Personal Injury Claims to Blame for Rising Motor Insurance Costs, Say ABI

The Association of British Insurers (ABI) has blamed the rising price of comprehensive motor insurance on a fresh wave of personal injury claims from the British public. The statement comes in the wake of the news that averages prices of comprehensive cover rose by 2% at the end of June, compared with the previous quarter.

Whereas the average premium for the first quarter of the year was £356, that figure rose to £367 for the months of April, May and June, according to information released by the ABI.

The figures are in accordance with data from the AA, whose index of the cheapest insurance providers on the market showed an even more astonishing hike in second-quarterly prices of 5.2%. 23- to 29-year-olds have suffered the brunt of the price hikes, with their premiums rising by 6.2% to an average policy costing £683 for comprehensive cover.

Personal Injury Claims the Culprit

Rob Cummings, who is the manager of general insurance for ABI, stated that a spate of small claims – such as those for whiplash or similar incidents – was to blame for the rising costs of motor insurance. Pointing to the 12% increase in personal injury claims over the last 12 months, Cummings said:

“Motorists have seen a solid two years of lower insurance premiums as a result of market trends and in the wake of the Government’s reforms to tackle frivolous personal injury claims, and over a billion pounds’ worth of savings have been passed on to customers.

“With pressure on premiums increasing, however, it’s important that the Government continues its work to tackle the compensation culture and attack the high cost and number of whiplash claims. With this in mind, we welcome the Government’s announcement of a review of the activities of claims management companies in the last Budget.”

Highlighting action against insurance claims companies as a main priority in fighting to keep premiums low, Cummings is hopeful that the motor insurance industry can continue to enjoy the dip in prices since legislation changes passed in 2013. Among other things, the reforms to the civil justice system fixed a lower minimum legal fee for all personal injury claims. While this contributed to lower premiums in the short term, it appears to have caused rising prices in the long term.

The managing director of the AA, Janet Connor, was not quite so optimistic in her forecast of the future of insurance costs in the coming years. Connor said that insurers had been resisting price rises by releasing their reserves of cash to stay competitive, but such a strategy was no longer financially viable. As a result, she said that: “the days of cheap car insurance premiums are over – price rises are inevitable.”

Unpopular Governmental Policy Contributes to Higher Prices

There was further negative news from the government, with Chancellor of the Exchequer George Osborne announcing that insurance premium tax will also be rising in the coming year from 6.5% to 9%, adding up to £18 onto an already inflated average comprehensive policy. An AA Populous study found that 87% of drivers surveyed thought that the tax rise was “unfair” and could incentivise some motorists to dispense with insurance, while just 11% believed it was justified.

While the increase in insurance premium tax is undoubtedly unwelcome news to many car and home owners, the government was quick to point out that it still remains competitive in comparison to other European countries. In particular, the 19% fixed rate levied by the German government was highlighted as an unfavourable example of how high the tax could be.

However, the government did pledge to attempt to curb rising motor insurance prices by imposing a cap on charges from insurance claims companies. It insisted it was dedicated to combating the unnecessary expense added to insurance costs by fraudulent whiplash claims and other scams by introducing increased regulations. Insurance companies have been accused of encouraging such fraudulent claims in the past and the government has signalled its intention to crack down on the practice.

The price rises are the first in almost three years and could signal a turning of the tide in cheap motor insurance; the AA and the ABI certainly seem to think so, at any rate.