Cost of motor insurance: follow up - Transport Committee Contents

Written evidence from the Motor Accident Solicitors' Society (MASS)

1.  MASS is a non-profit making national association of solicitors who specialise in road traffic accidents, representing the accident victim. Formed in 1991, MASS promotes the highest standards of legal services through education and representation in the pursuit of justice for the victims of road traffic accidents. MASS comprises 190 solicitor firms that employ over 2,000 legal staff, throughout the UK. Collectively member firms conduct in excess of 600,000 road traffic accident personal injury claims each year.

2.  The victim, and what is in their best interests, must remain at the centre of the debate. Our goal in this debate is to both protect the rights and interests of consumers who are victims of genuine road traffic accidents as our constitutional objective.

3.  MASS fully endorses the Committee's view that whatever the solution to the problem, the "Government should ensure that arrangements exist to enable people injured in a motor accident to claim compensation, regardless of their income".


4.  The contributory factors to the cost of motor insurance are many and complex. There will be no straightforward solution to the problem of rising costs and each solution will inevitably have impacts and consequences which must be considered carefully in terms of what is gained and what is lost.

5.  Referral fees are undoubtedly an important factor of this debate, but it remains only one part of a possible solution. It is vital that the motor accident industry is looked at holistically and in considerable more depth before wide-reaching reforms are introduced that are potentially over hasty, ill-conceived and which may have highly detrimental negative consequences for the principles of access to justice.

6.  The solution must be evidence-based, with a full understanding of the associated facts and figures—too often at the moment the evidence is contradictory and potential decisions are being taken on the basis of insufficient facts and evidence of how the industry and insurance market operates and the true costs involved.

7.  Understanding the true scale of the issue has proved protracted and difficult: there is still no accepted figures for precisely how much the market in referral fees in all its guises is worth. We strongly urge the Committee to seek full disclosure from those concerned to determine exactly what the market in referral fees is valued at. Only then can the possible savings and future reductions in car insurance premiums be measured.

8.  The debate has been distorted unfairly to focus on injury claims and those who pay referral fees, including lawyers, rather than the true cost of claims, which is the value of those claims less all income received in referral fees and commissions from other parties in the claims process.

9.  Greater transparency must be forthcoming from all parties to ensure that the scale and elements of the market in referral fees are fully understood. For instance, very few publicly-listed insurance companies have yet declared how much they receive in referral fees. Admiral is one of the few companies that have, announcing that 6% of its profits are derived from referral fees, although a detailed breakdown of figures for other types of commissions and payments are not published and so this may be even higher.

10.  Parliament, the Ministry of Justice, the Office of Fair Trading (who initiated an investigation into related elements on 8 September 2011) and professional representative bodies and leading organisations must fully co-operate in pulling together all the available evidence before fully implementing the Government's proposed course of action.

11.  MASS believes that clients will have guaranteed access to justice and protection only through a genuine regulatory and industry-wide commitment to challenge deeply entrenched commercial interests and eliminating elements which add no value to claimants.


12.  Road accident personal injury (RTAPI) claims represent 790,999 claims out of a total of 987,381 claims, according to Compensation Recovery Unit figures published by the Government in respect of the year 2010-11, which is over 80% of all personal injury claims.[1]

13.  MASS rejects the accusation that the cost of claims is out of control because of lawyers involved in personal injury claims.

14.  Since 2003 two separate fixed costs regimes have existed for legal costs for Road Traffic Accident Personal Injury (RTAPI) claims up to £10,000, representing in excess of 75% of all RTAPI claims since 2003. The new streamlined process for RTAPI claims, implemented by the Ministry of Justice on 30 April 2010, and agreed in full by the insurance industry and others, are actually lower than those agreed in 2003. Both sets of costs were negotiated and agreed without any reference to the payment of referral fees.

15.  MASS questions why motor insurance premiums have risen so dramatically in recent years when there has been in place fixed legal costs which insurers have agreed, for in excess of 75% of all RTAPI claims since 2003?

16.  The Association of British Insurers (ABI) has stated that insurance premiums have risen 40% in the last year, blaming rising legal costs. Yet one insurance comparison website ( recently found that prices were 2.3% lower in September 2011 than in August 2011, were down 4.5% in the third quarter of 2011 when compared to the second quarter. Furthermore they are predicting that motor insurance prices for the whole of 2011 are likely to be about 17% higher than 2010 prices.[2] Whilst such a rise would undoubtedly still be too high, there is clearly an incomplete picture of the insurance industry which should be addressed as a matter of urgency.

