David Ward

Unaffordable Insurance: Applying the Brakes

Executive Summary

1. 1. The problem

Between 2008 and 2012, the average comprehensive car insurance premium in the UK almost doubled from £650 in the 1^st quarter of 2008 to £1,200 in the 1^st quarter of 2012. Bradfordians were particularly hit hard with some being quoted premiums in excess of £25,000 to insure their vehicles, caused in large part by:

• High levels of insurance fraud - Bradford has one of the highest levels of "cash for crash" insurance fraud in the country.
• Uninsured driving. Bradford has one of the highest levels of uninsured vehicles in the UK.
• Exceptionally high levels of personal injury claims in Bradford

1. 2. The Legal Aid, Sentencing and Punishment of Offenders Act 2012 - (LASPO)

In 2012, LASPO introduced significant changes to the civil justice system helping to reduce costs in insurance claims whilst securing people's rights to compensation and access to justice. Coming into effect in April 2013 - the main aspects of the reform were:

• Success fees from "No win, no fee" cases must now be paid by claimants and not the losing party. Claimants are also unable to claim for premium increases due to a crash.
• Referral fees banned in personal injury cases.
• Claim Management Companies (CMC's) are banned from offering cash incentives or gifts to people who bring claims.
• Reducing fixed fees that solicitors are paid for injury claims from £1,200 to £500 between £1,000- £10,000, and £800 for claims valued up to £25,000.

The LASPO reforms have been successful in reducing injury claims from 828,489 cases in 2012 to 772,843 cases in 2014. A reduction of 8% from 2012.

LASPO has also been successful at reducing the number of Claims Management Companies (CMC's) whose activities can increase insurance premiums. From 2011-2014, the number of CMC's operating in the region fell 55% in Yorkshire and Humber, from a high of 387 in 2011 to only 176 operating in 2014.

1. 3. Other Significant Government reforms

Insurance Industry Access to Driver Database - set to launch on 30 June 2014, it will give insurers direct access to driver's information held by the DVLA, insurers will be able to verify if someone has any points on their licence and can therefore offer more accurate premiums. Called "My Licence" - it could save honest motorists £15 a year on premiums.

Continuous Insurance Enforcement - introduced in 2011, Continuous Insurance Enforcement was introduced as a new offence for possessing a vehicle without insurance, even if it is not being driven at the time. It is estimated that it has helped reduce the number of uninsured drivers from a high of 1.9m in 2005 to under 1million in 2013.

Increasing Penalties for uninsured drivers - in August 2013, the Government increased the fixed penalty fine for uninsured drivers from £200 to £300. Repeat offenders can be fined up to £5,000, 6 penalty points and a period of disqualification, The Police may also seize an uninsured vehicle and if not claimed, either sell it or crush it.

In May 2014, the Government announced that they will be changing the law so that disqualified drivers will face up to 10 years in prison if they cause a death whilst driving, and up to 4 years imprisonment if they cause serious injuries.

1. 4. Investigation by the Competition and Markets Authority

In May 2012, the Competition and Markets Authority (CMA) was charged with looking at whether features (or a combination of features) of the car insurance industry, restricts or distorts competition and thereby increases over car insurance premiums.

In June 2014, the CMA published its findings and recommendations which are aimed at increasing competition and reducing the cost of premiums for motorists. Shaving £113m off the annual insurance premium bill, these measures are:

• A cap on the charges for a replacement vehicle following an accident.
• Better information for consumers about their rights following an accident.
• A ban on agreements between price comparison websites (PCWs) and insurers which stop insurers from making their cheapest products available elsewhere.
• Better information for consumers on the costs/benefits of no-claims bonus protection.
• A recommendation that the Financial Conduct Authority investigates how insurers inform consumers about other insurance related add-on products.

1. 5. Telematic "black box" technology

For motorists in high risk groups such as young drivers, using telematic technology can reduce their premiums between 25% and 33%, with some young drivers saving over £1,000. The full significance of telematics on premium decreases across the industry is yet to be fully understood so the Department of Transport have commissioned research into this area.

1. 6. Young drivers

Premiums for young drivers remain high due to the continued high risk of having a significant accident. In order to increase young driver safety, reduce deaths and injuries and help reduce car insurance premiums, there has been popular calls to introduce Graduated Driving Licences which could introduce measures like a minimum learning period of 12 months before taking a test, restrictions on driving passengers and restrictions on night time driving.

