Motorists will lose out.
That is the message from economist reports in relation to the soft tissue claim reforms. Designed to help motorists save money, it now seems they are actually being hindered. In an independent report, economists have shed light on the myths peddled by insurers which persuaded decision makers to enforce the changes last month.
Debunking the myths
Insurers have indicated that soft tissue injuries are the biggest cause of premiums rising. The truth however, as put forward by economists, paints a very different perspective. In reality the reforms will highly suit insurers; giving them chance to offset market conditions and ensure profit margins remain acceptable.
The insurance industry in the UK is responsible for around £1.8 trillion worth of investments. As a whole, it pays over £12 billion in taxes each year and consists of relatively few parties. The governing body ABI (Association of British Insurers) consists of around 250 members which it claims accounts for “90% of UK insurance premiums”. This is a huge amount of money spread between a selection of businesses.
Why then are insurers the biggest winners from the reforms?
The report highlights some key factors motivating insurers to push for reform:
1. Low profits from interest rates
Insurers may well have taken a hit in profits recently; but these are just as likely to be from the business model than the number of soft tissue claims.
Insurers make money by achieving a return on their initial investment. Low interest rates rapidly drive down an insurer’s return and affects overall profit. Low interest alone would hugely affect the industry negatively; whether million whiplash claims are filed or 1.
Given insurers have blamed the number of claims on reduced profits, a saving on claims will help offset losses generated through low interest rates.
2. Lower than perceived competition
Insurers will have you believe reform savings will have a big impact on premiums. You may see a small drop for 1 year (of the promised £40), but premium quotes are likely to remain very similar. Get a quote on any comparison site and you will see little difference between the lowest prices to highest.
This is because many quotes will be underwritten by the same firm. Numerous companies may use the same process or people to assess a premium. This gives little scope for change between prices. Because there are fewer firms, the impact of the savings on each company will be huge, allowing for better profit margins, and bigger bonuses.
3. £0.7 billion unaccounted for
Some companies (not many) promised a £40 saving per premium. However, this does not utilise all savings from the reforms. Some £0.7 million extra will be available but not shared with the public if the sum of £40 is upheld. The money will instead boost profits and ensure targets are hit.
With so many overlooked points, what does it all mean for motorists?
The stance taken initially by insurers had a very “motorists first” feel. However, both claimants and motorists in the long term stand to gain nothing. Premiums may be affected for 1 or 2 years of savings, but given that they often rise year on year, it may not be long until the savings are irrelevant.
The reforms will also of course restrict soft tissue claimants, as their access to justice is being effectively taken away. Pair that with injury solicitors who have taken an obvious hit at the hand of the legislation and you have 3 out of 4 parties left short changed.
The reforms have benefitted one industry. An industry consisting of relatively few companies and spanning vast amounts of money per year. As part of a very famous phrase suggests, “the rich get richer”.