the maximum amount paid out in whiplash compensation claims. This comes at a time the UK insurance industry is struggling to maintain a competitive environment as the cost of defending and paying out on “frivolous” personal injury claims continues to rise.
Traffic-Related Accidents In The UK
Justice Secretary David Gauke, has been talking in depth about the proposed changes to personal injury claims regulations. Despite the fact that there has been a fall in the number of UK road traffic accidents over the last 10 years, road traffic related injury claims have increased by 50% during this time. This perfectly illustrates the challenging nature of the UK personal injury claims market for the authorities, insurance companies and those consumers forced to simply pay up without defending themselves to save on costs – not to mention the increase in their premiums as a consequence.
The average whiplash claim is currently running at around £1850 but under the proposed legislation going through the House of Lords this would fall to a maximum of £425.
Automatic Payouts For Whiplash Will Be No More
While even a reduction in the average whiplash compensation award would prompt large cost savings for the UK insurance industry, this is not the only major change. In future, assuming the regulations are passed by the House of Lords, even a maximum £425 payout would require a medical report as proof of injury.
The subject of costs compared to compensation awards has been a major bone of contention for the UK insurance industry for many years. Historically, in many cases it was cheaper to pay out after receiving a whiplash claim rather than seek to contest it in the courts where costs could be even greater than the average compensation awarded. Changes to the type of claims which can be heard in the small claims courts will reduce legal costs although they might also limit important access to legal aid. So, all in all it seems that the UK insurance industry will be in a much stronger position going forward with a promise to pass on any savings to customers.
Compensation Culture In The UK
While it took some time to travel across the Atlantic, even though the UK compensation culture is nowhere near as strong as that in the US it has grown significantly in recent years. The very fact that the number of UK road traffic accidents has fallen over the last decade while injury claims have increased by 50% perfectly reflects this.
Aviva UK General Insurance, one of the largest insurers in the UK, believes that the upward pressure on driving insurance is taking its toll and cannot be allowed to continue. Even during these times of austerity, and a reduction in household spending power, insurance premiums have increased by 9% over the last year. This equates to an average car insurance bill of £481 a year although those at the lower and the higher ends of the age range have felt the greatest financial pain. While it is unfair to consider valid personal injury claims with fraudulent activity, the whole industry is now costing UK motorists a staggering £5 million a day. It will be interesting to see how the changes in regulations impact claim rates in the short to medium term and whether indeed the fraudsters are able to find other areas offering relatively easy compensation pickings.
Will Insurance Companies Pass On These Savings?
Even now there is some concern about whether motorists will receive the full benefits of expected cost savings under the new regulations. Financial comparison website comparethemarket.com recently suggested that average motoring premiums increased by £70 between February and November
2017. This does not seem to tally with the £35 saving suggested by the ABI although perhaps there are further implications with the change in regulations and in particular the Ogden rate?
The Ogden rate is the interest rate used to calculate long-term funding for medical expenses and other issues relating to successful personal injury compensation claims. This is a rate which has not been adjusted for some time and we already know that even the best case scenario would see a significant rise in funding costs for long-term care. It may well be that the insurance companies are looking to offset the added costs associated with the new Ogden rate against savings in areas such as whiplash injuries. However, is this fair?
Reducing Rewards For Fraudulent Activity
Over the years there has been a significant increase in the number of cold calls in the UK in areas such as road traffic accidents and holiday illness in particular. So-called “soft tissue injury claims” have been rising since 2014 having become a staple income diet for some of the more dubious claims management companies. Impacting the ability to claim back legal costs, and other expenses, together with reducing maximum payouts for injuries such as whiplash, will hit those lodging fraudulent claims. However, insurance companies and consumer groups are concerned that reducing the potential rewards for whiplash claims will simply see fraudulent activity move elsewhere.
While there is no doubt that the authorities have dished out some fairly large penalties for those claims management companies involved in fraudulent activity, and excessive cold calling, more needs to be done. There is also a need to ensure that those who have valid claims are offered a route to prosecute negligent parties and claim their rightful compensation. Reduced access to legal aid will not help the situation although there is still the No Win No Fee arrangement offered by many claims management companies – where there is a minimum 60% chance of success with a claim.
Lobbying, Lobbying And More Lobbying
While the initial proposals to change the way in which the UK personal injury claims system works were introduced back in 2016, they are yet to be placed on the statute books. There have been some changes along the way, with the UK government seen by many to cave in to insurance industry demands, but there is no doubt there has been significant lobbying by insurance companies and consumer groups.
In many ways the insurance industry holds the ace cards because any reduction in profits for a particular area of business could simply be subsidised by increasing premiums for other services. On the other hand, the UK government must be seen to be doing as much as possible for the consumer who has suffered greatly from ever-increasing insurance premiums right across the board. If we look at holiday illness claims in isolation, we are now in a situation where some overseas resorts are refusing to accommodate UK customers because of the massive increase in holiday insurance claims. In what many see as an unhelpful quirk of the UK compensation laws, incidents which happen overseas as a consequence of services provided by a UK company can be pursued through the UK courts. Even simple tasks such as gathering evidence to contest a compensation claim can be extremely difficult as a consequence of the three-year window of opportunity to lodge a claim and the fact that the incident happened overseas.
Conclusion
While all parties are waxing lyrical about potential savings for UK motorists in terms of their insurance premiums, the proof is in the pudding. The fact that comparethemarket.com was recently talking about an average £70 increase in premiums just last year, against the ABI suggesting recent changes would amount to a £35 saving for consumers, just does not add up. The inevitable change to the Ogden rate will have a major impact upon the cost of funding large compensation claims were long-term treatment is required. This could end up trimming the relatively small potential cost savings for motorists across the UK.
The fact that the proposed changes to the regulations were first announced in 2016 and we are about to exit the first quarter of 2018 reflects the complicated nature of the industry and changes. Surely more focus must be placed on cost savings for consumers as opposed to cost savings for insurance companies which may or may not be passed on?
Companies such as Aviva UK General Insurance, and the industry voice the ABI, have promised that all cost savings will be passed to consumers at the earliest opportunity. Will the insurance industry be good to its word? Will the UK government offer any meaningful protection for UK consumers?
