The Lorry Lawyer: DWF keeping you moving forward

Accident claims

The pitfalls of accident claims

According to Gavin Perry, one of DWF’s insurance partners and a member of the Transport sector group, one of the main legal issues for transport firms over the next couple of years will continue to be escalating claims costs arising out of road traffic accidents.

A report by the Financial Services Authority (FSA) suggests that Insurers lost 24p for every pound of premium they charged in 2010 on private policies and 10p on commercial policies. The Office of Fair Trading (OFT) have recently referred the private motor market to the Competition Commission, but their findings, and those of other recent surveys make interesting reading for those in the fleet market too.

‘Bent metal’ claims

The main areas of concern for the OFT were the inability of the ‘at fault’ driver’s insurer to exercise influence over the way repairs are carried out and replacement vehicles provided, and to assess whether the costs of both are reasonable. This then gives incentives to other organisations including credit hire / repair organisations to take advantage and increase the costs that the insurer has to meet.

The trade organisation for the credit hire companies put the turnover of the credit hire industry at over £600 million per year. On average 76% of the ‘not at fault’ drivers who received a replacement vehicle obtained one on a credit hire basis.

The OFT found that replacement vehicles were 106% more expensive when the ‘at fault’ insurer does not control the process, amounting to £560 per hire. Average rates are higher (£59 v £39 per day) and hire periods longer (19 v 14 days) – that equates to a total cost to the industry of £215m per annum.

In addition when vehicles were repaired on a credit basis the average cost increased from £1375 to £1530, equating to an increased spend of £80m per annum.

Injury claims

Earlier this month, an Actuaries Institute report revealed that there was an 18% increase in the proportion of accidents involving injury (the greatest year on year increase since their records began) and a 9% increase in the average cost of small third-party bodily injury claims between 2010 and 2011 – all of which comes against a decrease of 11% in third party damage claims. Basically this means that although there are fewer accidents occurring, the number of injury claims being pursued is on the rise. The decrease in the number of accidents appears to be down to an decrease in the number of hours driven (due to the recession) – and represents the sharpest drop for the last five years.

Statistics from Allianz suggested a rise in Whiplash claims between 2005 and 2011 of 117%.

In the USA (who we think of as being very litigious) and in Germany, only 1 in 10 rear end shunts result in a claim – in the UK it is 1 in 1.75!

Manchester, Liverpool and Birmingham have a much higher proportion of injury claims than other parts of the country – 52% of third party accidents in Liverpool result in an injury claim, possibly linked to the to the number of claims management companies (CMCs) who operate in those areas. The same report suggested that there had been a 20% jump in the number of CMCs over 12 months, but a 50% jump in the hotspots.

Are necks really weaker in the North West than they are in the South West or is it just a claims culture that has been fostered – can you only take so many texts saying that you are entitled to compensation before, in the current economic climate, you give in?

Fraud

The Association of British Insurers (ABI) recently put the cost of motor fraud in the UK in 2011 at £446 million.

You may have seen recently that 4 men were arrested in Liverpool following a ‘crash for cash’ scam involving a bus that they chartered to take 30 people to a dog track. The passengers got the driver to pull over having said that the bus had been in a collision that the driver had not been aware of. Damage was understandably minor, but all 30 on the bus indicated to the driver that they had suffered whiplash – assuming an average of £5000 per person for injuries and costs, a total potential claims cost of £150k – further assuming that the cases were not litigated.

Crash for cash scams are becoming more sophisticated, the media having highlighted the issue. Straight forward slam-ons have been replaced with accidents using ‘stooge’ vehicles making the at fault driver feel that the person they hit was also an unwitting victim of the actions of the other stooge vehicle. Some ‘accidents’ never occurred, but were created on paper – fleets are particularly vulnerable. The perpetrators simply take details of vehicles, livery, route and time and then allege an incident occurred. Because of the amount of information they have taken, it adds credibility to their account.

The investigations that can be carried out by insurers, solicitors and agencies are much more detailed than they used to be, and with agencies such as the Insurance Fraud Bureau and dedicated police teams, there is a greater desire to take action against fraudsters. The scale of the problem does, however, mean that at the moment – together with the issues identified above, that the continued increase in claims costs is inevitably passed on by the Insurers through higher premiums. If you are self insuring or have a high deductible, then the increase in the claims cost will be coming directly off your bottom line.

The future

Are we simply trying to put the genie back in the bottle, the claims culture having already become established?

The Government have hosted a number of Motor Insurance Summits over the past few months, out of which came possible consultations on ways of working with industry to reduce whiplash, and a possible threshold (5mph) below which injury claims could not be made – but there is nothing definite on the horizon.

There will be a crack down on ‘no win no fee’ and referral fees from April 2013, but most people in the industry do not believe that this will address the underlying problems, for example TV advertising will continue.

In the meantime – in order to ensure that you minimise your exposure to claims, fraudulent or otherwise, then our advice is that there is a golden hour after an accident. In that time you want to collect as much information at the scene of the accident – your drivers are the ones who are on the front line, and training them in what to do at the scene of the accident could considerably reduce your claims exposure.

As well as the normal details exchanged at the scene, this should include photos of the parties, vehicles and debris (sometimes the vehicles are further damaged before an engineer inspects, and sometimes the people who say they were in the car weren’t). Take full details of all parties and witnesses to include full contact details so that if necessary contact can be made with them. Make use of bump cards so that you (if necessary via your agents) are the first to offer repairs/replacement vehicle to minimise exposure to credit hire and credit repair. Camera technology is becoming cheaper – it can be the difference between your Insurer deciding to make a payment because there is a litigation risk, and the claim never getting off the blocks.

At the moment the trend to increased claims costs shows no signs of abating, and where you have a fleet, and the ability to influence driver behaviour, part of the solution to reducing claims costs lies with you – although we are happy to help and guide you through that process!

Gavin Perry, Partner, DWF: 0151 907 3493
Vikki Woodfine, Senior Solicitor, DWF: 0161 603 5060

lorrylawyer@dwf.law

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