What needs to be fixed in the Motor Insurance game

Parking_Trouble

The cost of motor insurance is in a steep upward curve, vastly outstripping inflation. Many people on here complain about the increasing costs so I thought I would pull together a list of the key areas that are contributing to the increase and get views on how it could be improved.

There are government initiatives looking into some of these issues but I am interested in the consumer views of what can be done.
Perhaps we can collaborate to create some recommendations for improvements.

Undoubtedly it is the cost of claims that plays a big part in the increase in premiums.

Everyone is entitled to have their property (typically a motor vehicle) repaired back to it's condition before the accident. The claimant in a non-fault accident is also entitled to compensation for injury, assuming some sort of pain of loss or use, or loss of earnings relating to time taken off. The key is to remove other parties from taking excessive fees and profit from the process.

Key factors that influence the "inflated" cost of claims

1. Conditional Fee Arrangements (No Win No Fee)

I think CFA's were first allowed for Personal Injury Claims in the mid-1990's and since then the cost of legal fees has typically exceeded that of the damages paid to the claimant. There are undoubtedly some complex cases that require proper legal support for the claimant. However there are also many minor injury claims such as whiplash that insurers cave in quickly to keep costs down.

How to reduce the costs -
a. Cut back the solicitor success fees to 25% of the compensation. Success fees often double the real cost of the effort of the solicitor.
b. For low cost claims (up to £2500?) make the claimant go through the Small Claims process - a low cost, simple way to recover money owed and decided by a judge.
c. The defendant only has to pay the base costs if they lose.
d. Legal costs cannot exceed the compensation - if the they the additional money is paid by the claimant out of their compo
e. Stop cold calling by lawyers (or their agents) to encourage people to make claims. Especially where there is a commission paid to agents doing the calling (higher risk of mis-selling)

2. Referral Fees - paid to insurers and others by the No Win No Fee lawyers - typically £800. Insurers who do this have a conflict of interest in looking after the consumer by keeping prices down. They might also pass your personal details (without your express permission) to lawyers who pay the highest referral fees rather provide the best value for money service. Likewise fees paid by Claim Management Companies.

My suggestion:-

a. Straightforward ban of referral fees.

3. Claims Management Companies - profiteering through inflated costs, typically inappropriate and expensive car hire arrangements.

a. Insurers have to take more responsibility to settle the non-fault claims of their customers rather than outsource to CMC's (presumably with a referral fee attached). I might be missing something but isn't this how it worked in the old days?

4. Whiplash - without doubt this condition creates too much opportunity for dishonest or exaggerated claims.

a. Find an objective way to diagnose the condition
b. Make the insurer more diligent in establishing proof of the extent of the injury (time off work, independent examination, proper assessment of speed of impact)
c. Let the Small Claims Court decide rather than unqualified admin staff. A determined claimant will follow it through. Bogus claimants will be put off pursuing a claim in front of a judge.
d. Install technology in every car that records impact data (accelerometer?). impact below a certain speed should discount a claim unless there is unequivocal evidence to support injury claim.


Four areas with a few suggestions to start a debate. Fraud and uninsured drivers, cost of repairs I guess are worth consideration.

rs65

Not directly affecting the increases in cost but going by issues raised here:

I would like to see some standardisation of NCB treatment. Some people are very particular about the number of years they have earned. Every insurer should accept an unlimited number of years and provide evidence of this plus one year at the end of a claims free year. They can use what they want for rating purposes. Renewal notice could say, for example, had 5 years at February 2011 and has had a claim free year. Or had 5 years at February 2011 and had a fault claim in October 2011. I can’t think of an ideal way to do this though as every insurer seems to treat NCD differently.
Alternatively, abandon NCB altogether and just look at number of years driving and no of claims suffered.

‘Have you ever had a policy cancelled. I’ve always thought this should only relate to real reasons for cancellation – such as fraud or dishonesty. From threads on here, some policies are cancelled for failure to produce NCB or copy licences in time. The question needs to be expanded or clarified. Cancellation for non-payment or missed instalments may affect the likelihood of being accepted for instalments but should be fine for those paying future premiums in full.

Spiderham

One of the big problems is that many of the "standardisations" people would like to see for things like NCD, claims loadings et cetera would amount to collaboration by insurers. Now the OFT can allow an exemption to competition law if they think it is in consumer interest but I'm not convinced it would; the vagaries of different insurers' rating structures are what allow people to find cheap deals.