17.  We note with interest press reports (Insurance Times, 23 September 2011) that seven leading insurers—Ageas, Allianz, AXA, Equity Red Star, Groupama, NFU Mutual, QBE and Zurich—are considering a class action against RSA for inflating repair costs. MASS hopes that the OFT will help determine the impact of such factors on the high costs of motor insurance.

18.  We remain extremely concerned at the continuing rise of motor insurance premiums and the impact that this has on consumer behaviour, including encouraging continued high levels of driving without insurance.


19.  With the Ministry of Justice having declared that it will seek to introduce a ban on referral fees, probably by amending the Legal Aid, Sentencing and Punishment of Offenders (LASPO) Bill during its passage through the House of Lords, it is imperative that the new measures are workable, fair and uniformly applied across the entire sector.

20.  Careful consideration must of course be given to the definition of what constitutes a referral fee. It is essential that it is wide enough to cover all potential commission fees, administrative cost transfers and any other payments that may be disguised.

21.  MASS questions whether it should be just referral fees captured by the ban or should it include all commissions within the system arising from claims?

22.  Should the ban on referral fees just apply to the motor insurance sector? With increasing anecdotal evidence of referral fees developing in other areas of the personal injury market, the culture of such practices may only be eradicated if a ban is applied across the entire personal injury market.

23.  Who will oversee the referral fee ban? Is it sufficient for the courts to implement or should a regulator also play a role in oversight?

24.  It is proposed that individuals are liable to prosecution for breaching a potential ban, but should corporate entities also be responsible with directors held responsible for the actions of employees?

25.  The purpose of a ban on referral fees is to reduce motor insurance premiums in the future, but how is this to be judged? Without some measurement process in place and a binding commitment by the insurance sector to reduce premiums, the benefits derived from a ban may not necessarily be passed on to consumers. The Chief Executive of Admiral has even suggested that car insurance may increase following a ban on referral fees.[3]

26.  Previous experience suggests that savings may not be passed on to the consumer. When the Motor Insurers' Bureau, which gathers a levy from all of its UK insurance member companies in order to pay for uninsured and untraced claims, returned a surplus of £40 million unclaimed funding in March 2010, this money was not returned to consumers through reduced motor insurance premiums.[4]


27.  There is potentially great value in learning from the experience of other countries. However, it is vitally important that all of the facts are known and understood given the ease with which statistics can be manipulated or taken out of context.

28.  The ABI have stated recently motor premiums fell by 16% in Ireland in the two years after reforms were implemented. Yet this picture is challenged by at least one academic study commissioned by public authorities and conducted by University College Dublin and the University of Strathclyde. It concludes that insurance premiums had been falling before the reforms (since 2003), whilst acknowledging that the reforms may have accelerated the reduction.[5]

29.  Ireland's second largest general insurer, FBD, has said the insurance premiums are likely to continue to fall not as a result of the reforms, but as a result of wider economic conditions, with fewer people being able to afford to own and operate cars, resulting in less motor insurance claims.[6]


30.  MASS continue to have grave reservations with the planned changes to litigation funding and costs contained within the Legal Aid, Sentencing and Punishment of Offenders Bill (LASPO Bill) before Parliament. These proposed changes will significantly impact consumers' access to justice in motor accident claims, making it increasingly difficult for a person who has been injured due to someone else's negligence to find, or fund, a lawyer to represent them.

31.  A vitally important element of this package, as recommended by Lord Justice Jackson, is for a 10% increase in general damages to compensate for abolishing recoverability of success fees. MASS believes that this figure is woefully inadequate to compensate the accident victim for the loss of recoverability (of Success Fees and ATE premiums). However, with around 90% of civil litigation cases never reaching court, the government has admitted that it has no mechanism to force the 10% uplift to be included in out-of-court offers.

32.  The Government is relying upon the judges to implement the uplift on the 10% of cases that do go to court: "We would expect insurers to comply with the rates set by the courts when making out-of-court settlements".[7] We urgently hope that a mechanism is put in place to ensure that this increase is implemented.


33.  MASS reject the notion that whiplash as a soft-tissue injury is somehow not a proper injury and should be outlawed. Whiplash is indeed the most frequently reported injury in motor vehicle crashes and due to the difficulties in diagnosis and treatment, a percentage of claims are undoubtedly fraudulent.

34.  However, the sudden extension of the neck and whip-like movement frequently experienced in motor vehicle accidents can have serious impacts upon ligaments, tendons, muscles, intervertebral discs, facet joints and nerve roots. This can result in a collection of symptoms including dizziness, headaches, blurred vision, pain on swallowing, ringing in ears, tinnitus, memory loss, cognitive impairment, sleep disturbance, fatigue and depression.

