Fixed legal fees start to impact on personal injury claims, says analyst

Motor personal injury claims costs are predicted to fall in the coming years as the impact of initiatives to fix legal costs take hold, according to a leading analyst.

Datamonitor said the growth in average claims costs had slowed to 1.5% in 2004, from 11% in 2003 and 16% in 2002.

It attributed the slowdown to the effects of the fixed fees regime for low-value road traffic accident claims that was introduced two years ago.

It predicted that in 2005 and 2006, average claims costs would begin to fall as the fixed fee system took further hold and more claims would be settled that related to accident years after the introduction of the system.

Datamonitor said that anecdotal evidence from insurers suggested that claims cost fell by approximately 5% in 2005.

But after 2007, Datamonitor predicted average costs would increase again "in line with general medical inflation" by up to 5%.

Andrew Birkett, financial services analyst at Datamonitor, said that the decrease in claims cost growth was "good news" for motor insurers.

But he warned of the need for rates to increase given the predicted rise in average costs towards the end of the decade.

Last week, the AA reported that average comprehensive motor premiums fell by 0.5% in the first quarter of 2006.

Claims costs to hit £7.5bn
Personal injury claims costs are expected to reach £7.5bn by 2010, Datamonitor has predicted.

Claims costs were £6.4bn in 2005/2006, and Datamonitor said it expected 3.9% year-on-year growth.

This would reverse the trend in recent years, which has seen total personal injury claims costs fall. In 2003/2004 total costs were £6.6bn.

Datamonitor said rising employers' liability claims costs were the main driver for the predicted growth in the coming years.

It forecast employers' liability claims costs would rise by 10% per annum. Motor personal injury claims were forecast to increase by a "marginal" rate.