Such measures could reduce premiums for young drivers between 15-20%, and help stop 4,471 casualties each year. David Ward has been very supportive of the introduction of Graduated Driving Licences and has pressured the Government to introduce it. However, despite being popular with both parents and young people and despite their commitment to publish some proposals in autumn 2013, the Government have done nothing and have yet to decide on their position. Until the Government makes significant policy moves to introduce some measures on young driver's safety, then more youngsters will die on our roads and car insurance premiums will still remain too expensive for many young Bradfordians.

1. 7. Fraud and Whiplash

More than 1,500 whiplash claims are made every day in the UK, which accounts for around 80% of relevant personal injury claims, costing the industry more than £2billion a year, adding £90 to the average car insurance premium.

Due to reforms already implemented by the Government whiplash, claims across England are steadily falling from a high of 520,000 in 2010-11 to 370,000 in 2013-14. This is a significant reduction of 29% over 4 years and demonstrates that Governments reforms have had an impact on reducing whiplash claims.

Whiplash as a proportion of injury claims is also steadily decreasing from a high of 77% in 2008 to 58% in 2013 of all personal injury claims. In Bradford, whiplash claims have reduced by a massive 30% between 2011 and 2014 from a high of 11,050 cases in 2010-11 to 7836 cases in 2013-14. Whiplash claims in Bradford fell sharpest in the whole of West Yorkshire.

However, insurance fraud is still a major problem with the insurer Aviva in June 2014 stating that deliberate 'cash for crash' road traffic accidents rose 51% between 2012 and 2013, with a value of over £10m and are at the highest levels ever detected by the insurer. The rise of "cash for crash" is a particular problem in Bradford with the area coming third in the Keogh's Motor Fraud Index 2014. The 2014 Keogh's index also states that the percentage of fraud coming from organised crime rings has increased from 23% of total fraud in 2011 to 34% of total fraud in 2014, whilst fraud that was staged (primarily by individuals) reduced from 40% of total detected fraud in 2011 to 26% in the 2014 index.

To combat the upsurge in fraud, the Ministry of Justice has announced the following reforms:

• Introduction of independent medical assessments and medical certificates for all whiplash claims.
• Introducing new rules to restrict the practice of settling whiplash claims without confirmation of the claimant's injury.
• Requiring courts to throw out compensation applications in full where the claimant has been fundamentally dishonest. This will stop people making bogus claims or grossly exaggerating the extent of their injuries.
• Banning lawyers from encouraging people to make claims by offering them incentives like cash or iPads
• Reducing questionable whiplash claims by improving independent medical assessments, and setting fixed fees for medical reports.

These reforms will complement the changes introduced under LASPO which will not only make it harder for fraud to occur but it will help change the culture of car insurance claims, meaning that only genuine claims for injury will be paid. These will have a long term impact on reducing car insurance premiums for honest motorists in Bradford.

1. 8. Impact of Government reforms on car insurance premiums

At the Prime Minister's Car Insurance summit in February 2012, insurance companies gave a commitment that they would act on any Government reforms and pass on savings to customers in the form of a reduction in premiums estimated at £1.5-£2bn.

Due to Government reforms comprehensive insurance premiums have reduced dramatically by almost 30% in two years from a high of £1,230 in Q2 2012 to £878 in Q1 2014. The decrease has been felt by all ages particularly for young drivers (17-22) and 23-29 year olds.

In the Bradford area, insurance premiums on the AA's Shoparound index has reduced by 28%. This is a saving for Bradfordians of over £170 on an average insurance premium.

With premiums reducing by 28% in two years within the Bradford area, and with Government reforms on whiplash and young drivers still to come, as well as further concerted efforts to reduce uninsured driving and claims fraud, we can expect with some confidence, that at least in the future, honest Bradfordians will no longer be paying the price in the form of inflated car insurance premiums.

1. 9. Conclusion

Government reforms have stopped the never-ending rise in car insurance premiums in Bradford and have now gone even further by putting premium increases into "reverse gear", reducing premiums in Bradford by 28% in only two years, potentially saving Bradfordians over £170 on an average premium.

Progress made in achieving 2012 report objectives.

Despite these reforms, car insurance in Bradford remains unaffordable for many particularly for young drivers. We will continue to campaign for action on the following issues:

1. 1. The Introduction of Graduated Driving Licences for young drivers.
2. 2. Increased penalties for uninsured drivers.
3. 3. Increased enforcement of uninsured drivers in Bradford.
4. 4. Enhanced enforcement for car insurance fraud.
5. 5. A greater understanding of the use of Telematics, its impact on driver behaviour and the effect that this has on car insurance premiums