Claims - low speed impact - More haste, less speed

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With personal injury claims resulting from low-speed road traffic accidents on the rise, Pamela Davies explains the factors behind the upturn and ways the industry could protect itself from spiralling costs.

It is well known that a car crash does not need to happen at a spectacular speed in order to cause injury to passengers. In fact, some argue that a vehicle doesn't even need to have been visibly damaged during a collision for significant injuries to occur.

This creates a problem for insurers, as it can be difficult to distinguish between low-speed impact claims where a genuine injury has been caused and those that are either significantly exaggerated or even fabricated.

The problem is becoming more acute, as LSI claims have risen rapidly in recent months. The volume handled by Keoghs, for example, has increased by 70% in 2009/2010 compared with the same period last year. Indeed, the growth in LSI claims has outstripped other suspicious claim types. So, what has caused this dramatic increase?

Speculative support
Undoubtedly, the recession has played a major part, providing more of an incentive for those involved in minor accidents to try their luck with speculative claims. It has also never been easier for them to get support for the pursuit of a claim from a burgeoning claimant services sector.

The top 20 claims farmers are spending a combined £25m per year on advertising, while the number of practitioners registered with the Claims Management Regulation Authority to provide personal injury claims services rose from 1409 in 2008 to 2232 in 2009 — a 60% increase.

Insurers' initial response to LSI claims was to outsource them to legal suppliers — due to their quite technical nature. The legal suppliers were instructed to take a hard line on these claims and, as such, many cases were tried in court between 2005 and 2008, establishing much of the critical case law in this field.

More recently however — because LSI claims are typically of lower value and litigation is an expensive process — insurers have increasingly opted to handle these cases in-house wherever possible in a drive to reduce costs.

While cost reduction remains a major concern for insurers, the rising volume of motor claims in general, and LSI claims in particular, is putting a significant strain on insurers' claims functions.

This pressure is set to increase due to the difficulties of handling LSI claims in accordance with the Ministry of Justice civil litigation reforms. Indeed, the lack of clarity in this area is likely to lead to LSI becoming one of the key battlegrounds for satellite litigation under the MoJ process. There is already anecdotal evidence of potentially suspicious claims being submitted in certain ways to 'test out' both the MoJ process and individual insurers' responses to these claims — with this practice likely to continue for some time.

Before the new rules came in, insurers in LSI cases could admit that their insured caused an accident, but deny causation — that is to say, contest whether the accident was sufficient to cause injury. Presently, the MoJ process does not offer the flexibility to take this approach while keeping the claim within the system.

The MoJ process has also dramatically accelerated the timetable for handling such claims. Under the previous system, insurers had three months in which to investigate and raise causation as an issue while, under the MoJ process, the period in which to make an initial decision on causation is just 15 days. Although insurers have the right to resile from an admission of causation later in the MoJ process, they will have already paid at least £400 in costs by then.

Up-front investigation
So, what can insurers do to avoid being rushed along by the new process? The answer is to investigate claims up front and identify potentially suspicious LSI claims as early as possible in the process. If they have any initial concerns, the case should either be formally withdrawn or merely allowed to fall out of the MoJ process — giving the insurers a three-month period to conduct further investigations into the claim.

While this approach may present a capacity problem for insurers' claims departments, there remains the option to outsource LSI claims to third-party legal suppliers as has been done in the past. Given the likelihood of satellite litigation in the coming months, this solution offers the benefit of involving dedicated legal expertise from the outset.

The main advantage to this approach is that it gives claims investigators sufficient time to validate their initial concerns. While case handling costs may not be lower than within the MoJ process, there will certainly be significant savings on indemnity spend as more claims are thrown out or settled at a reduced rate — as is currently the case.

It will also send out a message that all claims are properly scrutinised and that spurious attempts will be identified and challenged — by far the most effective way to stem the tide of LSI claims currently rising around insurers.

The future of low-speed impact claims
Is this the key battleground for satellite litigation?

Pamela Davies is director of motor fraud at Keoghs

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