MPs target fraud to cut car insurance costs

MPs are demanding a crackdown on fraudulent whiplash claims to achieve further reductions in car insurance premiums.

According to MoneySuperMarket's latest analysis of 42.5 million quotations run on the site between January 2011 and June 2014, average car insurance costs have plummeted by almost £100 in the period, from £505 to £406. They recorded a £5 fall from May to June 2014, reversing a brief upward trend that started in February 2014.

People who switch insurer at renewal, rather than those who automatically stick with the same firm, are usually in line for the biggest savings, making it important to shop around at renewal time.

Members of the Parliamentary Transport Select Committee say there would be scope for further reductions if claims costs could be squeezed further. They cite invented and exaggerated whiplash injuries, inducements paid by solicitors to encourage claims, and insurer willingness to settle claims without medical or legal challenge as areas needing urgent attention.

They also want a funding boost for the police Insurance Fraud Enforcement Department, improved sharing of data relating to fraud, and the creation of independent medical panels to determine the likelihood of whiplash injury, which is almost impossible to prove or disprove from a purely medical perspective.

Insurance in the spotlight

Motor insurance and premium prices are now very much a part of the political agenda, having been the subject of Parliamentary debate, a prime ministerial summit and the catalyst for legislative changes, as well as reports from the Office of Fair Trading (OFT) and the Competition Commission.

A recent government report on the 'dysfunctional' car insurance market pointed out that whiplash claims add around £90 to the cost of every car insurance premium. According to the Association of British Insurers, fraud is setting the industry back about £2 billion a year. It is estimated that this is adding £50 to the price of every insurance policy.

Possible solutions

Among suggestions as to how the problem could be tackled are independent assessment of claimants and aban on referral fees paid by solicitors.

So will this latest report offer up any new ideas that can be put into practice to bring car insurance costs down even further?

Weeding out false whiplash claims

Although insurers continue to work hard to weed out fraudulent claims, the cost of motor-related personal injury claims is still on the rise, even as the number of crashes on UK roads continue to fall.

The Transport Committee report therefore puts particular emphasis on aspects of the market that have 'encouraged criminality to take root' - namely those fraudulent or exaggerated whiplash claims.

To clampdown on the number of fraudulent claims the select committee recommends insurers should be stopped from settling whiplash claims before the claimant has undergone a thorough examination from a genuinely independent medical professional.

Under the current set up, solicitors can commission medical reports on whiplash and other soft tissue injuries from medical experts who could have a vested interest in a positive diagnosis. It's hoped that setting up independent medical panels will reduce or eliminate false or exaggerated claims and put off any opportunistic claimants who may not fancy trying to convince a panel of their supposed injuries.

The Transport Committee also calling for a ban on solicitors offering incentives, such as up-front cash payments or laptop computers, to encourage motorists to claim after an accident.

It is also deeply suspicious of the growing trend of solicitors seeking medical reports into psychological trauma after even minor collisions - something which suggests that unscrupulous firms are looking for new areas in which to generate illicit revenues.

Spurious claims

Kevin Pratt, insurance expert at MoneySuperMarket, said: "At present, it's more cost effective for an insurer to pay out a small personal injury claim, no matter how spurious, than try and prove the injury has been exaggerated or even made up completely, primarily because soft-tissue injuries are difficult to prove one way or another.

"The formation of independent medical panels will go some way to addressing the problem. It should be coupled with a system that sees claims for treatment paid directly to physiotherapists or medical staff in settlement of their bills, and not the claimants themselves."