My car was damaged recently. It was in a car park and I was somewhere else. The culprit drove off. I claimed on my own insurance, and I was directed by them to a specified accident repair garage. The garage took my mobile number, ostensibly to contact me when the car was ready. They did not. Instead they sold on my details to a claims management company in breach of the Data Protection Act. I know this because I received an SMS text a week later telling me that I had been in an accident and was entitled to £2,750.00 for my “injury”. Most people I have spoken to have had a similar experience. It has probably happened to you.
Round about the same time a projected rise of 13% in insurance premiums was blamed on the rise in personal injury claims, and in particular claims for whiplash injuries.
Whiplash claims now make up 70% of all motor accident claims. Typically neck and back symptoms might last 3 – 6 months with the courts routinely awarding damages of between £1,500 - £3,000, so the claims themselves are not large. However it is an injury which has few objective signs and there is a clear temptation for fraud and exaggeration. There was evidence placed before the Transport Select Committee in 2011 that the insurance industry loses £2.1bn per annum to fraudulent claims. The Association of Chief Police Officers testified that they believed that there were around 30,000 staged “cash for crash” accidents in 2009. The insurance industry once again presents a story of the honest citizen paying an added price for a system tilted in favour of the unscrupulous.
But like much of the compensation culture mythology, scratch beneath the surface and a different picture emerges.
First of all there is no compensation culture in Scotland. Our claims record for all kinds of accidents is dwarfed by those of our English neighbours. Figures obtained from the Compensation Recovery Unit show that in England there were 1,904,298 claims with the Scottish figure being 76,470. Where one might expect a proportion of around one tenth based on population, the figure is in fact one twenty fifth. The disparity is repeated for car accident claims and it is so marked that the House of Commons Transport Committee Report “The Cost of Motor Insurance” noted that other countries without the whiplash problem included France, Germany, Spain and ...Scotland.”
The highest claiming area in the UK is the North West of England with figures showing 20 claims for every 1,000 residents involved in a a car accident. So that is 2 out of every 100 persons involved in a car accident. Scotland has an even lower claim to accident ratio. The figures for Grampian and the Glasgow and Edinburgh areas is 0.03% , that is 3 claims for every 1,000 residents involved in a car accident.
The most likely reason is that Scotland has relatively few claims management companies, and the referral market, whereby payment is made for sales leads for road traffic accident claims, is far less developed north of the border.
A brief tour round the road traffic claims industry might illuminate where the real opportunities are:-
These are not lawyers. Their business model consists in the identification and encouragement of possible claimants. Details are then sold on to solicitors as “oven ready” in the industry jargon. In England referral payments up until recently were routinely between £250 - £650. The claims companies operate customer-friendly 24 hour helplines and have a ubiquitous online and TV presence. It is sometimes claimed that they fulfil a public need in that persons who might otherwise be too intimidated to speak to a lawyer prefer to make the first approach to a claims management company. Whilst that may have been the case 20 years ago, is it really true of the current consumer? For anyone who can operate a mouse, this is an introductory dating service which is wholly unnecessary.
These companies will provide a replacement vehicle whilst your own is being repaired. They will have paid a referral fee generally of around £500, typically to a body repair shop. Their hire costs greatly exceed the spot market rates. The idea is that all of these costs will then be transferred to the insurer of the driver at fault. An example of the business model in operation is the case of Clark v. City of Edinburgh Council  CSOH 144. After a close scrutiny of a credit hire arrangement Lord Turnbull concluded that the unwitting pursuer was effectively required to raise proceedings for the sole purpose of recovering his credit hire payments without any real knowledge of the arrangement details. His 14 year old Toyota Celica (worth £1,000 with 91,000 miles on the clock) had been damaged and he found his way to the offices of the Accident Exchange Company. They provided a replacement car, namely a Honda Civic 2 litre GT which had done only 900 miles. The hapless Mr. Clark then racked up around £12,000 of credit hire costs based on a daily rate of £161.63. He sued for a total of £12, 857.13. In a withering judgement Lord Turnbull held that a “new vehicle for old” hire approach was not appropriate and awarded him a total of £1,950.00.
Insurers frequently incorporate a low priced add-on which provides legal cover in the event of a road traffic accident. The claimant is then referred to the insurer’s panel solicitor in the event of an accident. You may believe that this recommendation is of a badge of quality. What is less well publicised is that the insurer receives a referral fee from that solicitor for every claimant. The insurance industry is coy about these backhanders, but estimates of their value vary between £2 – 4 billion per annum. Admiral admitted that in 2010 the figure they received was £24.5 million. These payments never appear in the industry analysis of cost per claim against premium income. There may be further conditions whereby the solicitor agrees to direct the client to specific medico-legal practices or car hire firms, generating further referral fees. Road traffic claims tend not to be particularly difficult. This is work which most no win, no fee lawyers will do for you without charge. The Transport Select Committee has recommended that insurers should publish on their website a list of the firms with which they have referral arrangements, an indication of the level of fees paid and a clear explanation of how referral arrangements work and their purpose. When claims are made insurers should make it clear to claimants that they need not use the solicitor, vehicle repairer or credit hire firm which is recommended by the insurer.
In my own case it is likely that my insurer has some kind of referral fee arrangement with the accident repair garage. However the key information is the mobile phone number which enables text messages to be sent. As you read this someone is receiving a text from a claims management company probably based in England, encouraging a claim to be made, and telling the person they would be stupid not to.
The truth is that the whole car insurance market is bloated, incestuous and corrupt, with the consumer being the last concern of the major players.
This is a system which seems to provide profit opportunities for vendors of fresh air at every stage of the process. The Transport Select Committee has described it as “a dysfunctional merry –go-round”. The problem has recently been addressed in England under the LASPO Act which is supposed to ban referral fees. The Government also announced that it intends in England to do away with claims for whiplash altogether. But saying the sky is green does not make it so, and even this Government cannot simply disinvent the injury. There is no reason why ordinary motorists should have to pay increased premiums for injuries which only required taking paracetamol for a few days. But once again the honest persons who have suffered genuine injury and pain with symptoms lasting months or in some cases years will be denied to benefit the insurance industry. This is a devolved issue and there are at present no plans to extend it to Scotland, but you should expect the insurance industry to start making noises and agitating for change up here as well.
In the meantime when you get your renewal premium don’t blame your fellow motorist, or at least those of us living in Scotland.
And has the time not come for concerted north of the border agitation for much more significant postcode discounts?