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The Cost of Motor Insurance UK Government Review

Car Insurance Quotes

You’ve only got to open your post to see the renewal premiums that your car insurers are asking, to know that the cost of car insurance has risen well above the rate of inflation for the last couple of years. So why are we all paying higher premiums for the same cover?

The UK Government wanted to know too and set up a select commitee to investigate the rising costs of car insurance. We asked Insurance Blogger Kris Oldland to investigate their findings…

House of Commons report results – good effort but could do better:

The insurance industry’s two primary bodies the British Insurance Brokers Association (BIBA) and The Association of British Insurers (ABI) were divided in opinion in response to the publication of the House of Commons Transport Committee report into the cost of motor insurance this month.

Whilst the response from BIBA was positive welcoming the report, ABI Director of General Insurance and Health, Nick Starling blasted the report as a ‘wasted opportunity’. Starling commented that the Transport Committee had taken ‘ a great deal of evidence, and has chosen to ignore most of it’. The biggest cause of concern for Starling is that despite the fact that motor premiums are continuing to rise dramatically, the report fails to address the core reasons for these increases i.e. the rapid increases in personal injury claims and the associated spiraling legal costs.

As Starling quite rightly points out often these claims are forcefully driven by claims management firms who have been at the forefront of establishing a burgeoning compensation culture in the UK which is beginning to mirror American culture more and more each day. Starling insists the committee should have taken this opportunity to apply heavy pressure on the government to fully implement the full recommendations of Lord Justice Jackson’s review which outlined the route needed to tackle compensation culture and stem its further growth. In this respect I certainly stand in agreement with Starling – this profiteering by some claims management companies needs to be stamped out as soon as possible and doing so would not only reduce insurers legal costs, thus reducing premiums, but also mean swifter response for genuine claimants.

Another contentious issue which the committee seems to have offered meek guidance on is referral fees. Whilst the committee insists that they still need to be more transparent, Starling proposes a much more radical move – to ban them altogether. Referring to them as a ‘a symptom of a dysfunctional compensation system, not the cause of it.’ Starling insists that the industry is prepared to go further than the committee dared and is targeting the abolition of referral fees.

Personally it is my belief that as long as transparency is maintained then referrals fees can have a valid part within the industry – indeed many smaller organizations are reliant upon them as a further source of revenue and within such austere times such entrepreneurialism should not be stifled. I also believe that the larger majority within the industry work tirelessly to provide an honest and efficient service, however, as with so much in life, it takes just a few bad ‘uns to ruin the game for everyone. However, something certainly needs to be done to stop referral fees becoming a fully corrupting device, which in fairness the committee have highlighted.

The report however was greeted with more warmth from BIBA who felt that the report had pushed on with a number of the recommendations that they made in late 2010.

In particular the committees recommendations on fraud, uninsured driving and young drivers were all regarded as something of a success for the BIBA executive team. Fraud is always a major topic for discussion by insurers and broker’s alike and the report builds on the BIBA suggestion that it is now essential that the comparison sites are working in tandem with both brokers and insurers to ensure that they focus on reducing the fraud that is rife within our industry.

However it seems that despite BIBA’s praise in the trade press the Committee again has just stopped short of delivering what it needed to. For the industry to successfully address the issue of motor fraud in the UK they will need full access to DVLA documents – and this is still not likely to happen. We really need some louder shouting from BIBA to push this through and the cooperation of all sectors of the industry if we are to genuinely tackle insurance fraud head on. Fraud is big business and becoming increasingly well organized and unless we see this level of assistance and cooperation I fear that the fraudsters will continue to prevail.

Of course as with any such report there is a long process ahead should any of these recommendations make it to parliament and eventually become enforceable. With the Coalition Government’s hands quite full at present, the biggest worry is whether this Government can evaluate these recommendations and respond swiftly enough to get the rubber stamp on any new policies and make these changes before it’s too late to do anything at all.

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