RTAs: Awaiting Ministry of Justice review of whiplash reforms
The government’s motor insurance taskforce reported yesterday with a hint that it may extend the whiplash tariff to other injuries and also review the small claims limit.
But it made no solid recommendations, highlighting instead various “actions” to be taken, including that there should be work to “consider how claims can be better managed to ensure greater efficiency and cost control”.
The taskforce – which has been criticised by claimant lawyers for ignoring them – was set up in October 2024 to identify the factors behind rapidly rising premiums and agree solutions to keep costs under control.
It was informed by a review of insurance premiums published this summer by the Financial Conduct Authority (FCA).
Transport secretary Heidi Alexander and economic secretary to the Treasury Lucy Rigby said in the report’s introduction that the actions listed were “a roadmap to real change in the motor insurance market. Over the coming months, we as a government will deliver on the actions set out here, securing better value for money for all motorists”.
The FCA’s analysis showed that higher premiums between 2019 and 2023 were largely due to increases in claims costs that were outside firms’ control, rather than profit.
The taskforce said: “These drivers included more complex and expensive cars, supply chain delays, a shortage of skilled labour, increased costs of replacement vehicles, rising bodily injury claims values, increasing numbers of car thefts and a rise in costs associated with uninsured drivers.”
In fact, though bodily injury was the head of claim that accounted for the highest proportion of total claims costs (32%), it was the only one with a modest increase – just 7% over the four years.
The taskforce noted in passing there was “some evidence” that policyholders benefited from paying lower premiums as a result of the whiplash reforms.
This was a reference to figures from HM Treasury earlier this year that said the reforms saved policyholders £31 in premiums in the first three years of their operation – however, in the run-up to the reforms, the Ministry of Justice said they would save £35 a year.
It continued: “The FCA and insurance industry stakeholders have also proposed that the taskforce should consider the amount of damages available for other [non-whiplash] types of bodily injury or consider a review of the small claims track limit for RTA-related personal injury claims to account for inflation and further reduce the legal costs that insurers can be required to repay.”
The report did not indicate a view on these but noted that the Ministry of Justice recently published a call for evidence on the post-implementation review of the whiplash reform programme. “Once complete, the Ministry of Justice will publish a report detailing the reviews findings along with any recommendations for future action.”
The FCA review said claims management companies (CMCs) could introduce greater complexity and cost to claims, although some insurers highlighted benefits to their involvement, including additional revenue streams from referral fees.
The FCA recommended that insurers develop a good practice code to reduce referrals to others and capture the management of more claims. This should include considering how to mitigate “the current incentives for first-party claimants” to use CMCs.
The taskforce said this was now happening. “The government will continue to engage with industry and the regulators on these measures and keep the market under review.”
The FCA found that the cost of replacement vehicles rose by nearly half between 2019 and 2023, contributing around 10% to the overall increase in the cost of claims, with referral fees incentivising greater use of third parties like credit hire organisations.
“The taskforce is concerned about the impact of practices which drive up the cost and volume of disputes and mean claims take longer to resolve. This is a driver of the increases in motor insurance premiums but also has important impacts on the efficient functioning of the courts.
“The taskforce welcomes the FCA’s commitment to work with industry to encourage better claims management practices and sharing of best practices, including robust procedures to challenge unreasonable third-party claims costs.”
The actions from this were for the FCA to work with the Association of British Insurers (ABI) and firms “to consider how claims can be better managed to ensure greater efficiency and cost control, without adversely affecting customer outcomes”.
The government also welcomed the work by the Credit Hire Organisation and the ABI to revise the General Terms of Agreement “to ensure credit hire costs are fair for consumers”.
Other areas of action identified by the report were making roads safer, tackling uninsured driving, fraud and crime, and strengthening the vehicle repair sector.
The report said figures from the ABI showed that average premiums have fallen by £79 year-on-year over the past two years, “despite the high cost of claims faced by insurers”.
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