Will the car insurance compensation culture change following the insurance summit?

By Ben Salisbury

The Prime minister, David Cameron held an insurance summit with leaders of the insurance industry this week to examine how to cut the number of whiplash claims, end the compensation culture and find ways of lowering the cost of car insurance for motorists.

The focus of the summit also looked at methods and technological innovations such as smart boxes to help young drivers lower premiums from the record cost that they have to pay for car insurance.

The transport secretary Justine Greening, who attended the summit, set the tone for the government response in an article in the Mail on Sunday earlier this month.

 “The cost of car insurance is bearing increasingly little relationship to the real world where motorists act more responsibly than ever and accidents really do happen less often,” she said.

Britain is the whiplash capital of Europe

There are more than 1,500 whiplash claims every day in the UK and according to the Association of British Insurers (ABI) the cost to the insurance industry is £2 billion annually, adding £90 to the average car insurance premium.

This has helped raise the cost of car insurance to £410, according to the ABI, a 17 per cent increase on last year and the average premium for a young female driver is now £1,686 and rises to £2,977 for a young male driver. The cost of car insurance increased by a massive 33 per cent in 2010.

Compensation culture

The AA has led the call for the government to end the compensation culture which it believes is the biggest cause of rising car insurance.

The AA and other leading insurers want the government to ban personal injury and accident management firms from cold-call advertising and to regulate these firms that encourage people involved in no-fault collisions to make claims even if they are not injured.

Simon Douglas, director of AA Insurance says: "I believe that the insurance industry is committed to keeping premiums as competitive as possible: but as the gap between premium income and claims payments has widened because of soaring fraud and personal injury claim costs, premiums have had to rise for everyone.”

Young drivers

Black box and ‘pay-how-you-drive’ technology was also discussed at the summit this week to assess the benefits of these new technologies in making the roads safer as well as reducing premiums for young drivers.

Black box or ‘smart box’ technology can measure driver performance and could become more vital from December 20th when a European Court of Justice ruling becomes law that bans insurers from using gender when calculating insurance premiums.

Mr Douglas said: "Telematic insurance is genuinely gender-neutral - it rewards safe driving behaviour regardless of whether you're male or female. It places firmly in the hands of the driver safe and responsible driving, which is rewarded by reduced premiums."

According to the Co-operative more than 12,000 17-25 year olds have already signed up to their black box product for young drivers and it is already lowering the cost of car insurance for some.

The system works by measuring how a motorist drives and rewards them with cash-back for safe driving. Criteria that drivers are measured on include braking and cornering carefully, sticking to speed limits and limiting night time driving.

The Co-op says that 90 per cent of those signed up to the product are benefitting through lower premiums. The Co-op estimates that £20 million will be returned to customers in lower premiums over the next three years.

David Neave said: "The cost of insurance has hit an all time high, especially for young drivers who feel that they are being priced off the road. Currently many young motorists who drive safely are picking up the tab for the ones that drive recklessly. However, the black box allows people to pay a fair and personalised price for their cover, determined by how well they drive.”

What measures were agreed at the summit?

David Cameron says that the government has committed to “take action to tackle the compensation culture, reduce legal costs and cut health and safety red tape,” and that the insurance industry has “committed to pass savings made on to consumers”.

Mr Cameron said: "I am determined to tackle this damaging compensation culture which has been pushing up premiums.

"I want to stop trivial claims, free up businesses from the stranglehold of health and safety red tape and look at ways we can bring costs down.

The government announced that it will reduce the fee of £1,200 that lawyers are currently able to earn from each small value personal injury claim they take on and that insurers have agreed to pass on these savings to the customer.

Referral fees are to be banned and once again, the government says it has secured a commitment from insurers that they will pass on the savings to customers.

Insurers and the government have agreed to work together to find effective ways to reduce the number and cost of whiplash claims in the UK. They are looking at various options to do this including changing the threshold for claims or the speed of accidents, the requirement of improved medical evidence and using new technology.

To help businesses caught up in the compensation culture the road traffic accident claims process to cover employers liability and public liability will be extended and insurers will now have to provide guidance to businesses when they buy insurance detailing only the aspects of health and safety law that they need to comply with. Insurers will be expected to challenge more health and safety claims rather than just paying out.

Both parties will also look at how telematics or ‘smart box’ technology can be used to help young drivers with risk and safety as well as lowering their premiums by being rewarded for safer driving.

Otto Thoresen, director-general of the Association of British Insurers, who attended the summit, said "We are encouraged that the Government recognises the need to tackle the factors that are driving up the cost of motor insurance, such as the reform of our dysfunctional compensation system."

"We will be working with the Government to ensure that we make real progress as quickly as possible in tackling the UK's whiplash epidemic, and reducing legal costs."

The initiatives to help young drivers to be able to get more affordable car insurance should provide a real benefit if insurers embrace the new schemes such as telematics and black boxes but it is unclear exactly how the pledge to reduce whiplash claims, ban referral schemes and counter health and safety claims will be monitored.

It will be interesting to see exactly when and by how much car insurance premiums go down by if the commitments agreed are successfully implemented.

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