New compensation system comes into force today
The long awaited shake-up of the compensation system for low value road traffic accidents went live today, sparking a warning that the new system could lead to an upsurge in fraud.
Under the Ministry of Justice’s reforms, which came into effect today, motor insurers only have 15 days to accept or deny liability for road traffic accident claims of up to £10,000, which account for around 80% of all motor personal injury claims.
The new system also introduces fixed legal costs for such claims.
Peter Castle, head of customer proposition at Bluefin, warned that the more exacting timetable created by the new system created an increased risk of fraud.
By failing to settle early, he said, insurers ran the risk of claims falling out of the new process and therefore no longer being subject to these fixed legal costs.
Castle said: “The reforms are friend and foe to insurers. The shortening of the time period plays into the hands of the insurers as it will increase the efficiency and reduce the legal costs. However, there could well be an increase in fraud as the insurer will also have less time to investigate each individual claim in order to stay within the time frame.
“Cases could often be rushed, undermining the extent to which they can check suspect fraud. This will give fraudsters more of an opportunity to abuse the system and the quick decision making, unless stringent anti-fraud measures are put in place by insurers.
Castle added: “Meeting the timescale will add a great deal of pressure to insurers, as they will need to
work doubly hard to check cases and resolve them within the 15 days. Suspect cases will all too often be allowed to proceed unless counter-fraud initiatives are put in place and tight measures adhered to. The ever changing face of fraud will no doubt attempt to take advantage so the motor insurance industry must keep a watchful eye out.”
But ABI director of general insurance Nick Starling welcomed the reforms’ implementation.
He said: “These changes will not only mean quicker compensation for many, but will also reduce the level of legal costs that all motorists ultimately end up paying for through their motor premiums. We expect that these changes will be the start of wider ranging reforms to ensure that more claimants benefit from a simpler and speedier compensation process, and we would like to see this new process extended to cover employers’ liability insurance claims.”