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26 June 2017

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What does the crackdown on bogus whiplash claims really mean for motor premiums?

The Queen’s Speech last week promised a Civil Liability Bill that will introduce both new rules on medical evidence and a fixed rate of compensation for whiplash injuries. The Government claims together these could reduce the average motor insurance premium by around £35 a year. However, there was no mention of a rethink on the Ogden rate, which is estimated to have increased average premiums by a roughly similar amount, although disproportionately more for younger drivers.

The UK is the world capital for whiplash claims. The AA estimates that nearly 90% of the UK’s annual 839,000 small injury claims under £25,000 relate to whiplash. Not only this, but the UK accounts for nearly half the whiplash claims across the whole of the EU. Drivers are being advised or pressured into making claims for minor collisions they would otherwise have forgotten. This is increasing claims costs because insurers have no way of proving whether an injury was or was not suffered, so the claim stands as valid.

The Queen’s Speech proposal follows consultation by the Ministry of Justice (MoJ) at the end of last year. The stated aim of the Bill is to tackle the ‘continuing high number and cost of whiplash claims’, by banning the settlement of claims without corroborating medical evidence and by introducing a new fixed tariff of compensation for whiplash claims, although there was no indication of the levels.

Unfortunately, the Ogden rate – the discount rate decided by the MoJ and used to calculate the size of upfront payments for long-term care and loss of earnings following personal injury claims – does not appear to be currently tabled for review. However, the recent reduction in the Ogden rate from 2.5% to –0.75% has resulted in a substantial increase in claims costs and premiums that will more than nullify any decrease from the whiplash legislation. But, more importantly, many serious commentators feel, because the new rate is based solely on treasury bond returns, it does not realistically reflect the far higher level of investment returns that are available in the marketplace.

Richard Grainger, Centor’s Broking Director, commented: “For too long the unscrupulous few have seen bogus whiplash claims as an easy payday, driving up costs for millions of law-abiding motorists. This reform is both welcome and long overdue. Here at Centor, we work tirelessly with insurers to ensure whiplash payments are kept to a minimum and we support the Government’s initiative to try and reduce the number of false claims.”