Sam Barrett examines the ‘seismic change’ brought about by the government’s whiplash reforms
The government’s highly anticipated whiplash reforms came into effect at the end of May 2021, increasing the small claims track limit from £1,000 to £5,000. While it is still too early to know whether the reforms will achieve their objective, change is already underway.
The reforms, which are part of the Civil Liability Act 2018, are designed to make it easy for individuals injured in road traffic accidents (RTA) to obtain proportionate compensation, while also reducing motor insurance costs by tackling the high number and cost of whiplash claims.
“It is a seismic change,” says Calum McPhail, head of liability claims at Zurich Insurance. “Not just in the way we deal with road traffic accident claims but in the way we treat injuries.”
Under the new system, the vast majority of RTA-related personal injury claims will be dealt with through the Official Injury Claim service, a portal developed by the Motor Insurers’ Bureau. Compensation will be determined in line with a fixed tariff, which runs from £240 for a whiplash injury that lasts up to three months, to £4,345 for one lasting between 18 and 24 months that includes psychological symptoms.
Significantly, and something that is a major driver in removing costs from the claims process, it will no longer be possible to recover legal costs on claims that go through the portal. Additionally, a ban on settling claims without medical evidence will help to prevent fraud.
Although motor insurance is unlikely to change as a result of the reforms, one of the welcome byproducts is lower premiums. Karl Parr, claims technical services director at Axa Insurance, explains: “It is difficult to say how much premiums will fall, especially as the market has softened a little on the back of Covid-19, but predictions suggest a reduction in the region of £35 to £40 a year.”
Insurers are also looking closely at how they manage personal injury claims. “We have bolstered the training for claims handlers, to ensure they deal with claimants without legal representation appropriately,” says Mr McPhail. “We expect they will need to spend time helping them through the process and have put reviews and audits in place to ensure this is the case.”
While the portal is designed to be user-friendly, there are concerns that it will not provide a solution for everyone. In particular, Samantha Brown, partner and head of personal injury at DAS Law, is concerned that vulnerable customers will be overlooked. She says that although the reforms exclude vulnerable road users such as children and cyclists, this is a different group to vulnerable customers. “Anyone could become vulnerable following an RTA,” she says. “If someone cannot work, they would be financially vulnerable or if they had to represent themselves in court, this could make them vulnerable. These individuals need appropriate support.”
It is a seismic change. Not just in the way we deal with road traffic accident claims but in the way we treat injuries
The nature of claims could also shift, with many predicting that, with fees no longer recoverable on whiplash claims, interest will move to non-injury claims. Andrew Parker, insurance partner and head of the strategic litigation unit at DAC Beachcroft, explains: “The injury is just part of the package. Legal firms that still want to play in this space will be interested in the credit hire and damage elements, where revenue can still be taken.”
Mr McPhail is also concerned that this could be a consequence of the reforms and, while he hasn’t seen any evidence of it yet, is keeping watch. “Credit hire and rehabilitation is covered in the second half of the Act and while there is little appetite from the government to tackle it yet, this will change if there’s evidence of these claims accelerating inflation into motor insurance costs.”
Another area that insurers are watching closely are ‘Tariff+’ claims, which combine whiplash with other non-tariff injuries. Without any guidance on how to value them, test cases are required, which could take up to 18 months.
Removing the ability to recover legal fees means the legal expenses market is also likely to see change. “Legal expenses insurance will become more important,” says Robin Stagg, head of propositions and marketing at DAS UK Group. “The old claims process is so ingrained in society that there is a danger that people won’t find out they could benefit from cover until they make a claim.”
His firm recently launched a new clinical negligence and personal injury scheme, Optimise, with Maxima to enable smaller legal practices to access after-the-event insurance. Although this is not seen as a growth area for the motor space, Mr Stagg says this could change, dependent on takeup rates for before-the-event insurance.
Mr Parker also believes legal expenses will gain more prominence, potentially moving towards the continental model where consumers actively buy and use policies. “I am not convinced we will go all the way and have standalone policies but I do think consumers will become more aware of the cover when they renew their motor insurance,” he adds.
Exactly how the market shapes up remains to be seen, but everyone is closely watching how the reforms affect behaviour. “There is a real opportunity for collaboration to ensure that this works for claimants,” says Mr McPhail. “Time will tell.”
Sam Barrett is a freelance journalist