Mixed picture on whiplash

It has been asserted that insurers’ lobbying for further reform of the claims process is unjustified. Critics cite motor claims portal statistics showing a year-on-year reduction in claims as evidence of the success of the Jackson reforms.

This is misguided. If you want to take a ‘typical’ year for an objective comparison, then 2013 is the last period you should choose.

Why? First, as claimant solicitors rushed to get cases on to the portal before the reforms, January-April 2013 saw a massive spike in the number of claim notification forms (CNFs) submitted. Ignoring the impact this had on the 2013 figures is a critical misjudgement. February, normally a ‘slow’ month, was the fifth-highest ever.

Nevertheless, the average number of monthly CNFs for the year since the revised protocols were implemented is still lower than two years ago (63,836 for 2013/14, compared with 66,411 in 2011/12). I have excluded March 2014 from the average, as there was a significant one-off movement of claims between organisations consequent to the Direct Line Group startup.

Is this, then, evidence of the effectiveness of Jackson in reducing claims? No. Take the last half-year compared with the same period two years ago – the 2013/14 figures have exceeded those for 2011/12 in four of the last seven months and the total is virtually identical for these periods.

This supports the view of many in the industry who believe that claim numbers are returning to pre-reform levels.

In terms of whiplash, note also that the consultation, Reducing the number and cost of whiplash claims, was published in December 2012. The government was concerned not by the frequency of such claims in 2013, but in 2010, 2011 and 2012.

Analysing those years reveals a mixed picture. Whiplash remains the major contributor to total motor claims numbers and its assessment and valuation is still the major issue post-reform.

Serious reservations must also be made in the absence of damages figures from any analysis of the impact and effectiveness of the reforms. After all, insurers’ indemnity spend is not all determined by claims frequency. Damages also need to be factored into the equation, yet the debate is strangely silent on this key contributor to claims spend (and thus premium pricing).

The statistics show that over the last 12 months, the average general damages spend for portal claims has increased by more than 22% – and the trend is still upwards. While the portal has been extended to include claims up to £25,000 in value, the number of additional claims involved is, by Keoghs’ calculations, less than 3%.

These will have had only a very minor impact on average, especially as the life cycles of these claims are longer, so it is unlikely that many such settlements have yet been concluded.

Of course, insurers have benefited from reduced fixed fees both inside and outside the portal process, but the trend in general damages and, for that matter special damages, weighs heavily on the cost-benefit analysis in terms of overall indemnity spend. It is strange that many ignore this fundamental fact.

Yes, motor premiums have reduced by 14% since the reforms, but this has come mainly from continuing intense competition and the release of claims reserves. It is worth noting that premiums actually started to come down before implementation of the reforms as insurers anticipated savings. It is difficult to see how any further significant reductions can be justified on the basis of portal experience, given what is happening in terms of both damages and frequency of claims.

Indeed, without some of the further reform being called for by the insurance industry, it is foreseeable that premiums may start to rise again.

Polarised views appear to be dominating this debate, which creates a dangerous vacuum. Issues such as access to justice deserve better than a one-eyed approach, which fails to take into account some fundamental facts. We need a more objective and reasoned analysis of an ever-changing but important issue.

Don Clarke is a partner at Keoghs