The cost of motor insurance - Transport Committee Contents


Further Supplementary evidence from the Association of British Insurers (ABI) (CMI 13b)

I am writing to you about the recent Transport Select Committee oral evidence session on "The Cost of Motor Insurance" held on Tuesday 11 January 2011. The ABI was disappointed that relevant aspects of our submissions to the Committee were not acknowledged during this session, particularly in relation to fraud, personal injury costs and the discount rate.

You asked during the session why insurers are "reluctant" to reduce fraud. This is not the case: addressing insurance fraud is one of the ABI's priorities. As we made clear in our submission, our members are investing more resources in detecting fraud than ever before, with positive results: in 2009, insurers detected £840 million of fraud, representing an 11% increase on 2008. On an industry basis, we continue to support the Insurance Fraud Bureau, which is funded entirely by the insurance industry, specifically focused on detecting and preventing organised and cross-industry fraud. We are also currently piloting the Insurance Fraud Register, an insurance industry database of known frauds. As well as enhancing cross-industry data sharing, the Register will allow the insurance industry to share data with the National Fraud Authority which provides intelligence to enforcement agencies in order to disrupt fraud.

Close working with the police is essential to ensure that fraudsters are not just detected, but also appropriately punished. As such, we are currently in discussions with the City of London Police and the National Fraud Authority to identify whether there are ways to improve the way police and insurers work together to bring successful prosecutions, mindful of the increasing strain on police resources.

We are not only interested in detecting and prosecuting fraud, we also want to prevent it happening in the first place. As mentioned by the Minister for Road Safety, we are working with the DVLA to secure real-time access for insurers to its driver database. This would mean that all driving convictions and offences are disclosed accurately to insurers, thereby ensuring that customers are charged an accurate price for their cover.

The Committee also expressed an interest in how much personal injury claims have increased. In our submission we give a range of figures. Feedback from ABI members and EMB suggests that the cost of bodily injury claims as a proportion of total motor insurance claims has more than doubled in the last 20 years and now accounts for around half of all motor claims costs.

We believe that more needs to be done to tackle these costs, for example by implementing the recommendations of Lord Justice Jackson's review of the costs of civil litigation to introduce much needed reforms into the personal injury claims process and to increase the size of claims beyond £10,000 that can be referred to the Road Traffic Accident (RTA) claims portal (as referred to by the representative from APIL at last week's evidence session).

We were concerned that the Committee did not address the Lord Chancellor's recent confirmation of his intention to conduct a review of the discount rate, particularly as it was one of the witnesses, the Association of Personal Injury Lawyers, which pressed for this review to take place. As covered in our supplementary submission to the Committee, the ABI strongly opposes any reduction in the discount rate which will lead to hundreds of millions of pounds of increased costs for insurers, which will ultimately have to be passed onto consumers through higher insurance premiums.

We are not aware of any objective evidence demonstrating that claimants are currently undercompensated. This review is not necessary, has been prompted for the wrong reasons and involves no objective consultation. With such huge cost implications for the insurance industry's customers and the Government, to have such an opaque process with no formal consultation is wrong and represents bad policy making. We, therefore, urge the Committee to press the Lord Chancellor for an open consultation on the review of the discount rate.

January 2011



 
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