Late last month, the Treasury published a report examining whether savings have been achieved by the Civil Liability Act (CLA) and whether those savings have been passed on to customers – largely concluding that the Act had been a success.
Digging into the key findings of the report Pete Allchorne (pictured), partner and head of strategic advisory at DAC Beachcroft's claims business CSG, outlined some of the ways in which the Act has impacted the insurance market to date. He also noted that understanding how to measure the benefits provided by the CLA is complicated given the timing of its introduction.
The singular combination of the effects of leaving the European Union, the COVID pandemic and the inflation spike of 2022 have clouded the position, he said. The COVID pandemic changed the way people work and the patterns of their driving behaviour, neither of which have returned to their pre-pandemic norms. The spike in inflation was especially significant in the increase of vehicle and parts costs, and the reduction in the repair workforce has also operated to increase repair labour rates.
“While the changes in driving behaviour brought about by the pandemic contributed to the reduction in accident volumes, it is not the only factor,” he said. “Widespread adoption of 20-mile-per-hour speed limits across Wales and Greater London has reduced accident frequency in those areas by 26% and 43% respectively.
“Another reason incident numbers are dropping is the increasing availability of advanced driver assistance systems (ADAS). A recently-published Dutch study found that lane keeping assist reduced incidents by over 19%, forward collision warning by nearly 13% and automatic emergency braking by nearly 11%.”
Additionally, Allchorne highlighted that when discussing the impact of the CLA, two very distinct elements need to be examined – the whiplash reforms and the change to the setting of the personal injury discount rate.
Since the whiplash reforms were introduced there has been no marketing campaign, he said, meaning people do not necessarily know about the OIC Portal or the ease with which they can bring a claim without need of legal representation. His team is seeing the number of litigants-in-person increase slowly, and the data shows that they are experiencing a quicker settlement period and larger tariff payouts when compared to represented claimants.
When OIC first published data, it showed some 61% of claims included both whiplash and non-whiplash injury claims, known as mixed injury claims; it is now 68%. The insurance industry sought resolution of the complex interplay between these two by taking it to the Supreme Court in the test cases of Rabot and Briggs. The Court's decision on the correct interpretation of the CLA has meant that values for the non-whiplash injury elements of the claims remain high, and will continue to be unless parliament intervenes.
Touching on the second part of the CLA, Allchorne said the setting of the personal injury discount rate saw it increase from the historic low of -0.75%, set in 2017, to -0.25% in England and Wales which was the lowest rate in the world, save for Scotland which was set at -0.75% and Northern Ireland at -1.5%. As of January 2025, it is now 0.5% across all UK jurisdictions. It is too early, though, to measure the effects of this change.
“In terms of how the rate is set, the new formula and mandatory five year review period are a marked change from the discretionary powers given to the Lord Chancellor prior to the CLA,” he said. “Overall, there has been a reduction in the number of claims brought; the CLA may have contributed to that. Certainly in the low value space, the number of mixed injury claims has increased dramatically which impacts on the level of savings that would otherwise have been secured.”
Digging into the key findings of the Treasury report on the effect of the CLA on motor insurance policyholders, Allchorne underscored that it was “very brief” and addressed the subject matter at a very high level. “The report shows that policyholders have experienced savings as a result of the implementation of the CLA, and that those savings are increasing: the average policyholder saved £4 in 2020-21 and £15 in 2022-23.
“Some insurers who contributed to the data contained within the report expressed concern that some of the cost savings from whiplash injuries were displaced by non-whiplash injuries, and that the trend has increased. The Supreme Court's decision in the test cases of Rabot and Briggs will have impacted this and it is clear that without government intervention, the number of mixed injury claims is unlikely to fall.”
For Allchorne and his team, there were no surprises in the report, as it was expected that the CLA would result in savings to insurers. As to whether he foresees any changes in claims litigation strategies, he noted that claimant representatives have already begun to argue that the savings are insufficient.
There has also been a marked change in the arguments put forward that the primary problem was always the cost of repairs, and that personal injury was never the cause of inflated premiums, he said. “This is inaccurate. The government's February 2017 response to the Reforming the Soft Tissue Injury ('whiplash') Claims Process consultation noted that the number of whiplash claims remained steady at around 90% of all RTA related personal injury claims made, despite significant improvements in vehicle safety… This added significantly to the cost of motor policies.”
The costs of repairs have escalated in recent years, for reasons outside the control of insurers, he said, including supply chain issues, labour shortages and increased costs arising from more expensive vehicle technology. That does not mean that personal injury was not an issue that needed to be resolved.
As to what the continual monitoring recommended in the report will mean for the insurance sector, Allchorne emphasised that the industry volunteered to report on the savings and pass them on to policyholders from the inception of the CLA. “There has been no need for aggressive oversight, and we see no reason why the situation should change.”
Looking forward, he said, while a post-implementation review will be conducted later this year, it’s not yet clear what the remit of that review will be. With that in mind, insurers looking to prepare for potential further regulatory responses or reforms should consider what further reforms are necessary in this space.
“[These] might include measures to better address the position where there are mixed injuries and an increase to the small claims track limit so as to ensure that the benefits of the reforms are not eroded,” he said. “Whatever insurers decide to call for, they need to ensure that they collect as much data as they can relating to those areas. Data will be key to convincing the government to act.”
