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Motor insurance and the compensation culture - holding up the mirror

Huw EvansAs a relative newcomer to Twitter (@huwevans71 if you are asking), it is still an interesting learning curve to see what provokes a reaction. Celebrating Wales grinding out a few wins in the 6 Nations has not set my timeline ablaze but congratulating the Government for its boldness in reducing fixed costs for personal injury lawyers certainly got the insults rolling in.

The debate about what causes high motor insurance premiums shines a light on some interesting issues and not just the bad blood between insurers and personal injury lawyers. It asks questions of all of us whether insurers, car users, lawyers or regulators.

For insurers, the industry has paid a heavy reputational price for taking part in an increasingly dysfunctional market, especially in relation to accepting referral fees for passing on the details of those involved in motor accidents to claims management companies and personal injury lawyers. For an industry where trust and integrity are critical to customer confidence in claims handling, this has been a major self-inflicted injury which has fundamentally shaken both public and political confidence in motor insurers. Having grasped reform by successfully campaigning for referral fees to be banned and for the Competition Commission to review the sector, it is vital insurers learn the lessons and build a more transparent and trustworthy business model.

For personal injury lawyers, the challenge is to stop bleating and accept that the business model they built on the 'no win, no fee' legal reforms of the 1990s is coming to an end, together with many of the bloated profits it brought them. I hope they drop some of the self-righteous rhetoric and stop pretending that the English civil legal system is about to collapse because their profits are being reined in. The right to affordable legal representation is a benchmark of a civilised society but so is the ability to legislate democratically to tackle abuse and profiteering, especially when the price is being paid by honest motorists who are not making exaggerated or fraudulent personal injury claims every time they have a minor bump in the car park at Tesco. With the cost of whiplash claims now accounting for 20% of the cost of motor insurance, lawyers should recognise the need for reform and build their businesses around representing genuine claimants with normal profit margins for them.

For car users, there is therefore also a challenge. The reason whiplash claims now add 2billion in costs to motor insurance customers every year is because of the sheer volume of claims; some 550,000 of our fellow citizens every year file a whiplash claim, enough people to fill Old Trafford seven times over. This makes the UK in 2013 the whiplash capital of the EU, hardly a brand of choice for a country that once ran the largest empire the world has ever seen. Because insurance is essentially a mutual business - we all pay in so there is enough money to pay out when a claim needs to be paid - the cost of false claims ultimately falls on all of us, not some faceless corporation. For as long a culture of 'Where there's blame, there's claim' exists in this country, the honest majority will be paying for it.

So there are tough challenges facing all of us with regulators and legislators hovering if insurers, lawyers and the public don't change their behaviour. My answer to all those twitter respondents is that the mirror is being held up to us all - and it is in all our hands whether the reflection that stares back at us gets any more attractive.

Last updated 29/06/2016