The average claim now costs £10,000 to settle

The cost of settling a small third-party personal injury claim has climbed 26% to £10,000 in 2012 from £8,400 in 2011, according to a report from the Institute and Faculty of Actuaries (IFoA).

The IFoA research also found that the amount paid out in legal fees has increased despite measures aimed at reducing legal costs.

The introduction of the Ministry of Justice (MoJ) portal to handle personal injury claims was targeted at cutting the legal costs of handling a claim. However, since the introduction of the portal in 2010 the average legal costs for a personal injury claim has increased by 15%. Lawyers can now expect to receive an average of £2,500 for handling a whiplash-like claim.

David Brown, one of the authors of the IFoA report, said: “As we reported back in June, whiplash-like injury claims continue to increase for third-party motor insurance, despite a 15% drop in quoted premiums and the fall in the number of damage claims over the same period.

“It now costs insurers more than £10,000 to settle small whiplash-like claims, a year-on-year increase of 26%. The impact of this claim inflation is significant and contributes 85% of the numbers of small injury claims, and just under half the cost. This inflation of cost to insurers does not mean that claimants are proportionally receiving more. For these types of claims the average amount typically received by claimants has remained at around 45% (of the cost to the insurer) since 2010.”

The researchers also estimate that third-party injury claims will rise a further 5% to £371 per policy over 2013, but this has not followed through to increases in premiums.

Brown said: “We believe that the cost of claims for 2013 will be £371 per policy, up from £354 in the preceding year. Clearly insurance claims have a significant impact on consumers, but despite this the average quoted cost of a motor insurance policy in the UK continues to fall and is now 21% lower than 2010.”