Claimant lawyers have leapt on a newspaper report that accused insurers of “routinely inflating repair costs” by as much as 100%, while receiving “undisclosed kickbacks” for the difference.
Lobbying group Access to Justice said the Association of British Insurers (ABI) had shown “breathtaking hypocrisy” in failing to condemn the practice while continuing to argue for whiplash reform.
According to a Daily Telegraph investigation, insurers representing the innocent drivers in accidents “rip off” rival firms representing the at-fault drivers.
“Across the industry the process is creating a hidden cost layer potentially affecting all drivers, which could be worth as much as £750m, equivalent to around 5% of the UK’s 34m drivers’ annual insurance premiums.”
The paper said that, under pre-agreed price arrangements, repair firms working for ‘not at fault’ insurers produced inflated ‘invoice-only’ labour rates, which are charged to the at-fault party. Once this is paid, repairers then pass the first insurer a kickback for the difference between the rate on the invoice and the true cost of the work.
In a statement, the ABI responded: “It is common for a motor insurer to agree what are effectively bulk discounts with car repair companies. This practice is not new, is in line with other sectors who use economies of scale and helps control claims costs, which benefits customers.
“When an accident occurs and the non-fault insurer initially pays for repairs, they are under no obligation to pass on these discounts to their competitors when they seek reimbursement from the at-fault insurer.
“The system could work better and the industry welcomed the investigation by the Competition and Markets Authority in this area in 2014, but the CMA chose not to take action.
“Repair costs still contribute less than a fifth towards the cost of a motor premium compared to more than a third for personal injury pay outs. Costs involving discounted repairs are a drop in the ocean compared to the impact on motor premiums arising from the increasing complexity of repairs, the rise in insurance premium tax, changes to the discount rate and whiplash-related claims.”
Access to Justice spokesman Andrew Twambley said that with Confused.com calculating the average car insurance premium at £847 in Q2 2017, “insurers could be holding back a potential saving of £42” – more than the £35 the government has said its whiplash reforms should save.
He continued: “On the one hand the ABI wants to deny ordinary people their rights for the sake of a £35 saving, but on the other they refuse to hand back £40 to motorists from their dodgy repair practices…
“The ABI blames anything and anyone but their own member companies for the rising cost of premiums, and it is high time they are held to account.”
Meanwhile, Deborah Evans, chief executive of the Association of Personal Injury Lawyers, suggested that the story was further evidence that “the truth [is] coming out” about the real causes of the rising cost of car insurance.
“ABI figures show that the average cost of a settled vehicle damage claim has risen 23% since 2013, while the average cost of a motor-related injury claim has fallen 5%. The rising costs that come with complex vehicle technology and spiralling spare parts costs due to currency fluctuations ignited by Brexit are no doubt also playing a part in the cost of damage claims.
“Yet it is still injuries which are used as scapegoats to hide an insurance-led agenda to cut the very real cost of genuine claims.
The false whiplash claims excuse does not wash. Fraud isn’t as big a problem as insurers want you to believe. The ABI’s own figures show that proven fraud is only 0.17% of all motor-related claims, and only a portion of this will relate to injuries.”
Meanwhile, Direct Line yesterday unveiled a 9.5% increase in operating profit for the first half of 2017 to £354m – while the overall cost of motor claims fell 3% to £404m.
It also said that a review had found the cost of reducing the discount rate was lower than originally expected, leading to the release of £49m of reserves. A government announcement on the future of the rate is expected on Thursday.