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Whiplash crackdown will lower motor insurance premiums

Motor insurers and customers should be encouraged as the UK government attempts to tackle the whiplash epidemic, with the aim of deterring fraudsters and lowering insurance premiums.

As part of the government’s November 2015 Autumn Budget Statement, Chancellor George Osborne proposed significant changes to reform personal injury claims in order to tackle the UK’s “compensation culture,” especially when it comes to whiplash. After fears that Brexit would cause delays to implementation, the government has now released a new program that gives further clarity to the reforms, which are under consultation until January 2017.

The government has proposed that compensation for pain, suffering, and loss of amenity (PSLA) for road traffic accident-related soft tissue injury claims – the majority of which are whiplash – will either be removed entirely or replaced by a fixed sum of £400, or £425 if there is a psychological element. In cases where recovery takes longer, set tariffs of compensation may be introduced.

Also proposed is an increase in the personal injury small claims track limit from £1,000 to £5,000. Pre-medical offers to settle road traffic accident-related soft tissue injury claims are also proposed to be banned, meaning that claims could not be settled without medical evidence provided by MedCo2-accredited practitioners.

These reforms are good news for both insurers and customers. The chancellor announced that the changes would save motor insurers an estimated £1bn a year, which the government expects to be passed on to consumers in the form of an average saving of £40 on their motor insurance policy.

Whiplash has been a cause of rising insurance premiums over recent years and so measures to address the issue will be beneficial. It is the number one problem within the motor insurance market where bodily injury claims are the largest cost for motor insurers.

Despite a fall in the number of road traffic accidents, the cost of whiplash has remained high. The UK has been labeled “the whiplash capital of Europe,” as the Ministry of Justice claims that for every accident reported, there are 2.7 claims for whiplash damages. This is more than twice the average of France, Spain, and the Netherlands.

The government’s proposed changes will deter fraudsters by limiting the potential gain from frivolous or exaggerated claims. This will lower claims costs for insurers, which will resultantly allow insurers to reduce insurance premiums for customers. However, it must be noted that it will be harder to get compensation for genuine injuries which are high severity, as capping may mean victims are not fully compensated.

Overall, these reforms are likely to be highly controversial and will be met with opposition from legal professions, making them hard to pass. But despite this, it is encouraging to see the government taking action.

By Danielle Cripps, General Insurance Analyst

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