As anyone who has recently renewed their car insurance will know, the cost of motor premiums is rising. It is not just the usual trick insurers like to play on renewal, where loyal policyholders are rewarded with a higher premium than is offered to new customers. Even when scouring the market for the best deal, a shock to the pocket is unavoidable.
So what can be done? Last week the Association of British Insurers unveiled a 10-point ‘roadmap to tackle insurance costs’. Predictably, some of it is aimed at reducing compensation for injured people.
In 2021 the insurance lobby received a gift from the government in the form of its whiplash reforms. The Official Injury Claims portal was created, designed for use by litigants in person, and a tariff system of compensation for soft-tissue injuries. Claims numbers have fallen, which is clearly good news for insurers. However, the industry complains that wily claimant lawyers are encouraging people to claim for other injuries as well, to increase compensation.
So the ABI suggests whiplash-type reforms should now also be introduced for ‘similar injuries’, such as ‘bruised knees’ and ‘sprained ankles’ – which would make whiplash claims simply the thin end of the wedge. Imposing a tariff system for whiplash was a major departure from the usual principle of full compensation for negligence victims, however; and so any extension to broader injury claims would be very concerning.
Another target identified in the ABI’s plan is the personal injury discount rate applied to compensation amounts to reflect the long-term investment gain that a claimant might reasonably receive on a lump sum. This is especially important for catastrophic injury claims, as they are inevitably high-value.
The discount rate had remained static at +2.5% for many years, reducing the amount that insurers had to pay in compensation. However, in 2017 the then lord chancellor – Liz Truss – took the dramatic step of changing the rate to -0.75% to reflect the likelihood of a lump sum being eroded by inflation. This was then amended to -0.25 in 2019, after a backlash from insurers. This negative rate has the effect of increasing the compensation amounts that insurers must pay. But this year the discount rate is due for its five-year review. Insurers argue that it should be amended to reflect the return on investment that a low-risk investor would be likely to make.
The current negative rate is undoubtedly expensive for insurers, and therefore for the premium-paying public. But would it be right to put someone who has been catastrophically injured in the same bracket as an ordinary low-risk investor who might be saving for a future holiday or retirement? What if the lump sum needs to retain its real-terms value to secure someone’s life as they know it? To pay for 24-hour care and specialist equipment that they would never have needed, had they not been injured by someone else’s negligence? It does not seem fair that a person in that position should be required to take on investment risk in the same way that an ordinary investor does. The risk is surely more fairly met by the defendant insurer, through an appropriate discount rate, as part of its package of full compensation.
But moving away from the attacks on injury compensation, the final item in the ABI’s 10-point roadmap is one that even claimant lawyers would agree with: to support the independent vehicle repair sector.
The cost of repairing modern cars contributes hugely to rising motor insurance costs. A new car can contain more than a thousand microchips controlling brakes, doors, airbags and windscreen wipers. Everything is electronic, computerised, connected. A prang on the bumper will take out an embedded sensor; a clip to a wing mirror will knock out a camera. Repairs are specialist and expensive – particularly for electric cars – but there is a real shortage of trained mechanics. The longer the customer has to wait, the bigger the car hire charge. Meanwhile, criminals are busily hacking into keyless-entry cars and driving them away, while we all foot the bill.
All this drives up the cost of insurance, not just for the wealthier who buy these vehicles, but for everyone else too. So as consumers, perhaps we should think twice before buying into this endless gadgetry; while the government should turn its attention to addressing the serious and expensive skills shortage in the vehicle repair industry. Both options would be preferable to the endless targeting of people who have been unfortunate enough to have been injured on our roads through no fault of their own.
Rachel Rothwell is editor of Gazette sister magazine Litigation Funding, the essential guide to finance and costs.
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