Response from the Association of British
Insurers
I am writing to you following the publication on
30th June of the Transport Select Committee's report Driving premiums
down: fraud and the cost of motor insurance. We welcome the Committee's
continued work to recognise the significant impact that fraudulent
and exaggerated whiplash claims have on the premiums of honest
motorists and the fact that you continue to work closely with
the industry to examine ways to help effectively tackle the problem.
We are pleased that the Committee recognises that
the current system does not result in the provision of robust
and high quality medical reporting in whiplash claims. Further,
we welcome the Committee's support for the creation of an independent
medical panel of medical experts.
Within the report there were a number of areas where
I felt it would be helpful to provide you with an update on the
ABI's ongoing work aimed at combating exaggerated and fraudulent
claims and our commitment to passing on costs savings to motorists
through reduced motor insurance premiums.
Independent medical experts
As you will be aware, the Secretary of State for
Justice has indicated that medical reports for whiplash injury
claims should be supplied by independent medical experts (who
are accredited professionals) using a standard medical report
form. It cannot be right that claimant solicitors who commission
medical reports and the medical experts who prepare them have
any financial linkages which might have a bearing on the outcome
of the examination and what is ultimately contained within the
medical report.
The insurance industry considers this issue to be
of such importance that we are prepared to fund the set up costs
of an IT platform and we are working at pace with the Ministry
of Justice to get the new system up and running as soon as possible.
We envisage a system where the claimant solicitor will be randomly
allocated a medical expert who has no financial link to the claimant
solicitor and who is accredited to prepare medical reports.
The ABI is in favour of using a random allocation
approach, where a central body is responsible for receiving requests
for medical reports and allocating them to experts on a random
basis based on the expert's availability/capacity and location.
Medical Reporting Organisations (MROs) add value to the provision
of medical reporting through the efficiencies they bring to the
system and we support their continued involvement in the medical
reporting system of the future.
Accreditation
Insurers have long argued that the fundamental underpinnings
of the medico-legal reporting process are not fit for purpose.
Making sure that the experts preparing medical reports are up
to the job is absolutely critical. We are pleased to see that
medical experts will be required to become accredited in order
to carry out medico-legal reporting work.
The process of accreditation is essential to ensure
that those responsible for diagnosing whiplash are suitably experienced,
skilled and qualified to do so. The government is committed to
setting up a full process of accreditation as soon as possible
and insurers are working collaboratively with other stakeholders
to develop an accreditation framework in which we can all have
more confidence than we do now. The process will need to become
self-funding over time and medical practitioners will need to
choose whether they wish to become accredited and be part of the
new framework.
Fraud data
The ABI collects information regarding detected fraud
to provide our members and wider stakeholders with one indication
of the extent of fraud that the industry faces at both the application
and claims stage.
This activity does not provide anything more than
an indication of the level of detected fraud impacting on the
insurance industry. In turn, individual insurers have their own
mechanisms for understanding their own exposure to fraud and taking
steps to mitigate the related risks.
Reporting on and measuring all cases of fraud encountered
by insurers presents some challenges. Insurers are able to report
on and measure acts of clear detected fraud; that is where evidence
of fraud is compelling. However, where an insurer has prevented
an individual from obtaining insurance cover by way of, for example,
its automated system-based fraud defences, or a claim is no longer
pursued due to an insurer probing the circumstances of a loss,
such scenarios are not always clear instances of detected fraud.
Insurers would positively welcome increasing the
number of convictions for insurance fraud. However, there are
two important factors to bear in mind. Firstly, despite significant
investment from the insurance industry in the form of the Insurance
Fraud Enforcement Department (IFED) within the City of London
Police, there is currently insufficient Police resource available
to respond to and manage the wider insurance industry referring
cases of fraud for enforcement action on a daily basis. This
has been compounded (over recent years) by regional Police forces
reducing the resources they allocate to combat fraud and financial
crime and having no specific objectives to devote resources to
such criminality.
Secondly, insurers' attempts to combat suspected
fraudulent whiplash claims have often proved to be fruitless.
Given there is no objective medical evidence for whiplash type
injuries, with diagnosis often being made on the basis of the
claimant's subjective description of their injury, the ability
to prove beyond a reasonable doubt that the claimant has not sustained
an injury is both challenging and expensive. Therefore, whilst
insurers use various tactics to dissuade fraudsters and defend
spurious claims, the standard of evidence required means many
such cases are not pursued in the courts.
As such, actual criminal convictions for insurance
fraud clearly only represent the tip of the iceberg, and are not
a true reflection of the level of fraud that insurers, and wider
society, face on a daily basis.
Accordingly, the ABI has developed a list of scenarios
in which we believe fraud is likely to be involved and ask our
members to provide the numbers of cases which fall into those
categories (see Annex A). Some of these cases may have an innocent
explanation. But what is important to recognise is that many more
cases of successful fraud are likely to go undetected, especially
for whiplash.
The ABI's fraud statistics are therefore intended
to provide an indication of the volume and value of fraud detected
by the industry. These statistics do not include claims which
involve exaggerated personal injury, particularly for whiplash,
where that claim has been paid.
