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Friday, 22 June 2012

Car Insurance - a complex web

We are told again and again that motor insurance premiums are too high. We are also told that the reason for this is the number of claims being pursued by ‘no win no fee’ lawyers and in particular claims for whiplash.

It is easy to believe that anybody injured in a motor accident, caused by another driver, is somehow personally responsible for high premiums. I have said before that is mainly a myth –

But there is barely a mention of the conduct on motor insurers themselves.

This has been highlighted, this week, by a case where insurers have been battling between themselves over repair costs. In a case known as Coles, Woodhead and Crowther v Hetherton, Guy and Thomas – RSA were taken to task by Allianz and Provident. This concerned the RSA’s practice of using a repair company, MRNM, which is part of their group, to do the work. This obviously saved money on the charges. But they were charging the third parties’ insurers (in these cases Allianz and Provident) a notional repair cost rather than the actual cost. This was based on what it would have cost the driver to do the work rather than what they paid. They accepted that they made money on this arrangement.

In a hearing this week the High Court approved the practice and declared that it was entirely reasonable. Mr. Justice Cook ruled that a reasonable repair cost is not necessarily the cost actually incurred. It is now being predicted that in a competitive market other insurers will follow suit. This in turn could see a 25% hike in premiums.

This comes on the back of news that the OFT are to investigate the conduct of insurers. They are accused amongst other things of inflating car hire and repair costs by entering into agreements with suppliers who charge inflated amounts. They are also amongst the highest beneficiaries of referral fees.

I hope all this will begin to set the record straight. It is easy to blame victims of accidents for high premiums. It is even easier to blame their lawyers who are always cheap targets! But in reality nobody expects the insurance industry give us all a rebate if claims are reduced.

Premiums are too high. But the way they are charged is a very complex web.

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