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Jack Straw: Car Insurance
'parasites' cost motorists £2bn
24 Oct 2011
by Eleanor Morris
In his oral evidence
to the Transport Select Committee hearing on the high cost of motor
insurance, Jack Straw, the UK's best-informed politician on the issue,
deliberately using emotive language for maximum  publicity, described
as "parasites in the system" those operators in the car insurance claims market that
benefit to the tune of £2bn each year from the payment of
referral fees. He added: "In any other walk of life it's called
bribery".
Mr
Straw also drew attention to the correlation between the numbers of
claims management firms and the numbers of personal injury claims made
in different regions. In the North West where there are most claims
management companies, according to the Axa Insurance figures also
presented at the hearing, 26% of car insurance claims include a
personal injury claim compared to only 7% in Scotland where there were
no claims management companies until very recently.
The
total for UK car insurance premium receipts last year was £9bn,
so the £2bn chunk taken by Jack Straw's 'parasites' represents a
major burden to the motorist. This £2bn does not even include all
the legal costs asssociated with car insurance claims that have been
described as "dysfunctional and
disproportionate" by the Association of
British Insurers (ABI) or the cost of uncompetitive credit car hire
that can add £500 to the cost of a claim according to Lloyds
underwriters.
Indeed,
the ABI has pointed out that for every £1 paid in injury
compensation in car insurance, 87p is paid to lawyers. These
dysproportionate legal fees are a key cause of the high cost of
litigation in general, something that the Government aims to address
via the Jackson-related reforms that form part of
the current Legal Aid, Sentencing and Punishment of Offenders Bill.
Jackson
had also recommended a referral fee ban, which the government had been
reluctant to impose, but has now been persuaded, in large part due to
Mr Straw's campaigning on the issue, that there is a strong
case to ban them.
The
banning of referral fees is a key component of Jack Straw's Motor Insurance
Regulation Bill that he introduced
to parliament as a ten minute rule debate. As the motion was passed, he
has been given leave to introduce his Bill to Parliament on January 20,
2012.
However,
as Jonathan Djanogly, Under-Secretary of State for Justice pointed out
at the same Transport Select Committee hearing, with the implementation
of what has been dubbed 'Tesco law', that is, delivery of legal
services via so-called alternative business structures (ABS) later this
year, it is likely that many claims management companies (CMC) will
join up with law firms to become one company with, in effect, the CMC
becoming the advertising wing of the legal firm.
Similarly,
some insurance companies may also begin to provide their own legal
services 'in-house'. A referral fee ban, therefore, could catalyse some
of these new car insurance-related ABS configurations. For reasons
reviewed in our last news item: Referral fees are a
'symptom of a sick suing culture', this development
could actually eliminate some of the more predatory case-generation
activities exhibited by some claims management companies.
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