The legal view of the OFT shakeup
Lawyers from Pinsent Masons, Spencers Solicitors, Hogan Lovells, Cost Advocates, the Association of Personal Injury Lawyers (APIL) and the Motor Accident Solicitors Society (MASS) have commented on the OFT’s report into the cost of motor insurance, published today.
Pinsent Masons partner Alexis Roberts: “If you take a step back to consider why car hire and repair charges have become a problem for the insurance sector, insurers won’t be that disappointed in the way the OFT has stepped in.
“The problem for all insurers has been that, where other insurers adopt these practices, the rest have then got to respond. Their options for responding are limited because of price competition and the difficulty with passing cost on to customers, so other insurers have as a result adopted the same practices.”
Spencers Solicitors director John Spencer: “The referral of the private motor insurance market to the Competition Commission is excellent news for both consumers and people injured in car accidents. Years of rampant profiteering have created a dehumanised and amoral system which puts profits far above the public good. It is my hope that the death knell for these practices has been sounded.
“Insurers play a key, but by no means sole, role in this dysfunctional system, dreaming up perverse commercial incentives such as the auctioning of personal injury cases, which may maximise their profits but ultimately damage access to justice and push up premiums for drivers.
“In light of the referral, it is clearly time for the government to rethink their cosy relationship with the insurance lobby. The government’s position of constructing reforms solely at the behest of insurers is manifestly untenable and certainly not in the best interest of the public.
“By engaging all parties within the personal injury and private motor insurance markets, the government will have a far greater chance of creating a fair and equitable system, and lowering insurance premiums along the way.”
Hogan Lovells competition partner Angus Coulter: “A two-year study will be challenging for all those in the sector. However, insurance companies may in fact welcome some aspects of the investigation.
“Many insurers have spent years attempting to rein in the costs which they face after an accident, for example payments to third-party providers of replacement vehicles. A broad study could benefit both the industry and consumers.
“From a lawyer’s perspective, the real difficulty will be identifying solutions rather than just problems – an issue which the Competition Commission has faced in many market investigations where complex and well-established business practices appear to have an adverse effect on competition.”
Cost Advocates principal costs lawyer Jon Lord: “The whole credit hire industry is open to fraudulent practice as we have seen with the allegations against the seven Auto Focus employees in February, which Lord Justice Moses described as ‘allegations of perjury on an industrial scale.’
“But if hire prices are inflated, it is not a problem which is driven by insurers. There is no benefit to insurers paying more for hire just so they can receive a referral fee in return. It just doesn’t make sense.
“Market forces have meant that they have no option but to pay the rates asked and faced with a choice of using a provider which doesn’t offer a referral fee and one who does (perfectly legitimately), they will opt for the one with the referral fee in order to reduce loss ratios and keep premiums down at a time when they are being particularly hard hit by fraudulent accidents, as highlighted in the FT this week.
“Ironically many fraudulent accidents involve hire vehicles so the industry needs to tackle the root cause before anything else. It is too easy to make money out of fraudulent claims for ‘whiplash’, fuelled by accident management companies, when associated legal costs are too high. The industry needs to get its priorities right.”
APIL president Karl Tonks: “What the OFT calls ‘dysfunctional’ and ‘inefficient’ actually reveals a host of grubby practices to line insurers’ own pockets, to the tune of an extra £225 million on car insurance premiums last year.
“For years the insurance industry has sought to blame anyone and anything but itself and its own sharp practices for high insurance premiums. Legal costs for compensation claims were slashed two years ago for this very reason, but premiums remained sky-high.
“This report reveals what we‟ve known to be the case for a very long time - that the solution to unaffordable car insurance premiums lies in the insurance industry‟s own hands. We hope this report will now kick-start an appetite for much closer scrutiny of the insurance industry and the way it operates.”
MASS chair Donna Scully: “The OFT’s work has shed much needed light on a complicated industry where it is clear that there are a great number of factors driving up premiums, beyond the much touted fraudulent personal injury claims. The scale of the problem with the repair and replacement vehicles is immense and it remains to be seen what more will be uncovered.
“Money is clearly being made from consumers behind their backs and MASS would welcome full disclosure of specific fee income on every case so that the consumer is fully informed. It is no wonder the whole sector has fallen into disrepute and that consumers are so wary of everyone who operates in it, and frustrated by exploitative practices they are likely to encounter when they make a claim.
“MASS welcomes the OFT’s provisional decision to refer the UK market for the supply of private motor insurance to the Competition Commission. It is another important step in cleaning up a sector that is currently not operating in the best interest of consumers and accident victims.
“But we can’t stop here. Insurers, solicitors, government and regulators all need to stop blaming one another. We would urge government to bring all parties together, not just insurers, to find a solution that is right for consumers and protects genuine accident victims.”
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