The Government has announced plans to tackle inflated whiplash claims and change the way personal injury compensation payments are calculated in a crackdown that it claims will bring down the price of car insurance.
Unveiling the new civil liability bill, the Minister of Justice said it will set a fixed amount of compensation for whiplash claims and require medical evidence before such claims can be settled.
The Government says this change, which will need to be passed in Parliament, will save motorists £35 a year on their car insurance policy.
Car insurance: The Government claims its proposals will slash premiums by £35 a year
The average motor insurance premium reached £481 in January, according to the Association of British Insurers, an increase of £43, or 9 per cent, compared to the previous 12 months.
Insurance companies have long complained that whiplash claims are pushing up their costs and that that’s why they have been raising insurance premium for drivers.
Today they welcomed the Government’s proposals, with ABI director general Huw Evans saying they were ‘great news for motorists.’
‘People and businesses are paying more for their motor insurance than ever before and we need changes to the law to tackle some of the root causes. Soft tissue injury claims have been rising year on year since 2014 as cold calling claims firms have thrived, driving up the cost of insurance,’ he added.
However, critics challenged the figures, arguing that whiplash claims have actually fallen sharply over the past twelve months and that the savings to motorists would be between £16 and £18 a year – much lower than the Government’s estimate of £35.
Poorest car-owning households see motoring costs jump by 37%
The very poorest car-owning households have seen their expenditure on motoring jump by 37 per cent in a year, new figures suggest.
Analysis of official data by the RAC Foundation has found that just over a million car-owning households in the lowest ten income brackets (the poorest 10 per cent) spent an average of £58.20 per week on motoring in 2016-17.
This is £15.70 more than the £42.50 in the previous financial year and amounts to about a quarter of the maximum weekly spend of £205 for households in this group.
The biggest chunk, £20.40, went on purchasing a vehicle, £14.80 went on fuel, £7.60 on insurance and £6.10 on repairs and maintenance, according to the report.
According to the ONS the number of households owning at least one car or van rose from 52 per cent in 1970 to 79 per cent in 2016-17.
Steve Gooding, director of the RAC Foundation, said: ‘These figures suggest that even in the very poorest households, car ownership is seen by many as a priority, even though it absorbs such a high – and growing – proportion of their disposable income.
‘The Office of National Statistics numbers suggest that the increase has been driven by more being spent on purchase and financing costs, whilst spend on fuels is falling, hopefully a reflection of the improved fuel economy offered by newer vehicles.
Policy makers need to bear in mind the fact that any moves that would add to the cost of motoring – for example through changes to fuel duty or insurance tax – will be most keenly felt by those least able to afford them.’
Andrew Twambley, spokesperson for Access to Justice, which is campaigning against the proposals, said: ‘The government is seeking to fix a problem that is already being fixed, without the need for legislation. Whiplash claims have fallen sharply in the last 12 months, and the cost of claims has also fallen sharply.
‘The government’s own figures show that the savings accruing from its proposals are likely to be £16-18, not the £35 the MoJ contends, and only three insurers have said they’ll give those savings to their customers. Nearly 80% of the public say the insurers will not hand back any money.
‘For the sake of £18, some 600,000 people injured in road traffic accidents each year will be denied access to legal advice if they want to go to court and claim for their injuries. If they do go to court, insurers will have continue to be able to call on a battery of lawyers to defend their interests.’
He added: ‘We believe some reform is needed but that there are better ways to regulate the market without the sledgehammer approach of this flawed and partial legislation.’
The MoJ today also confirmed plans announced last year to change the way compensation for victims of car crashes, medical negligence and other incidents is calculated.
It said that the so-called Odgen rate – which is used to calculate compensation – will assume that victims would have their money in ‘low risk’ rather than ‘very low risk’ investments, effectively lowering the amount claimants will receive.
It comes as the Government lowered the Ogden rate to minus 0.75 per cent from 2 per cent two years ago. This cut raised the level of payouts needed to support them through life and was blamed for sending car insurance costs soaring.
The logic was that when investing conservatively, it is unlikely recipients of payouts can realistically expect a return of 2.5 per cent.
Officials insisted that this was the only ‘legally acceptable’ course of action but the decision was greeted with disbelief by the insurance industry, which described the changes as ‘crazy’ and ‘reckless in the extreme’.
Insurers warned that it would lead to higher premiums for millions of motorists as they would be forced to pass on the extra costs and so the Government caved in to their pressure and came up with this new proposal.
ABI’s Evans said of the discount rate: ‘The sensible new framework proposed for the personal injury Discount Rate would also deliver a system that is fair for customers, claimants and taxpayers. It is now important that Parliament agrees these proposals swiftly so people across England and Wales can start to see the benefits.’
But Twambley said: ‘Since 2008, insurers benefitted from a very high discount rate (2.5%) at the expense of very seriously injured people. The government re-balanced the rate in early 2017 to make compensation fairer, but fairness is evidently not something insurers subscribe to, especially if their record-breaking profits and dividends are threatened.
‘We await the detail within the Bill and note that the government has taken account of the recommendations of the Justice Committee Report. It is essential that the rights of critically injured people are upheld, and that the government acknowledges that protection against serious injury is why we all pay our insurance premiums.’
SAVE MONEY ON MOTORING