So we’ve finally seen the new Civil Liability Bill introduced, with Justice Secretary David Gauke envisioning money being put back in the pockets of law-abiding motorists as the government addresses the issue of whiplash claims. All in all it’s been welcome news for the insurance industry, as the bill also tackles the much talked-about Ogden rate.
“The bringing forward of this bill covering both whiplash fraud and the way the discount rate is calculated is clear evidence of government listening to the carefully considered concerns from the insurance industry and taking forward recommendations in our Manifesto,” said Steve White, chief executive of the British Insurance Brokers’ Association (BIBA) – the trade body which “is fully cognisant of the impact of fraudulent whiplash claims on the provision of insurance and looks forward to measures to combat this, while ensuring those genuinely injured receive the fair compensation and care they need.”
Reacting to the significant development, BIBA noted that the change in the Ogden rate a year ago caused reactive increases in motor insurance premiums. In fact, the BIBA/Acturis Premium Index showed a 10.7% rise in premiums during the last quarter of 2017 compared to the same period in 2016. “Not only this but it importantly meant that for many businesses their liability limits of indemnity became potentially insufficient to cover higher claims awards, leaving them at risk of underinsurance,” it said.
For DWF partner and head of motor and fraud Nigel Teasdale, the delay in the bill’s introduction had the potential to jeopardise the government's planned implementation of the whiplash reforms for April next year.
“It is therefore good news that the bill is to receive its first reading this side of Easter and we would urge the MOJ to publish as much detail as possible during the course of the debate, particularly around the definition and level of the tariff, as that detail will be key to ensuring the success of those reforms,” said Teasdale. “The proposed new framework for the discount rate is to be welcomed, as it will deliver the principle of 100% compensation for injured people and accurately reflect the way injured people invest their compensation awards, with regular reviews to avoid the significant disruption caused over the last 18 months.”
Passing on savings to policyholders
According to the Ministry of Justice, the clampdown on whiplash claims will enable insurers to cut premiums and, in turn, save motorists an average of £35 a year. It added that the likes of Aviva and LV= have pledged to pass 100% of savings onto customers.
“Anything that brings down the cost of car insurance is to be welcomed, but the £35 promised by the government is already down on the £40 mentioned previously, so it's to be hoped insurers are as good as their word and pass on the maximum amount to their policyholders,” commented MoneySuperMarket consumer affairs expert Kevin Pratt. “Fraudulent whiplash claims clog up the courts, feed rogue claims management companies, and defraud honest motorists. They need to be eliminated urgently.
“The change to the way the discount rate is calculated has been well trailed. We need to see this implemented as soon as possible so that another inflationary pressure can be removed from the insurance market.”
Mohammad Khan, general insurance leader at PwC, thinks it will be interesting to see whether motor insurance providers will start reducing premiums in anticipation of the bill’s passage. He said an Ogden rate of 0% or above should help bring down premiums for young drivers by a minimum average of £200 and by at least a further £50 for the average motorist.
“BIBA welcomes this legislation which aims to bring about fair, 100% compensation for personal injury claims and should help millions of policyholders by reducing the pressure on the cost of insurance,” noted BIBA executive director Graeme Trudgill. “The legislation is also needed to assist with the unintended consequence of underinsurance, created when the discount rate changed so significantly a year ago.”