The Transport Select Committee's latest report on the rising cost of motor insurance has forced the debate over the related scandals - and they are scandals - of whiplash claims and referral fees further up the political agenda. This is very welcome but there now there needs to be a constructive response from everyone.

For that to happen there has to be an acknowledgement by all concerned that a significant proportion of so-called whiplash claims are phony, either false or exaggerated. How big a proportion is almost impossible to tell but anecdotal comparisons with other European countries suggest it is a far worse problem than most people imagine. What would be useful now is an authoritative comparison across Europe and I would suggest that it is in the interest of the British insurance industry to put up the money for this and then to stand back from the work itself.

As far as I see it there are few people that come out of the current mess without some blame attached to them for creating it. Insurers have been too weak in challenging suspect claims and have participated in the money making merry-go-round of passing claims on; too many claimant lawyers sell people the idea that they have a claim when none exists; the courts have been weak in dealing with fraudsters; and doctors have been too easily duped by people following carefully crafted scripts. It is not a pretty picture.

If each group accepts its share of the blame then maybe we can start talking about finding a constructive solution and the person that has to be at the heart of that is the genuine claimant. It would be a very good starting point if we could start to create a picture of what the genuine claimant looks like: what type of car they were driving, the nature of the accident, their previous medical history, age, likely symptoms and so on. Much of this information already exists with the various motor accident research bodies and the World Health Organisation. It needs to be collated, verified and intelligently - and independently - analysed so that we can make sure that people with genuine claims are dealt with fairly, sympathetically and efficiently. I can't support the simplistic approach advocated by Jack Straw and others that we should switch the onus of proof in soft tissue neck injuries to the claimant. That would put insurers in an invidious and ultimately unpopular position.

I look forward to the next installment of this debate at the All Party Parliamentary Group on Insurance & Financial Services' meeting tomorrow afternoon when the select committee chair, Louise Ellman and Jack Straw will give their views on the way forward. 

Interest in the work of the All Party Parliamentary Group on Insurance & Financial Services continues to grow with Conservative MP for Totnes Sarah Wollaston becoming the latest member to join.

She brings the total number of embers of the group to 53 with just over half now drawn from the House of Commons.

Next meeting tomorrow
The next meeting of the group is tomorrow when it will be tackling the problem of whiplash claims from motor accidents:

Tuesday 15 November
Portcullis House, Room N, 4.30pm - 6pm

A new consensus for tackling whiplash culture in the UK
Can the insurance industry agree on how diagnosis, claims and treatment could be changed; and is there a better way?

Speakers:
Andy Wigmore, on behalf of Health and Case Management
Prof Sir Mansel Aylward
Nick Starling - Director of General Insurance and Health, Association of British insurers Graham Plumb, Claims Technical Manager - Large Loss, AXA Insurance

One of the most striking outcomes of yesterday's discussion on referral fees at the All Party Parliamentary Group on Insurance & Financial Services was the lukewarm support from the Labour frontbench for Jack Straw's strident campaign to ban fees.

John Woodcock, Labour's new shadow transport minister (right), was less than enthusiastic about an outright ban: "What troubles me is how do you avoid over-correcting? Clearly there is a broken marketplace but we need to ensure that we retain access to legal advice for people who need it". This view was succinctly echoed by Chris Shaw, commcercial director of AI Claims who was presenting to the group: "We need more of a scalpel rather than a sledgehammer".

This seems a far cry from Mr Straw's call for an outright, all-embracing ban on referral fees in his Motor Insurance Regulation Bill. This features five key provisions:

• to make it unlawful and a criminal offence to solicit, offer, or pay referral fees relating to a personal injury traffic claim
• to introduce objective evidence for whiplash claims
• to half the Ministry of Justice fixed fee for road traffic claims pursued through the portal
• to prohibit insurers from isolating risk on the basis of a geographic area smaller than a region
• to bring forward certain provisions in Data Protection Act.

