The UK’s Whiplash Epidemic

The International Insurance Forum

Motor Insurance: The Road Towards Profitability

James Dalton, Director of General Insurance Policy

Association of British Insurers

19th April 2016

Overview – The UK’s whiplash epidemic

• Overview of the UK’s motor insurance market

• The nature and scale of the whiplash epidemic

• The reform agenda so far

• Legislative reform

• MedCo

• Claims Management Companies

• Insurance Fraud Taskforce

• Further change ahead

• Question and discusssion

Overview of the UK motor market

• The industry insures 24.7 million private vehicles and 3.8

million commercial vehicles on UK roads

• Average UK motor premium was £403 in 2015

• In 2014, for every £1 in premiums received by motor insurers,

they paid out just over £1 in claims and expenses

• Underwriting loss of £31 million in 2014 - improvement on

2013 but still 20 consecutive years of underwriting loss

Underwriting Results (£m)

(2.000)

(1.500)

(1.000)

(500)

0

500

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Un

de

rwri

tin

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esu

lt (

£m

)

Motor Claims Overview

BODILY INJURY10%

PROPERTY DAMAGE

23%

ACCIDENTAL DAMAGE

32%

WINDSCREEN ONLY25%

THEFT CLAIMS1%

REPLACEMENT VEHICLE

8%

OTHER CLAIMS1%

BODILY INJURY45%

PROPERTY DAMAGE

22%

ACCIDENTAL DAMAGE

23%

WINDSCREEN ONLY

1%

THEFT CLAIMS3% REPLACEMENT

VEHICLE5%

OTHER CLAIMS1%

% of number of claims by claim type (2015 Q4) % of claim costs by claim type (2015 Q4)

Average premium

Market overview – Premium tracker

• Average private comprehensive motor insurance premium for full licence holders

• The average premium in Q4 2015 was £430, 3% lower than in Q1 2012 but an increaseof 7% on the quarter before

• Since reforms to the civil justice system were introduced at the start of 2013, over £1.1billion of savings have been passed on to motorists in the form of lower premiums

£442 £443

£430£433

£412£407

£392£397

£385 £385£381

£398

£388

£396

£403

£430

Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4

2012 2013 2014 2015

ABI Motor Premium Tracker

Whiplash: Overview

• Insurers receive a claim for

whiplash on average every minute

of every hour of every day

• In the 12 months ending March

2015, 762,325 people claimed to

have suffered a whiplash, neck,

back or other type of injury resulting

from a motor accident

• Over £2 billion a year in claims

costs, representing a fifth of the

average premium

Whiplash: International comparisons

Whiplash: The problems

Whiplash: The Problems • Dysfunctional system – compensation culture

o Claims Management Companies (CMCs)

o Financial incentives in the system for all players to bring claims

o Referral fees

• No objective test for whiplash

o Self-reported with no physical evidence of injury

o Medical reports produced on an industrial scale

o Financial links between personal injury lawyers and those producing the

medical report (although action has been taken to address this)

• The high cost and number of claims ultimately leads to upward pressure on

motor insurance premiums

Claims Frequency

Number of road traffic accidents involving bodily injury and the number of bodily injury claims settled,

2001 - 2014

0

50.000

100.000

150.000

200.000

250.000

300.000

350.000

400.000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Number of bodily injury claims settled Number of RTAs involving bodily injury

Ban on referral fees lifted

RTA claims in the Claims Portal

Bodily Injury Map

The reform agenda so far

• Introduction of the Legal Aid, Sentencing and Punishment of

Offenders Act 2012:

o Referral fees

o Removing of the recoverability of ATE premiums and CFAs

• Extension of the limit in the Claims Portal to £25k

• Reduction of fixed recoverable cost in the Portal from £1200

to £500

The reform agenda so far

Following these reforms, a number of other reforms have been brought forward in

the past 12 to 18 months:

• Introduction of fixed fees for medical reports obtained in RTA claims for low value soft

tissue injuries

• Introduction of MedCo to randomly allocate medical experts (who are not financially

linked to the instructing party) providing medical reports for low value soft tissue

injuries following an RTA

• Accreditation of all experts providing medical reports in RTA low value soft tissue injury

claims

• Requirement to carry out a CUE PI check from 1 June 2015

• Criminal Justice and Courts Act 2015:

