Insurance companies urged to drop ‘sharp practices’

The insurance industry has been urged to abandon “sharp practices” in the management of car accident claims by a heavyweight committee of MPs.

The House of Commons transport select committee’s second report on the cost of motor insurance, published this morning, also calls for the government to set a higher benchmark for compensation payments in whiplash cases.

In a report that follows the Committee’s March 2011 report on the cost of motor insurance, the MPs identify the escalation of uncontested claims for whiplash injury as the key factor behind the spiralling cost of motor insurance.

The committee urges insurers to drop what it describes as sharp practices, such as passing on drivers’ personal data and taking referral fees for personal injury cases.

The MPs, in a bid to tackle the myriad factors, also call on the government to:

• Review the operation of the ‘pre-action protocol’ and ‘online portal’ established to handle low-value insurance claims since its introduction in 2010. Results should be published within six months.
• Establish a cross-departmental ministerial committee on reducing the cost of motor insurance and publish a plan to address each aspect of the problem. 
• Send a clear message to the insurance industry that it expects 2008 data protection legislation to be fully respected and impose stricter penalties for any breach.  
• Initiate an investigation into cold calling undertaken to generate personal injury claims and then examine the legal and regulatory options for curtailing this activity.

Launching the latest report, the committee’s chairman Louise Ellman said:

“Insurers, solicitors and claims management companies have themselves driven up the cost of motor premiums by encouraging people caught up in road accidents they did not cause to claim for personal injury, car hire, and other legal costs. 

“Although we strongly support access to justice, drivers should not be railroaded by cold callers into launching legal action. The insurance industry must abandon sharp practices that push up premiums such as passing drivers’ personal data to other parties or taking secretive referral fees from solicitors, garages and car hire firms.

“Many of these claims are for whiplash, an injury where diagnosis is often subjective and therefore very costly for insurers to challenge. The threshold for receiving compensation in whiplash cases should be raised and, if the number such claims does not fall significantly, the government should bring forward primary legislation to require objective evidence – both of a whiplash injury and of it having a significant effect on the claimant’s life – before compensation is paid.”

But Ellman questioned the effectiveness of the government’s recent move to ban personal injury case referral fees, particularly once rules restricting the ownership of law firms are relaxed. 

“The government should ensure that the new legislation is implemented in a manner that will prohibit insurers from receiving referral fees across the board rather than simply in relation to legal action.

“Greater transparency is also essential. To expose the ‘merry-go-round’, the government must oblige insurers to provide clear information to consumers about how and where they pay referral fees.”