Jonathan Evans, chairman of the group, said that his belief was that most MPs feel that the £1200 flat fee for cases coming through the electronic portal is far too high and that there was a consensus emerging around the call in Mr Straw's bill to cut that by 50%. He was far more cautious about the proposal to criminalise the taking or offering of referral fees but warned that "unless there is a move to take unjustified cost out of the system people will continue to press fro drastic action".

One area he suggested could benefit from closer scrutiny was the credit hire business which he alleged pushed up costs and incentivises repairers to take too long through practices such as booking vehicles in on Fridays. He also called for an investigation into allegations that the police may also be passing on information from accidents for money.

Clearly, this debate has a long way to run. Many people instinctively feel that referral fees are wrong and have added unnecessarily to motor insurance claims costs. They certainly seem too high and are often paid indiscriminately for large amounts of data with very little justification by any test of public benefit. The challenge is going to be to find precisely where to wield Mr Shaw's scalpel if the market is to avoid Mr Straw's sledgehammer crashing down on it.

One of the other elements of Mr Straw's campaign - a crackdown on whiplash claims - is the topic for the next meeting of the group:

Tuesday 15 November, 4.30pm. Portcullis House, Room N
A new consensus for tackling whiplash culture in the UK
• Can the insurance industry agree on how diagnosis, claims and treatment could be changed?
• Is there a better way?
Speakers: Andy Wigmore, on behalf of Health and Case Management
Prof Sir Mansel Aylward (TBC)  

One of the most striking outcomes of yesterday's discussion on referral fees at the All Party Parliamentary Group on Insurance & Financial Services was the lukewarm support from the Labour frontbench for Jack Straw's strident campaign to ban fees.

John Woodcock, Labour's new shadow transport minister (right), was less than enthusiastic about an outright ban: "What troubles me is how do you avoid over-correcting? Clearly there is a broken marketplace but we need to ensure that we retain access to legal advice for people who need it". This view was succinctly echoed by Chris Shaw, commcercial director of AI Claims who was presenting to the group: "We need more of a scalpel rather than a sledgehammer".

This seems a far cry from Mr Straw's call for an outright, all-embracing ban on referral fees in his Motor Insurance Regulation Bill. This features five key provisions:

• to make it unlawful and a criminal offence to solicit, offer, or pay referral fees relating to a personal injury traffic claim
• to introduce objective evidence for whiplash claims
• to half the Ministry of Justice fixed fee for road traffic claims pursued through the portal
• to prohibit insurers from isolating risk on the basis of a geographic area smaller than a region
• to bring forward certain provisions in Data Protection Act.

Jonathan Evans, chairman of the group, said that his belief is that most MPs feel that the £1200 flat fee for cases coming through the electronic portal is far too high and that there is a consensus emerging around the call in Mr Straw's bill to cut that by 50%. He was far more cautious about the proposal to criminalise the taking or offering of referral fees but warned that "unless there is a move to take unjustified cost out of the system people will continue to press for drastic action".

One area he suggested could benefit from closer scrutiny was the credit hire business which he alleged pushed up costs and incentivised repairers to take too long through practices such as booking in vehicles on Fridays. He also called for an investigation into allegations that the police may be passing on information from accidents for money.

Clearly, this debate has a long way to run. Many people instinctively feel that referral fees are wrong and have added unnecessarily to motor insurance claims costs. They certainly seem too high and are often paid indiscriminately for large amounts of data with very little justification by any test of public benefit. The challenge is going to be to find precisely where to wield Mr Shaw's scalpel if the market is to avoid Mr Straw's sledgehammer crashing down on it.

One of the other elements of Mr Straw's campaign - a crackdown on whiplash claims - is the topic for the next meeting of the group:

Tuesday 15 November, 4.30pm. Portcullis House, Room N
A new consensus for tackling whiplash culture in the UK
• Can the insurance industry agree on how diagnosis, claims and treatment could be changed?
• Is there a better way?
Speakers: Andy Wigmore, on behalf of Health and Case Management
Prof Sir Mansel Aylward (TBC)  

Insurers have urged caution over calls to revamp the 1886 Riot Damages Act - and they are probably right to do so.

