Why Motor Premiums Are So High And What To Do About It – The Alternative View Point

Having spent 21 years helping people to rebuild their lives after accidents and having to fight insurers from using every tactic in the book to prevent genuine and valid claims, you would think I should no longer be surprised by insurers making what I consider to be ridiculous statements, and what is worse the British media (no doubt because the insurers spend so much on advertising) simply lapping up every word they say. Well, paid media lapping this propoganda up is one thing, but when the BBC supports the comments made by insurers I really struggle to understand why. I am going to send this article to the BBC and I will fully expect it to be published as a reasoned response to the biased AXA article they have published today under the headline “Why Motor Insurers Premiums Are So High And What To Do About It”. You can see the article here but don’t forget to come back and read what this is really all about (not the insurers’ only version): BBC Article.

In summary the article blames two bodies of people for the rising cost of insurance premiums; namely you (the injured victim) and me, the legal profession. Not surprisingly insurers, who make billions in profits every single year, do not come in for any criticism (interesting eh?).

The main criticism raised by Paul Evans of AXA is that there are more whiplash claims made now despite the overall number of accidents declining. Now you might think that this is due largely to all of the advertisements you see on television, but you would be hugely mistaken. The real reason is that insurance companies have been encouraging people to make whiplash claims for years, when they would perhaps otherwise choose not to do so. They do this because many of the insurance companies (indeed most of them) now receive up to £1,000 for each of their insured that they refer to their chosen solicitors. Therefore, insurers put a huge amount of pressure and encouragement on their insured who are injured to go ahead and make the claim so that they can receive their bung (known as a referral fee) from their friendly solicitor (generally chosen because they will pay the highest referral fee – not on the basis that they will provide the best service). As pointed out by Paul Evans from AXA insurance the solicitor receives a standard flat fee payment for their legal costs of around £1,400, leaving them with only £400 for their work once you deduct the £1,000 referral fee. So why do the solicitors do this? Well larger solicitors have become addicted to the volume of work that insurers can send to them (often hundreds or thousands of new clients every single month). Whilst in the beginning they would pay only around £200 for each client referred to them, the insurers soon realised that by sending a large volume of injured clients to only one or two firms of solicitors, they could increase the referral fees they generated from the solicitors, up to the ridiculous fees now achieved of £1,000. However, the insurers also have become addicted and perhaps dependent on all of these referral fees and as they have done so they have become much more aggressive in persuading their insured to make claims, and when they do so, insisting that they go to their ‘pet solicitor’ to make sure that they receive their referral fees. How do I know this to be true?

My wife was recently in her car in a car park when someone reversed into her. The other driver’s insurance company (Aviva) were quickly on to my wife confirming that they would cover the cost of her repairs (no complaints on their efficiency in that regard). However, every time my wife spoke with Aviva they asked if she was injured, was anyone else in the car with her and were they injured, how many people were in the other car and were any of them injured. They were pushing to find any injured victims that they could sell on to their solicitors. They asked her on four separate occasions. The other insurers act in the same way and until very recently AXA insurance also took large referral fees. They have come out and said they are no longer taking them, perhaps not surprising when in only two months time due to changes in who can provide legal services AXA insurance will be able to deal with all of their legal claims in-house (if they choose to do so), so rather than simply take an £800 referral fee they can keep all of the £1,400 in legal fees. As I said, I am cynical about insurance companies with 21 years of good reason to be so, as I know all that they do revolves around profit. The two months of lost referral fees must easily have been replaced by the masses of free publicity AXA insurance has received from the media, now including the BBC. That publicity would have cost them millions of pounds, so I have to give credit to the fellow marketing professional who came up with this clever idea for free publicity. It was a gamble but it seems to have paid off very well.

The Solution

So the solution, rather than banning referral fees, is actually incredibly simple, as now that they exist you will never be able to sweep them under the carpet. The solution is much easier than that and involves two very simple steps that could be implemented and enforced easily.

Step 1 – Ban Insurers From Profiteering From Their Insureds’ Injuries

I think the fact that insurers profit from their insured being injured is morally wrong which is reason alone to ban it. But when you add to this the pressure they put on people to make claims (when otherwise they would not do so) it makes it clear that taking them out of the equation is vital. So ban them immediately and instantly you stop them driving up the number of people claiming whiplash compensation. Only people who are genuinely injured will go to the trouble of finding the right solicitors to help them, the others that are ‘egged on to claim’ will simply not bother. So that is Step 1.

Step 2 – Enforce The Cold Calling, Spam Emailing And Spam Texting Laws

The other reason why people are encouraged to claim is because many of the larger claims companies regularly send text messages and emails telling people that they are entitled to £3,750 in compensation from their recent accident. (It always seems to be this amount and I received such a text message just last week even though I have not had a car accident for around 17 years). I receive several emails like this a week also from very well known major accident claim companies fronted by celebrities even though I have never opted in to receive such emails (I can tell this because they use generic email addresses that are only publicised on our websites and never used by me). However, there are already laws in place to stop these emails and text messages from being sent. The Ministry Of Justice just has to take action to close these companies down but they do not seem to be doing this. If they start to enforce the laws which already exist to stop this activity, coupled with the step proposed above, the number of claims would drop and only people that wanted to claim because they were genuinely injured would do so.

Problem Solved

So these two simple steps will solve the problem, but at the same time protect the innocent victims who do need good access to justice. However, even when these laws are enforced (as they should be) don’t expect insurers to bring the cost of premiums down, that is very unlikely to happen.

So BBC, I trust you will now publish this article as you have done Paul Evans from AXA Insurance’s article on the basis of providing balanced media which is part of your requirement as I, and everyone reading this, fund your business model.

Nicholas Jervis

Solicitor (non-practising) and Managing Director of Loyalty Law.

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