35.  There is a growing body of evidence attesting that whiplash injuries are not just about movement at high speed but a complex series of pressures that can result in injury. For instance, one study[8] summarised the literature on crash tests on humans by concluding that a change of velocity of 2.5 mph was sufficient to cause symptoms and that 8.7 mph was required to cause vehicle damage.


36.  It has been suggested that the fixed fees under the RTA portal scheme should be dramatically reduced and capped by legislation. MASS rejects this proposal as too prescriptive and believes that these rates should be negotiated between claimants and defendants. Such negotiations have taken place successfully in 2003 and on the introduction of the portal in 2010 and we believe that this would be the most appropriate way to reach agreement going forward.


37.  In 2009 there were 1.5 million uninsured drivers, 20% of whom were between 17 and 20; the cost to the industry is approximately £500 million, which adds about £30 per year to every policy for the law abiding motorist.

38.  MASS welcomes the change implemented by the government earlier this year with uninsured driver now being fined or having their car confiscated even when they are not driving it. However, we believe that significantly more can be done to reduce the level of uninsured driving; for example, to investigate the feasibility of lowering the cost of insurance premiums for those young drivers who have a good driving record whilst driving under their parent's motor insurance policy, and allowing them to transfer the number of years without a claim to their own policy.


39.  MASS welcomes any further initiatives that can be undertaken to further reduce the high levels of fraud. We will continue to work closely with the on-going work undertaken by the Insurance Fraud Bureau (IFB)—an insurance industry funded body—to combat motor insurance fraud. As an example of this work, MASS are hosting a Motor Fraud forum in October 2011 with representatives from all the key stakeholders to discuss working collaboratively to combat fraud within the motor industry.


40.  MASS will continue to campaign for improved education of young drivers, reducing the incidence of uninsured driving through improved reporting and effective deterrents, increased penalties and reducing the high levels of fraud all have an important contribution to make;


41.  MASS believes that the practice of Third Party Capture is placing the accident victim at an unfair and distinct disadvantage. Offers made to accident victims by insurers are frequently lower than the claim is worth, denying the victim the service and compensation they deserve.

42.  Where an injury has occurred, insurers often make settlement offers without medical examinations to ascertain the full extent and degree of the injury and any short, medium or long term effects the injury may have. Pressure through telephone calls and even unannounced doorstep visits are frequently done at a time when accident victims are already vulnerable following an accident.

43.  There is a huge conflict of interest because the insurer is acting on behalf of their policy holder (the defendant) and the accident victim at the same time. An insurers' primary objective is to save money—there is little or no regard for the victims' best interests.

44.  MASS believes that insurers are not adequately regulated or monitored when carrying out Third Party Capture. The ABI's voluntary code is not compulsory and only applies to their members and therefore not all insurers. According to ABI statistics in October 2010 only 34 Members had signed up to this code, out of a membership of over 300. We await the 2011 figures to see if more ABI members have signed up to the code during the last year.


45.  MASS unreservedly condemn some of the marketing practices of Claims Management Companies (CMCs), particularly that of cold calling and texting. Data protection laws should be enforced and the terms and conditions of insurance premiums should be amended as standard to protect consumers from having their personal information sold on. Cold calling and texting are an irritant at least, intrusive and do little to benefit the consumer and such activities should be appropriately regulated.


46.  MASS remains concerned about the future impact of the Legal Services Act 2007, in particular the introduction of Alternative Business Structures (ABSs) from 6 October 2011. Whilst we believe that there will never be a substitute for high quality legal advice for motor accident victims, we are concerned that cross-ownership or the delivery of legal advice by insurers or CMC's will have a serious detrimental impact upon the genuine victims of accidents. ABSs may be used to circumvent any ban on referral fees and may seriously limit the victims' access to independent legal advice, creating potential conflicts of interest by blurring the distinction between defendant and claimant.

October 2011

1   Compensation Recovery Unit, Department for Work and Pensions, May 2011, Back

2   Insurance Times, 23 September 2011 Back

3   Boss of insurer Admiral warns Government referral ban "will push up car cover", Financial Mail, 11 September 2011, Back

4   Motor Insurers' Bureau Annual Report & Accounts 2009 Back

5   P.15, Dr Jonathan Ilan, "Four years of the Personal Injuries Board: Assessing its impact", UCB/University of Strathclyde, March 2009, Back

6   Irish Examiner, 25 August 2011, Back

7   MoJ spokeswoman, Law Society Gazette, 21 September 2011, Back

8   Davis (1998) Back

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Prepared 12 January 2012