Pre-medical settlement offers
Pre-medical settlement offers are a useful method
by which insurers are able to settle whiplash claims where the
injuries sustained are very minor and do not justify the time
and cost of a medical report being commissioned. Insurers do recognise
that the lack of any medical evidence to substantiate a claim
for compensation does provide the opportunist claimant the ability
to pursue spurious claims where there is the possibility of requesting
a pre-medical offer from the at fault insurer. Balanced against
this, however, it cannot be right to assume that every claimant
who requests a pre-medical offer is an opportunist looking to
take advantage of the system. Insurers take the view that pre-medical
settlement offers have a place within the system, by allowing
minor injury claims to be settled quickly and without the need
for unnecessary legal costs and disbursements being incurred.
We note that a number of claimant solicitors, and
indeed the Committee in your report, call for a ban on the use
of pre-medical settlement offers. I am, however, aware that claimant
solicitors ask insurers to make a settlement offer before a medical
report has been obtained and indeed recommend acceptance of pre
medical settlement offers to their clients. Therefore, if claimant
solicitors dislike the practice of pre-medical settlement offers,
they might stop requesting them. I also note that, although considering
pre-medical offers should be prohibited, the Ministry of Justice
has indicated that this is a difficult issue and a new rule alone
is not enough to address this particular problem. As a result,
the new rules announced on 4 August and to come into force on
1 October were drafted to discourage the use of pre-medical offers.
Striking out of exaggerated claims and inducements
The government has indicated an intention to reform
the law on "gross exaggeration" in personal injury claims
following the Supreme Court's decision in Summers v Fairclough
Homes. There is currently no clear disincentive to prevent claimants
from bringing exaggerated claims given that, even where a genuine
claim has been deliberately exaggerated, the courts will still
order the defendant to pay the genuine part of the claimant's
claim.
In essence, this is a no lose situation where the
claimant will enjoy a pay day regardless. This is simply not acceptable
and we are pleased to see this being addressed through the Criminal
Justice and Courts Bill currently before Parliament.
Similarly, we are pleased that the distasteful practice
of solicitors offering inducements like cash or ipads to claimants
to make personal injury claims is to be banned. This practice
only serves to reinforce to unscrupulous claimants that there
is a compensation culture to exploit. It is positive that the
Committee has supported this change.
Policing
We are pleased that the Committee recognises the
vital contribution that IFED has made to counter the threat of
insurance fraud since its inception in January 2012. We were surprised,
however, by the Committee's assertion that IFED's funding "beyond
this year appears to be uncertain" (paragraph 35). Please
find attached a joint letter (Annex B) from Otto Thoresen and
John O'Roarke to you dated 16 April 2014 which underlines the
insurance sector's ongoing commitment to combatting insurance
fraud, including through renewal of the IFED contract for a further
three year period until the end of 2017.
The increased level of funding, which will provide
for an additional investigative team, will enable IFED to continue
to lead the national enforcement response to insurance fraud,
bring more fraudsters to justice, recover and return more assets
to the victims of insurance fraud and undertake more quarterly
themed days of action.
The insurance sector will review its funding commitment
beyond 2017 during the course of 2016. We do however, seek clarification
of what the Committee means by its recommendation that the government
should "oversee" IFED's funding arrangements to ensure
that the unit has a long-term future.
Data sharing
MyLicence is a joint initiative between DVLA and
the insurance industry, represented by the ABI and the Motor Insurers'
Bureau (MIB), to use up to date and accurate information from
the driver licence record. This supports the drive by the industry
to reduce insurance fraud and help honest motorists save on their
premiums. Some drivers could save up to £15 on their premium,
due to the correct driver record and history being used at the
point of a quote being offered for motor insurance.
Insurers will use MyLicence for motorists with a
British licence who are insuring a personal car, van or motorbike.
All other types of licence holders will need to continue to self-declare
their driving endorsements and history. The MIB and DVLA are in
the process of preparing the service for insurers to use, including
extensive testing. Once we are satisfied the service is meeting
all the performance requirements it will begin to roll out for
use by motorists which we hope will occur in early September 2014.
Access to CUEPI - The insurance industry has agreed
to share data from the Claims and Underwriting Exchange Personal
Injury (CUEPI) database with claimant lawyers. The ABI has worked
collaboratively with Motor Accident Solicitors Society, Association
of Personal Injury Lawyers and The Law Society to define and agree
how this can be delivered in practice. We have jointly requested
that the Ministry of Justice consider implementing changes to
the RTA Protocol to deliver the proposed new system and we are
awaiting a response from officials on this issue.
Further work on whiplash
Although outside the scope of the Ministry of Justice's
current whiplash reform programme, there are a number of other
potential options available to further reduce the cost and number
of whiplash claims. These include shortening the limitation period
for soft tissue injury claims; raising the small claims track
limit for personal injury claims to £5,000 or above (perhaps
with the benefit of a predictable damages calculation tool); or
even removing the entitlement to claim general damages at all,
and providing for treatment in lieu of damages. The Committee
is aware of the arguments in support of these proposals so I do
not intend to repeat them here.
I have copied this letter to the Secretary of State
for Justice.
I do hope that you find this information useful and
of interest.
Yours sincerely
James Dalton
Assistant Director, Head of Motor
August 2014
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