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Ambulance Chasing and insurance premiums

Since about one person in five has to make a claim each year on car insurance and a high percentage of claims will involve negligence of some sort, then there is a good chance that the reader has been personally affected by this. So let him who is without sin cast the first stone.

The use of companies using referral fees to obtain business and pursue claims has become much more prevalent over the last decade and insurance companies have not factored in the increased cost into their business models until recently. Indeed some insurance companies actually farm out personal injury claims to these firms - i.e. when a client has a non-fault claim they pass details onto such a firm, to earn extra money. This is an escalation of competitiveness as they realise they lose more money because of claims made against them so they might as well 'get in on the act'.

As an insurance broker, we also offer a legal expenses insurance policy, with the added benefit of 14 days free car hire in the event of a total loss claim. (Car insurers will, usually, provide a courtesy car while your car is being repaired, but quite a few internet-based schemes do not offer the facility to keep costs down. It is of course up to the policyholder to check whether they need this benefit and if they find they needed it but don't get it then it is entirely their fault - just another reason to use an insurance broker). We also get referral fees should, as a result of an incident one of our customers has to make a claim for injury or uninsured losses. However this is not the main reason we offer the policy. All our customers who take out the policy are entitled to a full accident management service of which claiming back losses is only a part. the company we deal with also act on a mediation rather than a confrontation basis so additional costs in pursuing a claim and settlements are reduced. We hope that this will reflect in our loss ratio and enable us to offer more competitive rates for our customers.

Have you wondered why buying car insurance online is cheaper? An article in Insurance Age stated that claims costs were 50% higher for business bought in through aggregator websites, which is one reason why prices are going up so much. A driver does not become better through buying a policy online. One reason is that the intermediary or insurer knows that a certain percentage of drivers will have a non-fault accident and if they can earn 700 or more from the referral fees then that more than makes up for the reduction in premium. (In a personal case - simple rear-end collision, liability not in dispute, the solicitor's fees were 3000 so they can well afford it). Other reasons are: fewer staff needed - this shows itself up in the lack of service these companies provide, worse cover and higher excesses, to keep down claim costs - and lower offers for total loss vehicles (many vehicles are now written off because they have to be repaired with new parts to ensure they are fully roadworthy after an accident - the insurer could be sued if a second hand part subsequently failed.)

Solicitors seem to be the profession most suited for detecting whiplash and personal injury. Within 5 minutes of entering a firm of solicitors they seem able to diagnose your condition.

So what can be done?

  • First of all: drivers do have the right to be compensated for losses arising out of negligence. After all that is what insurance is for!

  • It is perceived as 'easy money' or 'no losers'. In fact every policyholder in the country is losing through having to pay increased compensation and to solicitors acting to obtain the money.

  • The additional costs of having an accident (Hire Car/ Solicitors) must somehow be reduced.

    • Make Legal Expenses Insurance Obligatory - This puts selection of companies to handle claims in the hands of those who have to pay the bills. The insurers know which companies are ripping them off and can cut off their lifeblood.

    • Ban advertising for 'no-win, no-fee' cases. At the moment this is a gravy train.

    • A fixed level of compensation set up for each loss.

    • Implementation of more realistic hire car scales

    • Removal of the right to a 'same car' replacement. The purpose of a car is to get you from A to B. Anything else is vanity.

Initially the imposition of compulsory legal expenses insurance will have a small increase on insurance premiums. However the reduction in claim costs arising will have a much greater beneficial effect by reducing pay outs and hence losses.

For more information contact JB Portwood

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