Who pays in the trade-off between fast, simple, fair insurance claims and complex claims involving solicitors and claims management companies representing claimants?
There is something of the squeezed balloon in controlling the cost of claims: pushing on one part of the problem tends to increase the size of another part. Recently we have the government’s intention to introduce the whiplash reform programme in April 2019. Officials have advised the reforms for road traffic accident (RTA) claims and increasing the small claims track limit from £1,000 to £5,000 for those claims, will be the principal focus for this.
The whiplash reforms also have to be also considered in context of the government’s intention to transfer the regulation of claims management companies (CMCs) to the Financial Conduct Authority (FCA) as part of the Financial Guidance and Claims Bill. This is a move broadly welcomed by the personal injury sector as part of efforts to minimise the role of unscrupulous operators. But it could also increase the role of CMCs and ‘claims farmers’, in litigation that is typically the work of solicitors.
The ABI has called for controls over the amount CMCs can charge their customers for handling personal injury (PI) claims.
Then there’s a rising number of insurers using telematics data to definitively disprove some very high-cost fraudulent claims, as we discussed in a recent blog article.
At this year’s ABI Annual Conference Donna Scully, Director Carpenters, Andy Watson CEO of Ageas, David Parkin, Deputy Director for Civil Justice and Law at the Ministry of Justice and Andrew Parker, Partner at DAC Beachcroft took part in a panel discussion on how the recent reforms are working.
They discussed what role there should be for the claims management companies, especially in the simple type of claims that could be settled by traditional subrogation between insurers.
CMCs and cold calling
Andrew Parker said that everyone involved should be worried about the role of the CMCs in the claims process. “There are not enough controls about what CMCs can charge consumers,” he said.
“The government has not acted to regulate for personal injury as it has in other areas….Cold calling wouldn’t be as effective if there weren’t solicitors willing to take on those types of claims. Cold calling is rife. It is wrong and we should put a stop to it,” he added.
“I am worried about the CMCs, yes,” said Donna Scully. “But consumers need help.”
David Parkin, commented that the government does have a problem with unscrupulous behaviour in relation to claims, although not with the CMCs per se.
Mentioning the Financial Guidance and Claims Bill, currently in parliament, David Parkin said the government is aware of the current situation, which adds friction for the customer, time and costs into the insurance claims process.
Andy Watson of Ageas spoke strongly in favour of putting the customer more into the heart of the process. He questioned, what role is there really for lawyers with low-value claims?
Who is paying for this dysfunctional state of affairs? Honest consumers are paying and looking at claims ratios, the UK is completely out of touch with the equivalent whiplash injury claims in the rest of Europe (which are at 30% of the UK level in countries such as France).
Indeed, ABI figures predict that the average motorist could be paying £200 a year unnecessarily by 2020, the cost of the ‘compensation culture’ and the claims management companies who nuisance call and text honest motorists encouraging them to make fraudulent and exaggerated claims through claimant law firms.
Currently for every £1 paid in compensation to customers, £3 is paid in legal fees.
Government has only recently been waking up to the notion of fraudulent claims and the need for regulation.
More data coming into the industry
“We have a tariff that works,” commented Andy Watson of Ageas.
“We have data and we have more data coming into the industry….For simple and straightforward whiplash claims, there is no reason the claimants and the insurance companies can’t come together and handle it. I see no need for CMCs to be involved.”
“The idea that we as an industry want to get out of claims, or that we want to keep claims costs low, is absolute tosh and nonsense,” he added. “I would go so far as to say I have no interest in our level of claims at all….There is no agenda around that, provided that our pricing and underwriting teams are doing their job, and they’re pricing that risk appropriately.”
There was a discussion around the view that the money saved from controlling costs for whiplash and other PI claims should be returned to the consumer. The view from the government is that “as much as possible” should be returned to the customer. The impact assessment from the Ministry of Justice expects that at least 85% of the savings from the reforms will flow back to consumers.
Andrew Parker said the savings will flow, but the outcome will truly depend on what comes back in. “We still have some uncertainty,” he said. There was laughter in the conference, noting that the government expects insurers to pass savings back to customers, whilst also loading extra costs onto insurers, in the form of hikes to Insurance Premium Tax.
David Parkin said that from the perspective of government, there is a lot of advice out there for insurance customers, which is positive. “We fully expect to bring all stakeholders into the process,” he added.
“In the UK general insurance market, we are the most competitive in the world….It is the most competitive market,” said Andy Watson of Ageas. “70% of general insurance is sold through aggregators….So the idea that premiums won’t come down if claims come down is absolute tosh and nonsense. There’s no need to put any bureaucracy into this.”
There was discussion around the types of claims where a consumer might choose to have legal advice.
But the fact that the tick box for legal expenses cover is usually left unticked on the price comparison sites, even when the cost is just £30, tends to suggest that consumers don’t opt for legal advice when they explicitly have to pay for it.
Everyone involved agrees that the customer’s interests need to be put at the heart of the claims issue. At the same time, there’s a sense that greater consumer trust in insurance overall would help create peace of mind around claims. It could be time for an awareness campaign, to help better educate consumers about how to make simple claims.
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