Research shows continuing claims inflation despite fall in deaths and injuries
The total cost of bodily injury claims paid by UK motor insurers has significantly outstripped inflation over the past decade, according to the fourth UK Bodily Injury Study. Claims inflation was 9.5% a year between 1996 and 2006 – more than double the growth in average earnings. Over the last 20 years, claims costs have risen by 840%.
The report, commissioned by the International Underwriting Association (IUA) and Association of British Insurers (ABI), also reveals that the number of claims jumped 3% a year between 1996 and 2006. This is despite government statistics showing the number of people killed or injured on British roads fell by 19% over the same period.
It is the cost of the largest motor bodily injury claims that is increasing most dramatically. The decade up to 2006 saw claims inflation of 6% a year for cases less than £80,000, but 10% for claims of more than £80,000. Furthermore, costs per insurance policy for claims of more than £5m have jumped by an estimated 30% per annum over the last five years. There are now more and more very large claims emerging with the market currently handling three cases greater than £15m and one uninsured driving claim estimated at £20m.
The rising cost of claims has resulted from various legislative and legal changes including the introduction of insurers having to routinely reimburse the NHS for the cost of treating motor bodily injuries, increased life expectancy in calculating compensation and growing amounts awarded to fund care regimes. Possible changes to the law on damages and an increased take-up of periodical payments could both lead to further claims inflation in the future. The cost of medical treatment has also risen faster than average inflation.
Dave Matcham, Chief Executive of the IUA said: “Our latest research shows that the increasing cost of motor bodily injury claims is not a recent phenomenon. This is a trend which has now been sustained for decades and shows little sign of abating. Ultimately, however, such increases are unsustainable.”
Stephen Haddrill, Director General of the ABI, said: "These figures underline the urgent need for reform of personal injury compensation. Genuine claimants need to get their compensation and have access to rehabilitation more quickly. Key to achieving this is reducing legal costs, which now account for 10% of every motor premium. The Government needs to implement its reform proposals quickly so that the genuine claimant is placed at the heart of a streamlined, cost-effective process"
Other findings from the Fourth UK Bodily Injury Awards Study include:
Legal costs funded by insurers have continued to rise much faster than National Average earnings. Insurers pay lawyers 43 pence for every £1 of compensation that goes to claimants.
A growing use of rehabilitation by insurers has gone some way to helping control the cost of claims, but rehabilitation is still far from being a routine part of the bodily injury claims process.
The speed of settlement of claims above £100,000 has increased substantially to the benefit of claimants and insurers alike.
Uninsured driving costs around £500 million a year, or around £30 for every motor insurance policyholder.