James Dalton, director of general insurance policy, ABI writes
The first anniversary of the much-anticipated reforms is a great opportunity to take stock and assess some of the impacts arising from the changes.
'Success or failure?'
I should acknowledge that 'success or failure?' is quite a controversial theme for the event, not least because we are only one year in, but also because people's expectations will have been very different depending on your perspective. "Success for whom?" is a very pertinent question and I look forward to hearing different perspectives at Tuesday's event. But the purpose of this blog is to offer my own reflections.
Road to the Civil Liability Act 2018
For many in the insurance industry, it will be important to remember the history which got us to the point of the Civil Liability Act 2018. Although the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) 2012 clearly reduced the costs of civil litigation for whiplash claims, problems in the market persisted. In 2016/17, ABI data showed that the number of road traffic accident claims was around 50% higher than in 2006/07, despite a fall in reported accidents and improvements in the safety of vehicles. Whiplash related claims were also still accounting for around 85% of all road traffic accident claims. So it is against that background that the Civil Liability Act was passed, and the Government sought to create a simplified, more efficient and cost-effective compensation system.
The reforms included measures such as a new definition for "whiplash", a tariff of fixed compensation levels by duration of injury and an increased Small Claims Track (SCT) limit. Crucially, the reforms also included a ban on seeking or offering to settle whiplash claims without medical evidence. While it is too early to assess the full impact of the whiplash reforms, our hope is that these measures are making a significant contribution to reducing the number and cost of whiplash claims.
The wider context
The impact of the whiplash reforms so far also needs to be seen in a wider context. Like many other sectors, motor insurers face rising costs – costs which inevitably get passed on to consumers through the premiums charged. These include the continued global shortage of semiconductors made worse by the impact of the Covid pandemic, wider supply chain challenges and the Russian invasion of Ukraine, rising used car prices and a shortage of skilled labour in the vehicle repair sector. In addition, as the cost of raw materials, such as paint, increase and ever more sophisticated vehicles join our car parc, repairs are becoming more expensive. One insurer has estimated repair cost inflation at 11%. Despite these challenges, the latest ABI data shows that the average price paid by motorists for their motor insurance in Q1 of 2022 fell by 5%, to its lowest level in nearly seven years. The impact of the whiplash reforms has therefore potentially meant lower motor insurance premiums than would have otherwise been the case, all other things being equal. This will be welcome news to many during a cost-of-living crisis.
Continuing to reduce the cost of whiplash claims
Of course, there is more to be done to fully realise the benefits of the whiplash reforms. The build of the OIC portal was a huge undertaking and insurers and claimant representatives have spent time, effort and money to make the new system work. Where there are areas that could be improved, we are committed to working with the OIC, the Ministry of Justice, insurers, claimant representatives and others to help to deliver those. It is also positive that claimants have demonstrably been able to use the OIC portal to make whiplash claims without legal representation – hardly any claimants did this under the old system.
We are committed to improving signposting to the OIC portal, improving the unrepresented claimant experience and increasing the numbers of unrepresented claimants using the portal. In addition, the displacement of cost savings from whiplash injuries towards other physical injuries is an ongoing trend and remains a key concern for insurers. In the absence of a tariff for non-whiplash injuries, we have therefore agreed with claimants a framework for taking forward test cases on how to value claims involving whiplash and additional physical injuries. Finally, although the OIC portal is not designed to be a counter-fraud system, we believe it could include additional data fields such as IP address, device ID and driving licence details in order to verify and pay genuine claimants more quickly and counter-act potential fraud.
Although we are only one year into the whiplash reforms, taking a view on whether the reforms have been a 'success or failure' is unlikely to be clear cut. There is more work to be done, but it seems to me that we have all the necessary ingredients for success.