At yesterday's meeting of the All Party Parliamentary Group on Insurance & Financial Services Nick Starling, director of general insurance and health at the Association of British Insurers, praised the late 19th legislators who created the Act: "The Riot Damages Act is still fit for purpose...and we think there is a very strong case for retaining it". He said that the definitions had proved sound and warned that more could be lost than gained by changing them.

In a briefing submitted to MPs, the ABI further emphasised what it sees as the core purpose of the Act: "We believe that, just as victims of crime can be compensated under the Criminal injuries Compensation Scheme, victims of the recent riots should also be afforded compensation for their losses", adding that householders and businesses that were not fully insured still deserved to be compensated for damage caused by "acts of violence and looting which were no fault of their own".

The ABI also warned that without the safety net of the compensation scheme under the Act insurers would be forced into making some potentially very harsh assessments of the risk of rioting in some areas. The implicit suggestion - even threat - here is that it could lead to red-lining of some inner city areas and the insurance industry knows from bitter experience in the past that it will be the only loser if that debate flares up.
 
These all seem to be sound points but they do not tell the whole story about the Riot Damages Act. It does have its short-comings and, as Lord Sheikh told the meeting, it does need to be re-vamped. The trick will be to retain the core purpose, scope and relative clarity of the Act while making it better suited to the 21st century.

 A range of issues were highlighted that deserve consideration if the Act is to be up-dated.

Bill Gloyn, chairman of the British Property Federation Insurance Committee, proposed the creation a National Reinsurance Fund so that there would be no doubt that the government would pay when riots occurred and wouldn't leave the police authorities to lobby over picking up the unbudgeted bills. This suggestion was immediately christened "Riot Re" by the group's chairman, Jonathan Evans.

The suggestion has some merit because one of the dafter aspects of the summer's riots was the almost obsessive way government ministers and spokesmen steered away from using the R word for fear of triggering the statutory compensation. This was despite the Home Office apparently telling the ABI on the Tuesday at the height of the disturbances that they were clearly riots under the definitions in the Act. A proper national scheme would also deal with one of the problems highlighted by Graeme Trudgill of the British Insurance Brokers' Association, which is the frequent confusion over which police authority claims should be submitted to.

Speaking from a loss adjusting perspective, Cunningham Lindsey's Jonathan Clark, highlighted some of the old-fashioned features of the Act that definitely need an overhaul, especially the long and cumbersome forms, not to mention the references to £ s d (pre-decimal currency) and guineas.

He also called for the notification period to be permanently extended from the 14 days in the Act and beyond the 42 days announced by the Prime Ministers when Parliament was recalled in the summer: "Even 42 days is too short for major losses ... Lloyd's typically allows 90 days".

All of this seems to be a sensible case for a modernisation of the Act rather than a wholesale repeal and reform. Hopefully, this can be achieved within a timetable that gives plenty of time to ensure it is done properly and then put safely away for a good few years before we find ourselves dusting it down again. 

 

• How did the insurance industry fare in handling claims in the wake of the riots?
• Is the Riot (Damages) Act 1886 out of date, and how could and should it be amended to be of greater relevance?
• Should the 14 day notice period for riot claims be extended permanently?
• What major issues - such as underinsurance - have arisen around coverage for property and business interruption?
• What other lessons could be learnt?

The insurance implications and lessons learnt from the 2011 riots
Tuesday 11 October 4:30pm at Portcullis House, meeting room M

Confirmed speakers

• Bill Gloyn - Partner - European Real Estate of JLT Specialty Limited and Chairman of the British Property Federation Insurance Committee
• Jonathan Clark - Director, Corporate and Technical Risks at Cunningham Lindsey

The latest newsletter covering the activities of the All Party Parliamentary Group on Insurance & Financial Services is now available.

This up-dates people on changes in the group's officers and its administrative arrangements as well as previewing the issues likely to dominate the autumn session of Parliament.
APPG News30.pdf

The promised Consumer Insurance Bill that will reform disclosure and contract law for personal lines insurance will take its next important legislative step in the Lords next week when the Commercial Secretary to the Treasury, Lord Sassoon, proposes its committee stage scrutiny begins.