Over in the UK, the Government has announced plans to ban referral fees in personal injury claims in an effort to drive down the “compensation culture” that has sent insurance premiums spiralling. It has criticised the current system suggesting that when personal injury details are sold on by insurance companies to lawyers, it has led to a rise in insurance premiums.
However, while action may be being taken, it is too late to stop car insurance premiums rising by 40 per cent over the last year alone. So what has prompted the increase and what can the average driver do about it?
Contrary to popular belief, car insurance companies aren’t making huge profits at the expense of consumers. In fact, car insurance has not been profitable for insurers for years with the cost of claims continuing to rise – even though Department of Transport statistics show the number of accidents has fallen by 10 per cent over the last three years. Remarkably however, during the same period, the numbers claiming for an injury from a car accident has increased by 43 per cent.
The majority of the claims relate to relatively minor injuries, such as whiplash – with around 1,200 new claims every day. Even though the NHS spends about £8million a year treating whiplash, the insurance industry pays out £2billion in compensation.
While some claims are legitimate, unfortunately, whiplash claims are rife with fraudsters attempting to take advantage. With the “no win, no fee” legal environment it has become increasingly encouraging for drivers to try their luck. For a typical whiplash claim of £2,500, a lawyer would earn a fixed fee of £1,350 – and this, with associated costs, brings the insurance company’s total bill to £4,400.
What can be done?
The whole situation is highly frustrating for law-abiding consumers and highly unsustainable. It is believed that reform is drastically needed and the removal of referral fees could be one step in the right direction.
For the average motorist there is little that can be done other than to hope for change. Meanwhile, they should concentrate on taking as many steps as they can to reduce their own car insurance premiums. Ironically, one measure is to avoid small claims wherever possible – as this will allow a driver to build up a no-claims discount which could reduce premiums by as much as 60 per cent after four or more years.
Additional tips include boosting the security of the vehicle, raising your voluntary excess, limiting your annual mileage and paying premiums annually instead of monthly to avoid interest charges. Make sure you shop around with a comparison website during each renewal period and also look out for car insurance voucher codes online.
Photo by Sarah Brown on Unsplash