Cost of Motoring

Wednesday 23rd October 2013 Written Statements

[The Lord Chancellor and Secretary of State for Justice (Chris Grayling)]

I am today announcing the publication of the Government’s response to their consultation “Reducing the number and costs of whiplash claims”, which closed on 8 March 2013, alongside further measures this Government are taking in order to help drive down the costs of motoring and put money back in the pocket of the driver.

The publication also provides our response to the House of Commons Transport Committee’s “Cost of motor insurance: whiplash” report and recommendations, published on 31 July 2013. I am grateful to the Committee for their valuable and thoughtful findings, which we have taken into account.

For too long honest drivers have been bearing the cost—through higher insurance premiums—of fraudulent and exaggerated whiplash claims. The Association of British Insurers indicates that 7% of all motor claims were fraudulent, and that dishonest personal motor insurance frauds worth £441 million were detected by the industry in 2011. The Government want to tackle that abuse to help drive down the cost of living and deliver a system that hard-working, law-abiding people can have confidence in.

The reforms I announce today form part of a series of changes to the justice system introduced by the Ministry of Justice, such as the reform of “no win, no fee” arrangements and a ban on referral fees paid between lawyers, insurers, claims firms, garages and others, which are removing incentives for excessive litigation and tackling the culture of claims. New figures from the Ministry of Justice’s claims management regulation unit also published today, show that the number of claims firms in the personal injury market has gone down by more than 1,000 following the law changes, from a peak of 2,553 in December 2011 to 1,485 last month.

We now propose to implement our consultation proposal to introduce an independent medical panel scheme, to establish a new and more robust system of medical reporting and scrutiny of whiplash claims. These measures received a good degree of support from those who responded to the consultation. Our reforms will mean that exaggerated and fraudulent whiplash claims are deterred and challenged while the genuinely injured, backed up by good-quality medical evidence, get the help and compensation they deserve.

We are currently working on the detail of the independent medical panel scheme. We will have further discussions with all sides, including insurers and claimant representatives, and within Government, before we bring forward our final proposals. I am grateful to representatives from all sides of the industry for their constructive proposals in this area, which we are considering. I am clear that the final scheme will need to be not only effective but proportionate and sustainable, with any costs not falling on the public purse.

We also want to work with all sides to tackle those practices which can contribute to the inflated number of whiplash claims. For example, we want insurers to end the practice of making offers to settle claims without requiring medical evidence. We also want insurers to share more of their data on suspected fraudulent or exaggerated claims with claimant lawyers, and we want claimant lawyers to carry out more effective checks on their potential clients before taking on claims.

On the consultation option to increase the small claims track threshold for personal injury claims, the Government have carefully considered all responses. We believe that there are good arguments for increasing this threshold to £5,000 for all road traffic accidents to raise incentives to challenge fraudulent or exaggerated insurance claims. At the same time, we have listened to the views of the Transport Committee and others that now may not be the right time to raise the small claims limit because of the risks that it may deter access to justice for the genuinely injured and encourage the growth of those disreputable claims firms which so damage the industry. At this stage, we have decided to defer any increase to the small claims threshold until we can determine the impact of our wider reforms on motor insurance premiums and better safeguard against the risks identified above. We believe that this is the right thing to do for all interests.

Our consultation also generated a number of further proposals to reduce fraudulent and exaggerated whiplash claims which we are currently considering.

The reforms I am announcing today and those which we have already made to the civil justice system should contribute to lower motor insurance premiums. Indeed we are already seeing these beginning to fall. Figures published by the AA’s British insurance premium index today show that quoted shop-around premiums have reduced by 12% over the previous year.

The Government expect the insurance companies to act on the commitment they made at the Prime Minister’s summit in February 2012 to pass on to consumers and businesses industry estimated savings of approximately £1.5 billion to £2 billion that could come from the reforms on both legal fees and future changes on whiplash claims.

I believe that taken together the measures I set out today will provide an effective response to support hard-working motorists and families, deterring fraudulent and exaggerated whiplash claims and helping to reduce the cost to premiums of dealing with such claims.

In addition to these reforms and in order to help further the hard-working people of this country we have decided to launch a range of measures to help drive down the costs of owning and running a car.

The fee charged for the MOT test for a car is £54.85, and has been frozen at that price since 2010. I can inform the House that the Government will freeze the price for an MOT test for the rest of this Parliament. While competition in many areas introduces discounts to this fee, some 12 million drivers are estimated to pay this fee in full. This announcement will save them from a price rise that would cost them around £50 million a year.

This Government are also determined to help the motorist at the pump. I can announce today that the Government will launch a trial of motorway signs that will display the cost of fuel along the route, helping the driver make the informed choice about where to fill up, and importantly, boosting competition along British motorways.

Finally, the Government want to make it cheaper for those who want to drive for the first time. The Department for Transport will launch a review of the fees charged to obtain driving licences and the fees for taking a test.

Copies of the Government response to the consultation and to the Transport Committee report are available in the Vote Office and the Printed Paper Office. The document is also available online at http://www.justice.gov.uk.