Why motor insurance reform is no joke
With several major developments in the motor insurance sector in the offing, Luke Holloway looks at the potential implications…
Heard the one about the farmer who got knocked off his ladder and changed motor insurance law across Europe?
A ruling by the European Court of Justice could now mean the incident, during which Damijan Vnuk sustained injuries while working on privately owned farmland in Slovenia, may result in everything from tractors to mobility scooters requiring compulsory insurance cover.
The review of the current motor insurance law was sparked by the Damijan Vnuk v Zararovalnica Triglav case and will have an impact in the UK, regardless of its EU status. The UK government will be consulting on potential amendments to the proposal until the end of March and has released a report and survey encouraging people to have their say, stating: “The main objective is to provide a route to compensation for victims of accidents involving motor vehicles in a wider range of circumstances while keeping the cost burden to a minimum.”
The Forum of Insurance Lawyers (FOIL) has backed the review, with Peter Allchorne, a motor partner at international law firm DAC Beachcroft and head of FOIL’s motor sector focus team, commenting: “It is clear that allowing EU law to follow the Vnuk judgment would have a very significant impact on motor insurance across Europe. As the Department opf Transport (DfT) has said, it is a complete game changer for motor insurance in the UK, potentially bringing further categories of vehicle within the compulsory insurance regime and requiring insurance for vehicles used purely on private land.
“FOIL has supported the European Commission’s move to propose amendments to the Motor Directive and we welcome the DfT’s consultation on one of the amendment options.”
The two most immediate impacts of changing the UK’s domestic legislation would be that more people would need to buy an insurance policy and more victims would have a straightforward route to compensation. If the government deems it necessary for a wider range of vehicles to be insured, then a decision would have to be made about what penalties would be imposed if there was a failure to comply. However, DfT sources have suggested a “sunset clause” could be drafted into the new rules, so there is a possibility of them being abolished when Britain leaves the EU.
A document from the DfT states: “This would result in us broadening our definition of a motor vehicle and extending our insurance requirement beyond roads and other public places. This could mean users of motor vehicles would be required to have third-party insurance on private land.”
- Whiplash claims are 50% higher than a decade ago in the UK
- The approximate number of whiplash claims in the UK every day
- The maximum compensation payout under proposed new rules, cut from the current average of £1,850
- The new limit for personal injury cases in the small claims court, raised from £1,000
The Vnuk review comes just after the Ministry of Justice launched a consultation on proposals to cut compensation for whiplash injuries in England and Wales, meaning millions of motorists could see their car insurance premiums reduced.
Despite the UK having some of the safest roads in Europe and a fall in the number of accidents, whiplash claims have risen by 50% during the past decade, costing insurance companies about £1bn a year.
The consultation paper outlines plans to scrap the right to compensation or put a cap on the amount people can claim for minor whiplash injuries. This has been fuelled by a predatory claims industry that encourages minor, exaggerated and fraudulent claims, driving up the costs of insurance premiums for ordinary motorists. Capping compensation would see the average payout cut from £1,850 to a maximum amount of £425.
“One whiplash claim is paid out every 60 seconds and it is unacceptable that responsible motorists have to pick up the tab,” says the government economic secretary Simon Kirby. “We are tackling the incentives which have created this compensation culture so that all drivers can save money on their motor insurance policies.”
The issue of whiplash claims is nothing new and insurance companies have been highlighting the problem for the best part of a decade. But now it seems real action is being taken.
Operations director at Aviva, Andrew Morris, has spoken out – saying that the number of injury claims has risen by 90% since 2000, even though the number of accidents on UK roads has fallen by almost 40% in the same time period.
“All of that suggests that actually there is something fundamentally wrong with our compensation system,” he told the BBC. “In the UK, almost 80% of every injury claim that we see relates to whiplash. In France, by comparison, is it just 3%.” In 2015 alone, motor fraud accounted for 60% of all claims fraud detected by Aviva,” Mr Morris said.
Another notable aspect of the reform, however, is emphasised in a study commissioned by the Access to Justice lobby group, Capital Economics, which argues that 35,000 UK jobs could be at risk in the aftermath of the new whiplash crackdown.
The report states that 44,200 people work on personal injury cases in legal, medical and claims management jobs, while a further 40,000 depend more loosely on the industry through the supply chain and other spending, and that 35,000 of these jobs would be at risk if small claims were kept out of the courts.
“We all agree it’s necessary to reduce fraudulent and frivolous claims and get rid of cold calling […] but there are better ways to maintain the historic and important rights of injured people to receive redress yet also tackle fraudsters who try to game the system,” says Martin Coyne, of Ralli Solicitors and a director at Access to Justice.
AN ALTERNATIVE REFORM
Beacon Independent Medical Examiners agrees there is a problem, but believe there is an alternative to such major consultations. CEO Phillip Kizun is adamant that proposed reforms would not be needed if more claims handlers used evidence-based medicine.
He argues that the fundamental issue in the UK is the current claims system reinforces exaggeration and fraud, with a majority of claim medical reports being based on the claimant’s word, which is taken as reliable, in spite of financial incentives to provide false information. The attending doctor then produces a report, confirming the subjective claims made by the individual which, as Mr Kizun explains, ignores objective assessment of the claims made using the latest medical science.
“Current evidence-based and peer-reviewed medical literature should inform the doctor’s opinions regarding expected recovery from the conditions in question,” says
Mr Kizun. “Evidence-based medicine improves decision making by emphasising the use of evidence from well designed and conducted research.
“If the Ministry of Justice started to take evidence-based medicine seriously, this would have a radical and positive impact on insurance claims. There are many shades of fraud and realistically it would be difficult to eradicate completely; however, evidence-based medicine would make the most significant measurable difference in the shortest space of time.”
The coming months could see major developments in the motor insurance sector, in terms of compulsory vehicle cover, claims compensation and in the fight against fraud. But with government surveys still open, feedback to be considered and opinions still brimming on both sides of the argument, finalising these major reforms will certainly be more difficult than falling off a ladder.
Vehicles that could need insurance cover in future: Construction and agricultural vehicles / Mobility scooters / Segways / Ride-on lawnmowers / Golf buggies / Motorised ride-on children’s toys / Forklift trucks / Dumper trucks / Quad bikes
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