The government’s “reasoned approach” to whiplash reform is encouraging, the Motor Accident Solicitors Society has said.
The Ministry of Justice announced yesterday that its response to the whiplash consultation will be delayed until after the transport select committee inquiry’s on whiplash has concluded, and to assess the full impact of the LASPO reforms on the motor insurance industry before making further changes to the system.
MASS chairman Craig Budsworth said: “This is something that MASS has long been calling for. It is vital that we understand the full implications of the LASPO reforms and address any unintended consequences for consumers before further change is considered. The present reforms bring down costs and will help tackle fraud and a full assessment of the changes should show that there is no need to take Draconian measures such as raising the small claims limit.
“As part of this assessment we are pleased to see that the government will be looking at whether or not the reduced legal costs in the system are being passed on to consumers. These changes were designed to help individual policy holders in these difficult times, not to help boost the profits of insurers. We are encouraged by this reasoned approach from the Ministry of Justice.”
MASS has also estimated that the insurance industry will collectively save as much as £1.4bn from the LASPO reforms and challenged the insurance industry to commit to passing all of the savings onto their customers via reduced insurance premiums.
The figures are based on the government’s estimate of 828,000 RTA claims a year. Assuming average costs of £2,500 for RTA claims (adopting Aviva’s figure), this represents a success fee saving of £375 per claim (including VAT), leading to £310m.
MASS’s estimate for an average after-the-event (ATE) insurance premium across all RTA claims is £500; around half are run under before-the-event cover, leaving the other half under ATE, meaning £207m.
The revised costs will reduce recoverable costs by around £850 (£1020 when VAT is included). Assuming this saving will apply to all RTA claims, the saving for at-fault insurers will be in the region of £844m.
Mr Budsworth said: “It was great to hear Chris Grayling challenging the insurance industry to bring down premiums last week. For too long, the ever rising cost of motor insurance has been attributed to legal costs. We must all now look to the insurance industry.
“Legal costs have been falling for 10 years and the reforms introduced last month mean that legal costs are going to fall even further. Premiums may have dropped slightly last year, but the change pales in comparison to massive hikes we have seen in recent years and the healthy profits being made across the industry.
Citing the Confused and Towers Watson Car Insurance Price Index, MASS said premiums fell by 5.6% in the first half of 2012, having risen by 38% in 2011.