Yesterday’s report on escalating whiplash claim volumes from the Insurance Times was staggering and, to quote Jack Straw MP, “sadly not surprising”. It is the latest in a long line of bad news stories for insurers and consumers alike in the bodily injury claims space. This blog entry explores what measures are being taken to address this issue, what impact they might have and what it means for insurers.
A Growing Issue
More than 570,000 whiplash claims were registered in 2010/2011, a 10% increase on the previous year and all of this in the context of a ~20% fall in the number of road traffic accidents in the UK in recent years. The latter trend is set to continue and some of Thatcham’s cutting-edge work in the vehicle safety space has the potential to lead to further significant reductions in both the frequency and severity of genuine whiplash incidents in the medium to long-term.
One of the big root causes of increased whiplash claim volumes in recent years has been the shift towards a compensation culture in the UK where some people feel like they are entitled to compensation and so exaggerate the seriousness of their injuries accordingly and the rise of mass-market legal services for personal injury compensation and the emergence of referral fees have been the real drivers of this. In addition the upsurge in organised, fraudulent “crash for cash” scams which often involve multiple whiplash claims has been another significant root cause.
Addressing the Root Causes
Whilst Thatcham’s work and other centrally-driven improvements to road safety will reduce genuine whiplash claims, a number of measures are being taken at an industry level to address the root causes of both the opportunism on the part of individuals and the organised fraud that is having such a great impact on insurers and law-abiding consumers alike:
A ban on referral fees looks increasingly likely and Mr Straw’s forthcoming parliamentary debate may well kick off the process to make the legislative reforms required to enable this. The devil will be in the detail here and the industry and government will need to act cohesively and decisively to build a solution around the reforms to ensure that the same model, albeit it with subtle differences in the way that money changes hands, does not re-emerge
The Insurance Fraud Bureau’s (IFB) work in the fraud analytics and intelligence space continues to be successful and when this is integrated with the Insurance Fraud Register and the Police’s Insurance Fraud Investigation Unit the industry’s response to organised fraud, and within that fraudulent whiplash claims, will become ever more powerful, leading to significantly increased levels of criminal convictions and hopefully reduced fraudulent injury claims
In addition to this, cross-sector work to drive down legal costs on all types of compensation claims would have a significant impact on the overall cost to insurers and consumers
These measures will hopefully stop the situation from getting worse. The real test will be whether the measures subsequently bring about a wholesale reversal of the trend or whether there will be longer-term issues to deal with.
The Residual Problem
Leaders of any large insurer will testify that when an organisation’s culture and behaviours start to go off-course it is extremely challenging to bring them back on-course and the process can take many years to complete. The UK’s compensation culture is no different in this regard and having addressed the root causes that triggered the culture shift in the first place, it could take many years to change the public’s mind-set, values and behaviours on this matter.
This, combined with the absence of a more effective and nationally-recognised means by which to medically diagnose whiplash claimants, suggests that the important measures outlined above will not be a quick fix for the industry and that significant levels of exaggerated whiplash claims could be an enduring feature of the industry for many years to come.
In recent years insurers have broadened the capabilities within their motor claims handling operations to include solicitor and paralegal skillsets; improved the workflow of bodily injury cases to these individuals, time being of the essence in the early stages of these claims; and improved integration with bodies like the IFB to fully capitalise on the fraud intelligence that they provide.
What is clear, is that insurers will need to continue to build, operate and continuously improve these capabilities until the residual problem erodes over time.
Conclusion
A senior insurance industry figure once told the author of this blog that the industry would pay billions of pounds to anybody that could provide a solution that effectively addresses the issue of whiplash claims from a medical diagnosis perspective. Until this and / or a step-change in the UK’s compensation culture has been achieved it will be down to the insurance industry, the criminal justice system and the government to collectively mitigate the problem the best they can.
About Baringa Partners
Baringa Partners’ people have worked extensively in the UK General Insurance market helping established players and new market entrants to address a wide variety of challenges, including responding to adverse claims trends such as bodily injury.
To find out more, visit our website, www.baringa.com or contact jonathan.west@baringa.com
Posted by Jonathan West on the 8th of September 2011
InsuranceTimes.co.uk, Shock whiplash claims figures revealed, 7 September 2011
http://www.insurancetimes.co.uk/story.asp?storycode=392696
Post Online, Thatcham heralds 'giant step forward' in battle against whiplash claims, 23 May 2011
http://www.postonline.co.uk/post/news/2072863/thatcham-heralds-giant-step-forward-battle-whiplash-claims#ixzz1XLZpwIGC
