Insurers face excessive whiplash and 'cash for crash' claims, says AA boss

Insurers are still handling “excessive” numbers of costly whiplash and ‘cash for crash’ claims, the boss of AA Insurance has warned.

Simon Douglas said they were also coming under increasing pressure to slash their premiums on price comparison sites due to competition.

This comes in the same week the AA British Insurance Premium Index revealed that car insurance premiums climbed 8.5% over the last year.

“Insurers are still handling excessive numbers of costly whiplash injury claims as well as fraudulent ‘cash for crash’ claims and ‘ghost’ broking set-ups, who sell seemingly valid insurance policies using false information,” said Douglas.

“However, significant inroads are being made by insurance fraud specialists including the new police Insurance Fraud Enforcement Unit, which has already smashed a number of insurance scams.”

Douglas said that application fraud, in other words, buyers withholding or changing information in order to reduce premiums, is also being targeted by insurers.

“We expect the industry eventually to have routine access to DVLA data and the sooner this happens the better,” he said.

“It will allow fraudulent applications to be weeded out,” he says. “Insurance companies are already exchanging information about people who appear to be manipulating data on order to cut the price quoted.”

The Index found that the average cost of an annual comprehensive car insurance policy rose 4.3% to £1,034 during the second quarter.

But, using the same Shoparound basket of risks on price comparison sites suggests that the average premium has fallen by 0.9% to £631; a drop of 3.3% over the year.

Meanwhile over the year ended 30 June 2012, the cost of a buildings policy rose by 6.9% to £176 (a fall of 0.8% over the second quarter), while the cost of contents cover rose 4.8% to £92 (a fall of 0.1% over the second quarter).

Premiums for young men aged 17 to 22 increased 7.5% to £2,792 and prices for women in the same age group were up 6.5% at £1,995.

Douglas said that premiums for young women could increase by as much as 25% after the end of the year when the European Court of Justice gender ruling comes into effect in December.

The Index also revealed that Scotland was the cheapest region to buy car insurance, with an average quote of £727, while Greater Manchester and Liverpool were the most expensive at £1,648.

Douglas said the market was in turmoil, with some insurers increasing premiums and others cutting prices to increase their customer base.

“Competitive pressure is leading some companies to make big premium cuts on price comparison sites so that they can increase their portfolio of customers,” he said.

“While this is great news for consumers, they need to make sure they’re getting good cover, not just a good price.”

On home, Douglas said that the lack of movement over the past three months reflected both the competitive nature of the market as well as a mild winter and fine weather during the first part of the year.

“Since then we experienced the wettest June on record and the bad weather has continued into July, resulting in flood insurance claims approaching £200m, according to some estimates,” he said.

“While on their own these claims are unlikely to result in the kind of premium increases we saw after the 2007 floods, when the average quote for a buildings policy increased by 21.9%, insurers are likely to respond by resuming the upward premium trend sooner rather than later.