Car insurance price increase
causes: Our Conclusions
3 Feb 2011
by Donald MacKenzie
This is the final
article in our 'causes
of car insurance price increases' series. In this article, we look
at the overall impact of the causes of the
rising cost
of UK car insurance and what is or can be done to address them.
Personal Injury Claims
If the key Jackson
Report recommendations are enacted, as is likely, claims management
companies will be largely eliminated. A shift in the balance of
financial risk for injury lawyers will also occur, reducing the numbers
of claims that they are able to support. The Justice Minister is also
currently taking steps to kerb
practices that encourage excessive personal injury claims.
Uninsured Drivers
Central to dealing with this group is the introduction of continuous
insurance enforcement (CIE) from April 2011. We have argued that
unless sanctions are tough, including the destruction of the cars of
second-time offenders, its introduction will have a limited impact.
Fronting
Both the Insurance
Fraud Bureau (IFB) and car insurance companies are doubling their
efforts to identify fronting.
It is increasingly unwise for young drivers to believe that they will
be undetected. Therefore, those that have a fronted policy should not
assume that their car insurance will be treated as valid should they
need to claim.
Past Claims not Disclosed
During 2011, car insurance companies will be starting to check directly
- Swiftcover already does so - with the industry-wide database held by
the IFB to see if car insurance applicants have past claims. If a
driver withholds this information, it only labels him as untrustworthy
on this same database and will not influence the cost of his cover as
insurers will be able to find out the truth anyway.
Penaly Points not Disclosed
From later this year, when drivers apply for car insurance, they will
be invited to consent to the car insurance provider checking with the
DVLA to determine the status of his license. Failure to provide this
consent shows that you are trying to conceal penalty points, therefore,
it will no longer be possible to withhold this information.
Increasing Fraudulent Claims
The IFB continues to work hard in this area and is working with
numerous police forces up and down the country. However, the response
to organised, large scale, car insurance fraud throughout the country
is patchy, and senior policy officers agree that more needs to be done
in terms of new,
dedicated regional services.
Insurers' Price Correction
It is not a prudent business model to maintain prices at loss-making
levels for protracted periods despite fears of loss of market share.
Hopefully the industry accepts this and will not need to make
large-scale price corrections in the future.
Referral Fees
The Jackson proposal to scrap
referral fees, which is likely to happen, needs also to be
accompanied by the scrapping of all other referral fees that add to the
cost of car insurance. There is no reason why consumers and car
insurance companies could not contest excessive fees or maverick
referral patterns more often with their lawyer's assistance.
Expensive Courtesy Car
Again, this has much to do with anti-competitive referral choices
brought about by referral fees. Scrapping of the latter should go a
long way towards reducing the cost of courtesy car hire as new quality
and price based referral patterns would become established, especially
as referral-fee financed claims management companies would disappear
from the market.
Avoidable Legal Fees
Clearly, this is something that car insurance providers will have to
look at as they urgently need to reduce their costs. The key will be to
examine how they engage with their own legal representatives and what
can be done to streamline this process and speed up the conclusion of
cases for which they are liable.
High Cost Cases
This is the focus of the Jackson Report recommendations. Central to
reducing the cost of these cases will be the capping and cutting of
success fees by rendering them payable by the claimant himself.
Insurers' Income Drop
As the economy recovers, so will the insurance company returns on their
invested premiums. This will help to offest the need to pass rising
costs onto car insurance consumers.
Double Recovery Fees
While police forces could be encouraged to change their policy on this
issue, facilitating first contact with the car insurance provider
rather than an independent recovery contractor, it will probably fall
to the accident victim himself to be practive in this regard and
contact his insurer immediately at the accident scene, then inform
police that he has already arranged for his car to be recovered via his
insurer.
Penalty Points Swapping
We have argued that better
use of roadside photography may help to diminsh this. Probably
people will be less willing to accept other driver's penalty points as
the insurance industry begins to check all licenses for themselves as
this will have cost implications for the points recipients.
2 Harsh Winters
There is an issue here about the level of investment of public
resources into the road-clearing infrastructure. If more frequent harsh
winters are predicted by climate change experts - something that is an
inexact science and therefore gives politicians wriggle room to resist
investment in this area - then, nonetheless, there is a case for
putting more public money into road-clearing equipment and manpower.
The above concludes our 'causes of car
insurance price increases' series.
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