Lawyers have called for a cap on insurance companies’ marketing spend as a way to ensure that savings made from the Jackson reforms are properly reflected in lower car insurance premiums.
The demand was made during an evidence session on whiplash claims before the House of Commons’ transport committee, which is investigating the cost of motor insurance. MPs took evidence from representatives of the insurance industry, lawyers, and claims management companies (CMCs).
Last month the government announced it would delay its proposals on whiplash reform until after the committee reported.
Lawyers’ representatives included Des Hudson, chief executive of the Law Society, Matthew Stockwell, chairman of the Association of Personal Injury Lawyers (APIL), Andrew Ritchie QC, head of chambers at 9 Gough Square and vice-chairman of the Personal Injury Bar Association, and Craig Budsworth, chairman of the Motor Accident Solicitors Society.
Mr Stockwell said insurers’ advertising spend was “absolutely astronomical” and highlighted prime time TV advertisements as evidence that cash that could be used to reduce motor premiums was being diverted to raise the insurers’ market share. Mr Ritchie said the 1 April reforms had effectively capped legal costs. “Why not cap [the insurers’] advertising costs by reference to their pay out?” he queried.
Meanwhile, Mr Hudson raised referral fees as an unacceptable cost to consumers. The Law Society supported the banning of all referral fees and CMCs, he said, adding: “I supect insurance companies are receving referral fees from car insurers, from the sellers of parts to car repairers, from the sellers of paint to car repairers, and I think what we need is a very transparent understanding of… just where all these flows of money are coming from”
In their questioning, MPs revealed hopes that raising the small claims limit to £5,000 might actually improve access to justice. The committee chair, Labour MP Louise Ellman, asked whether raising the limit might help stimulate a “new market” to develop in which solicitors offered services to those with small claims. But the lawyers were adamant damages within the track would be insufficient.
Andy Wigmore, policy director of the Claims Standards Council, went further and warned the committee that raising the limit would mean “everyone becoming a claims management company” and stimulate an entire industry like that which emerged around referral fees: “The whole cycle will start again; you’ll have the reinvention of new marketing companies.”
On the question of why whiplash claims had risen sharply, the MPs were unimpressed with the idea that traffic congestion and lower average speeds were responsible. Mr Budsworth cited figures that deaths on UK roads were far lower than in other major European countries but said minor collisions were more frequent. Labour MP Graham Stringer dismissed the notion as no more than “hypothesis” unsupported by evidence. Other committee members appeared to share his scepticism.
Mr Hudson said the existence of CMCs and the practice of insurers selling referrals had contributed to a growth in whiplash claims. Mr Ritchie argued that data on road traffic accidents used in the government’s whiplash consultation – which closed on 8 March – were “fundamentally defective” because they compared accurate government figures to those gathered by the police, which were inaccurate “by a factor of at least 200%, if not 300%”.
Asked by the committee whether the UK was “the whiplash capital of the world”, Mr Hudson presented figures published earlier this year that showed total motor claims spending by UK insurance companies in 2011 was comparable with other major EU countries. Germany’s share was 20%, France’s 13% and the UK’s 14% – a “normal market share”, he said.
The insurance industry representatives, which included James Dalton, head of motor and liability at the Association of British Insurers (ABI), Dominic Clayden, director of claims at Aviva UK, and David Fisher, Axa Insurance’s catastrophic and injury claims technical manager, insisted they were committed to lowering motor premiums. Mr Dalton said the ABI had made a public commitment they would be reduced after the Jackson reforms and they would “reduce further” if future reforms also resulted in savings.
Insurers rejected the idea that third party capture – dealing directly with claimants – resulted in under-settlement. Mr Fisher said: “I do not think there is evidence that the insurance industry is under-compensating direct claimants.” Mr Clayden agreed, adding: “It’s something that the lawyers peddle… that I don’t think is justified.”
Asked by the committee what behaviours insurers hoped to see from judges in litigation, Mr Fisher raised what he said was the problem of claimants walking away with reduced compensation after an exaggerated claim had failed: “I would like [the judiciary] to take a more robust approach and to move away from the common law approach that we have at the moment [so] that if part of the claim is tainted… then the whole claim should fall.”