Regarding Conditional Fee Arrangements (CFAs), these were introduced because Legal Aid was stopped in Personal Injury cases the only fair way I can see of getting rid of these is to re-allow Legal Aid funding for PI claims but I can't see that any time soon. It would be against current aims to reduce the Legal Aid bill and the tabloids would crucify any government paying for "lawyers for whiplash scammers" losing them the next election. I'm interested in why the you go for the 25% figure Parking Trouble. The purpose of 100% success fee is that then means if the claimant has over 50% chance of winning the case it is worth the solicitor taking it on, if less it isn't which I think is about fair. A 25% success fee would mean solicitors have to be 80-20 certain of winning which tips the balance beyond that of the court meaning people with fair claims wouldn't be able to bring them. Also lawyers can't do cold calling as per the Solicitors Code of Conduct, this really is a CMC issue.

Tend to agree on the spirit on banning referral fees but these have to be across the board (not just personal injury) to be fair meaning also estate agents can't have these arrangements for conveyancing etc. The problem is with new Alternative Business Structures I imagine anyone so minded could easily get around these bans by referring "out of the goodness of their heart" cases to companies with the same owners.

I agree Whiplash is a massive issue but think the idea to "Find an objective way to diagnose the condition" is somewhat unrealistic, it's like saying we should reduce NHS care costs by finding a cure for cancer. The problem is also that the payments for whiplash compensation are small enough that it costs more to investigate and stop them than the payout so there needs to be a few sticks. The new Insurance Fraud Investigation Unit of the City of London police may help this.

Another problem is that insurers are likely to settle unfounded complaints as the FOS charges them £500 for every complaint referred to them or not, so it is quite often worth them making an ex-gratia payment rather than risking a complaint. I would be tempted to move to a higher charge for people but only payable if complaint is upheld.

The biggest issue in my mind is societal that people want something for nothing (whiplash claims) and also want to pay the cheapest premium now (hence aggregators) without taking full responsibility for the contract they are entering into (the sheer number of complaints about auto-renew, cancellation & admin fees, additional premiums for non-disclosure of no fault claims and so on). How do we solve that? I honestly don't know.

Parking_Trouble

I get the impression that most insurers will quickly make an offer (often pre-medical) because it is very difficult to disprove whiplash.

It is surely pretty easy to prove other injuries, such as cuts, bruising, broken bones. So I don't believe the solicitors are taking a risk that warrants a 100% success fee.

I have to admit the 25% success fee idea is nicked from here http://europeanjusticeforum.org/storage/UK%20Government%20Implementation%20of%20Jackson%20Reforms%20on%20the%20Costs%20and%20Funding%20of%20Litigation.pdf

I do believe 100% is way too much.

Most insurers want to remove referral fees with the odd notable exception. It will need some regulations to ensure it is kept above board.

Spiderham

Parking_Trouble wrote: »

I get the impression that most insurers will quickly make an offer (often pre-medical) because it is very difficult to disprove whiplash.

It is surely pretty easy to prove other injuries, such as cuts, bruising, broken bones. So I don't believe the solicitors are taking a risk that warrants a 100% success fee.

I have to admit the 25% success fee idea is nicked from here http://europeanjusticeforum.org/storage/UK%20Government%20Implementation%20of%20Jackson%20Reforms%20on%20the%20Costs%20and%20Funding%20of%20Litigation.pdf

I do believe 100% is way too much.

Most insurers want to remove referral fees with the odd notable exception. It will need some regulations to ensure it is kept above board.

It isn't about solicitors taking a risk though as far as I'm aware. In a civil case this is judged on the balance of probabilities, ie if there is a smidge over 50% likelihood that your story is true as opposed to other side's then you win. The 100% success fee then means that solicitors (should) pre-vet cases and only take on those which do stack up on balance of probabilities. If success fee was less one could argue that cases that should be taken forward and would win (ie people rightfully entitled to compensation) would not receive adequate legal recourse. It's a balancing act between access to justice and people taking the proverbial.

Regarding referral fees, as far as I'm aware all insurers would like them removed (provided in totality, not just stopping insurers getting the money but third party companies still able to). The "notable exception" I'm guessing you are referring to is Admiral, but they've come out saying they want them scrapped too. Their standpoint seems to be (to paraphrase) that they don't like the game but they make no excuses for maximising revenue within the current rules.

vax2002

a radical re-think.
you buy an insurance disk that provides cover for purposes of the road traffic act ONLY from DVLA.
The disk is similar to car tax, the fees vary according to bands of vehicle based upon power to weight ratio.
The fees offer 5 disk types and costing across the bands
Green = Any Driver inc under 25
Amber = Any driver over 25 only
Red = Any Driver with 6 or more points.
White = new driver of less than 3 years, also limits PWR ratio.
Blue = pool vehicle any driver cover.

