Cost of motor insurance: follow up - Transport Committee Contents

Written evidence from AXA UK


On 28 June 2011 AXA became the first—and so far only—insurer to unilaterally ban referral fees from personal injury lawyers, highlighting the need for legislative and regulatory changes to curtail market practices which fuel the "compensation culture" and consequential increases in motor insurance premiums.

In this note we outline the background to this decision and set out, in AXA's view, the right way forward to deliver a better outcome for consumers. In particular we focus on the need for urgent reform of the whiplash regime.


Personal injury claims arising from road traffic accidents have increased by 43% over the past three years which is perverse given that the number of motor vehicle accidents has been falling progressively over many years—by 31% in 2009 compared to the average for 1994-98 as published in the Committee's recent report into the cost of motor insurance.

In our view there seems to be no question that UK society is drifting into a compensation culture, encouraged by an industry of claims management firms that has formed to profit from the misfortune of others.

The insurance industry has stood accused of feeding that industry by accepting fees for referring potential personal injury claimants, and thus promoting a dysfunctional market which has inflated motor premiums, particularly in those areas of the country where claims management firms are so prevalent. In practice, the role of insurers in this matter is only a small fraction of the issue—the main reasons for the rise in personal injury claims are the growth in accident management companies, credit hire firms and personal injury lawyers.

Having concluded that the practice is immoral, AXA has withdrawn from the practice of accepting referral fees from personal injury lawyers.


Referral fees are a symptom—not the cause—of a broken compensation system. The main cause of increasing motor insurance premiums is the frequency of minor personal injury claims which cost in the region of £4,400 each. Banning referral fees will help, but in itself will not bring about the step change needed to drive a better, fairer and more affordable system; and almost certainly will not lead to the reduction in personal injury claims necessary for a restoration of cheaper motor insurance premiums.

In our opinion, reform of personal injury legislation must have regard to the following dynamics:

—  Referral fees averaging £800 are paid by claims management firms and personal injury lawyers to a number of market participants. A ban would eliminate their incentive to promote minor injury claims, but must be structured so as to avoid replication by other means—for example by netting against the cost of providing services, or other forms of cash/non-cash incentive.

—  The fixed fee under the Ministry of Justice Road Traffic Accident Portal is £1,200 which, allowing for an average referral fee of approximately £800, is quite obviously too high meaning that personal injury cases are too profitable. We estimate that the true cost of handling these claims is likely to be nearer £250. Fixed fees should be reduced so as to remove the excess profit—deployed in part to pay referral fees.

—  In some cases (for example large retail brokers), profiting from personal injury claims is so fundamental to shareholder returns that any ban on referral fees will likely be circumvented through deploying new business models—for example, the acquisition of personal injury law practices under the forthcoming "Alternative Business Structures" which will come about following the de-regulation of legal services. Measures should be considered that would prevent a ban on referral fees simply encouraging market participants to set up their own practices to capture the profit from current personal injury practices.

—  It is too easy to claim whiplash after a road traffic accident. Such soft tissue injuries are impossible to prove, or disprove, and as such represent an opportunity for a "lottery win" of around £2,500 each for those involved but not at fault in a minor accident. Reform is required to shift the burden of proof, so that compensation is payable only where the party has suffered demonstrable injury as is the case in some European countries.

Below we have expanded upon the whiplash regime, which we argue needs fundamental reform.


The NHS spends around £8 million in treating whiplash and other soft tissue injuries yet insurers pay out approximately £2 billion in compensation for the same conditions.

Measures are required to raise the burden of proof required for minor bodily injury such as whiplash. New medical developments and also broader expert opinion on the possibility of whiplash at low speeds or below certain force levels should be examined. These have the potential to deepen our understanding of minor soft tissue injuries. The burden should then switch to the claimant to prove that an injury exists rather than an insurer having to disprove it. In practice, it is simply too easy for a claimant to secure a medical report that they are suffering from whiplash—the doctor has no means by which to prove or disprove, so medical certificates are provided with minimal investigation, often several months after the event when a claimant is "awoken" by either referral or advertising.

If these steps are taken as a package, then the insurance industry will see a reduction in the frequency of minor personal injury claims and a commensurate reduction in motor insurance premiums will follow. This will have positive benefits for consumers, not simply through lower motor insurance premiums, but through arresting the decline into a compensation culture and the other costs which arise—for example minor personal injury claims against councils and employers.

What is needed is a process that ensures those injured by the negligent acts of others receive the timely and fair compensation they are due, and that fraudulent claims can be filtered out and rejected without incurring unnecessary cost. We need a system that does not encourage the harassing of people to generate these claims.

With regard to whiplash and other soft-tissue injuries we are about to embark on studies that will examine the evaluation of muscle damage following a typical low impact road traffic accident.

August 2011

previous page contents next page

© Parliamentary copyright 2012
Prepared 12 January 2012