In the 2015 Autumn Statement, the Chancellor of the Exchequer, George Osborne, said that he was going to “ban” whiplash claims. Roll forward almost six years, and the so-called “Whiplash Reforms” set out in the Civil Liability Act of 2018 are to be introduced. The main reason for the reforms is to try and reduce the frequency and cost of whiplash claims. The Association of British Insurers has reported that there are more than 1,500 whiplash claims made in the UK every day, and the cost to the insurance industry is estimated at more than £2bn per year (1). The government are hoping that savings of £30 per policy will be passed on to policyholders in the form of lower premiums. The FCA is set to closely monitor data from insurers on the level of damages settlements and will no doubt pressurise insurers to pass on any savings to policyholders in the form of premium reductions. The main changes that are set to be introduced are:
1. The Small Claims Track (SCT) limit for personal injury claims will rise from £1,000 to £5,000 – the majority of whiplash claims will be non-cost bearing until litigation.
2. Whiplash claims will be subject to a new tariff – this will significantly reduce the level of damages paid on whiplash claims from the current levels.
3. The creation of a portal for SCT value claims arising out of motor accidents – the aim is for all claims to be quickly processed via the new portal.
The unanswered question for the government and insurers is whether the reforms will result in a reduction in the frequency of whiplash claims, reduce the level of awards and ultimately lower motor premiums. Only time will tell, but the early signs are not encouraging. The guide for litigants in person runs to 60 pages and using the portal does not appear to be straightforward. When this is added to the fact that the government is not going to advertise the portal, the likelihood of claimants continuing to seek representation is high. Currently, it is estimated that up to 90% of claimants will be represented with a lawyer or claims management company taking a percentage of the damages as a fee, in a model that will be similar to the one used on PPI claims. These representatives will seek to add own damages, physio, credit hire and other items to get the claim over £5,000 to move it out of the SCT and allow them to recover costs. In addition, insurers are likely to face what is being referred to as Whiplash Plus claims. This is a whiplash claim plus a claim for some other injury (e.g. bruised wrist, PTSD, tinnitus etc…). These other injuries are not subject to the tariff and will be used to inflate damages and the percentage fees recovered. The issues surrounding the damages awards for Whiplash Plus claims are likely to be appealed to either the Court of Appeal or potentially the Supreme Court, so clarity on this issue won’t be available for some time.
For insurers, the reforms will require a change to the claims handling process and will likely increase handling costs. Insurers will have 30 days to respond to a new claim on the portal, and if they do not respond within the timeframe, liability is accepted. Insurers will have to invest additional resources frontloading claims to investigate them quickly and make early decisions on liability. A further concern for insurers is the ability to accurately investigate fraud within 30 days. Insurers may decide that the best way to manage the claim where they have a liability is to intervene to deal with the own damage, credit hire and personal injury claim. Whilst this is a good way to handle the claim under the new rules, the third party becomes a “customer” with a potentially increased regulatory burden.
George Osborne’s desire to “ban” whiplash claims has not come to fruition, and whilst the jury is out on the potential savings that the whiplash reforms will bring, the early signs are not giving cause for optimism. For any Insurer that has reduced its premiums in anticipation of significant savings, the rest of 2021 will involve an anxious wait to see if the reforms bring any reduction to motor claims costs.
Written by Geoff Piggot
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