All other insurance, fire, theft, accidental damage insurance, legal, cover is sold separately by the insurance companies we have now

Parking_Trouble

Surely the solicitors will weigh up the chance of winning the case and decide if they want to take it on.

The success fee seems to be an added bonus for taking the risk of losing and not getting paid.

I don't know the real figures of the number of cases successfully challenged for whiplash but because you cannot disprove it. But I would say that the odds are better than 80-20 of a successful claim. In case case I don't see how they can justify double bubble.

I am sure they just get away with a couple of letters to sort out a price.

Spiderham

vax2002 wrote: »

a radical re-think.
you buy an insurance disk that provides cover for purposes of the road traffic act ONLY from DVLA.
The disk is similar to car tax, the fees vary according to bands of vehicle based upon power to weight ratio.
The fees offer 5 disk types and costing across the bands
Green = Any Driver inc under 25
Amber = Any driver over 25 only
Red = Any Driver with 6 or more points.
White = new driver of less than 3 years, also limits PWR ratio.
Blue = pool vehicle any driver cover.

All other insurance, fire, theft, accidental damage insurance, legal, cover is sold separately by the insurance companies we have now

Get that idea, just the RTA cover part covered with a one price fits all approach, but if current premiums are anything to go buy these would be about £800 (probably more like £900-£1000 when you take into account worse risk selection from the fact that young people wouldn't be barred from powerful cars or charged large amounts) for the disc. This is based on a single disc for insurance as now. Most claims are third party and I think the AA's most recent figure was £950 for TPFT insurance.

http://www.telegraph.co.uk/motoring/news/8373746/Personal-injury-claims-pushing-up-insurance-costs.html shows claims are now about half for PI, then there's the fixing of the cars. It would be a feasible plan but I think most would see an increase. It would however be the cross-subsidising of inexperienced drivers some want to see to allow them to gain experience (as well as the removal of post code pricing as Jack Straw seems to want to happen).

Parking_Trouble

vax2002 wrote: »

a radical re-think.
you buy an insurance disk that provides cover for purposes of the road traffic act ONLY from DVLA.
The disk is similar to car tax, the fees vary according to bands of vehicle based upon power to weight ratio.
The fees offer 5 disk types and costing across the bands
Green = Any Driver inc under 25
Amber = Any driver over 25 only
Red = Any Driver with 6 or more points.
White = new driver of less than 3 years, also limits PWR ratio.
Blue = pool vehicle any driver cover.

All other insurance, fire, theft, accidental damage insurance, legal, cover is sold separately by the insurance companies we have now

I think the government should consider something as radical like this.
The claim settle process would need an overhaul too.

I think in Australia they include the TP insurance in the car tax.

What do other countries do?

Parking_Trouble

Training of new drivers needs to be improved and the test needs to be harder.

Maybe restrict type of car in first 2 years and maybe restrict new drivers to certain hours. Most young drivers have accidents after 11pm.

Spiderham

Parking_Trouble wrote: »

Surely the solicitors will weigh up the chance of winning the case and decide if they want to take it on.

The success fee seems to be an added bonus for taking the risk of losing and not getting paid.

I don't know the real figures of the number of cases successfully challenged for whiplash but because you cannot disprove it. But I would say that the odds are better than 80-20 of a successful claim. In case case I don't see how they can justify double bubble.

I am sure they just get away with a couple of letters to sort out a price.

Solicitors charge by the hour. In the CFA cases they nominally charge their hourly rate, if they lose they don't get paid and if they win they get paid with success fee on top.

This means if they have x% chance of winning a case, their expected payout is (1+sucess fee)*x% their hourly rate. This needs to be at least their hourly rate to justify the work. Re-arranging (can you tell I'm a bit of a maths geek?) this gives required chance of winning of 1/(1+success fee) to make it worthwhile. With a 100% success fee, this makes the threshold 50%, which is the level for a successful litigation.

If the threshold is lower then there will be cases where likelihood of claims is between 50% and threshold where solicitors (if they do cost-benefit properly) won't taking on. This would mean that people in this area would only be able to get access to lawyers if they can afford fees up front so not exactly fair. The flip side is, as we know, that with lower threshold you get the scammers and tryers-on.

You have to have a general rule for CFA success fee legislation and can't say if it's this you get x% and that you get y% as the cases are all brought under the same part of law (if I remember correctly tort law) so it has to be a blanket approach.

I hope what I said makes sense.