• introduced stronger measures for tackling fraud through the courts

• banned solicitors from making inducements to claim

• Quality of medico-legal reports and financial links between claimant lawyers

and Medical Reporting Organisations (MROs)/doctors identified as two key

issues

• MedCo established to both randomly allocate MROs or medical experts for

the production of medico-legal reports in support of whiplash claims and has

responsibility for the accreditation of all medical experts

• MedCo went live on 6th April 2015

• Board made up of representatives from claimant, medical and defendant

communities with an independent Chairperson

• Accreditation of all medical experts is due to be completed by 1 June 2016

• User currently given an ‘offer’ of one Tier 1 MRO and six Tier 2 MROs. This

will change by the end of Summer 2016 to an offer of two Tier 1 MROs and

ten Tier 2 MROs

Claims Management Companies

Review of Claims Management Companies

• Independent Review of the regulation of Claims Management Companies (CMCs)

announced in the Budget in July last year by the Chancellor of Exchequer

• Review led by Carol Brady, NED of the Claims Management Regulation Unit and Chair of the

Trading Standards Institute

• Final report published alongside the March 2016 Budget – the Government accepted all

recommendations in full, including:

o More prescriptive conduct rules, underpinned by personal accountability for CMC

managers through a ‘fit and proper person regime’

o Compulsory re-authorisation for all CMCs

o Transparency on fee structures/financial links, alongside mandatory signposting to free

alternatives

o Tougher enforcement regime and power to raid offices and seize documents without

notice

• Regulation to be transferred to the Financial Conduct Authority (FCA) from 2018 – a “step

change” in how CMCs are regulated

• In addition, the Government has consulted on CMC fees – the ABI has argued that the

proposed cap on fees for simple financial claims should be extended to all CMC activity

Insurance Fraud

Detected motor insurance fraud

• In 2014, insurers detected 130,000 fraudulent claims with a value of £1.32 billion

• Motor is the most common type of claims fraud by both volume (67,000 – up 12%) and value

(£835 million– up 3%)

• The value of organised crash for cash fraud decreased from £392 million in 2012 to £336

million in 2015

• The volume of motor application fraud increased by 18% to 212,000 in 2014

Insurance Fraud Taskforce

• Government established the Taskforce in January 2015 to recommend how to make the UK

more resilient to insurance fraud and protect honest policyholders

• The final report (January 2016) made recommendations for government, industry, regulators

and others to tackle a wide spectrum of fraud – including drivers of policyholder attitudes and

behaviours, data sharing and measures to combat personal injury fraud

• Government is establishing a legacy body to provide oversight of the implementation of the

recommendations and ensure ongoing constructive dialogue between interested sectors

Insurance Fraud – industry responseInsurance Fraud Bureau

• Since it was established in 2006, IFB has assisted police with over 1100 arrests that have resulted in sentences of around 350 years imprisonment

• IFB is currently implementing its 5 year strategy that will see it:

o Expand product lines under management to include liability and household (as well as motor)

o Establish itself as the centralised hub for intelligence sharing in the insurance sector

Insurance Fraud Register

• The IFR is a database of proven fraudsters across all product lines that can be accessed at all stages of the product lifecycle.

• 42% of the general insurance market are now active members of the IFR and a further 125 organisations have formally registered their interest in participating

• Insurers report regular matches and have identified significant numbers of potential risks for further investigation and action

Insurance Fraud Enforcement Department

• IFED is a bespoke police unit within the City of London Police dealing solely with insurance fraud and is funded by the insurance industry

• Since inception (Jan 2012), IFED has dealt with over 1400 suspects, secured around 120 years of custodial sentences and confiscated assets valued at £1.4 million

Autumn Statement reformsThe reforms

“The government will bring forward measures to reduce the excessive costs arising from unnecessary whiplash claims, and expects average savings of £40 to £50 per motor insurance policy to be passed on to consumers, including by:

(1) Removing the right to general damages for minor soft tissue injuries; and

(2) Removing legal costs by transferring personal injury claims of up to £5000 to the small claims court”.

Rt Hon George Osborne, Chancellor of the Exchequer

25 November 2015

Next steps

• Government due to consult on detail of the proposals inthe Spring 2016

• Legislative provisions due to be implemented by Spring2017

Autumn Statement reformsKey issues to be determined:

• Definitions

• Transitional provisions:

• Date of accident

• Date of claims notification

• Introduction of thresholds:

• Prognosis period

• Claim value

• Points based system

• Where will claims activity move to?

• Psychological injury

• Rehabilitation

• Special damages

• Litigants in person

• Impact on current industry practice

• Claims Portal

• MedCo

Summary

• Focus from Government, regulators and consumers on the cost of motor

insurance and the drivers behind it

• Low value bodily injury claims, particularly whiplash, are the biggest cost

motor insurers face

• UK’s dysfunctional compensation culture is a key driver of the number of

whiplash claims

• A number of reforms have been implemented which have proven to be

ineffective at reducing claims volumes

• Government proposed to take decisive action to tackle the problem once

and for all and help reduce car insurance premiums for consumers

Questions

Contact details:

James Dalton

Director of General Insurance Policy

James.Dalton@abi.org.uk