Civil Liability Bill [Lords]

Debate between Ruth George and Craig Tracey

2nd reading: House of Commons & Money resolution: House of Commons & Programme motion: House of Commons
Tuesday 4th September 2018 Commons Chamber

[Craig Tracey (North Warwickshire) (Con)]

Let me begin by declaring an interest, in my role as chair of the all-party parliamentary group for insurance and financial services. Before my election in 2015, I also spent more than 20 years working as an insurance broker, so I have had a lot of experience of dealing, in the front line, with claims such as those that we are discussing this evening.

I think it important for Members to understand the scale of the problem that we face, and I want to talk about that before dealing with the specifics of the Bill. Reforming this industry does not just mean tackling the cold calls that I am sure colleagues on both sides of the House have had to endure from people informing them that they have had an accident when, in many cases, they have not; it also means addressing the out-of-hand compensation culture that has been allowed to evolve in the United Kingdom. When so much money is at stake for the multi-million-pound personal claims industry, the reality of whether someone has sustained a genuine injury is often merely an obstacle to be overcome, rather than a barrier to the making of a claim.

Over the last decade, the number of personal injury claims resulting from road traffic accidents has risen by 40%, although vehicles have become safer, and there has been a long-term decline in the number of road accidents of nearly a third. The Department for Transport’s 2016 annual road casualties report showed a 3% reduction in the 2015 figure, and the 2016 figure was the lowest on record. Let me put that in context. According to data from the Compensation Recovery Unit, during 2017-18 the number of personal injury claims rose to 650,000 from 460,000 in 2005-06, about 85% of them being whiplash-related. In the last year alone, the insurance industry was able to identify 69,000 motor insurance claims that it considered to be fraudulent, and undoubtedly many more went undetected.

[Ruth George]

Will the hon. Gentleman give way?

[Craig Tracey]

I am sorry, but given the time constraint and the fact that many other Members want to speak, I will crack on.

During my latter years as a broker, I saw the attitude change. Exaggerated claims were often seen as a “victimless crime”, and as being okay, because the insurance industry would pick up the tab. Although the amounts of compensation paid for soft-tissue claims are relatively small, the associated claims-handling costs—including the costs of investigation, processing, lawyers’ fees and medical reports—are disproportionately large. For example, a claim for about £1,000 may ultimately cost the insurer two or three times that amount. It is clear that fraudulent claims have a direct impact on the cost of every one of our constituents’ motor insurance premiums. Given an average of about 60,000 vehicles per constituency, there is a considerable cost. According to the Association of British Insurers, for every pound paid out in compensation, nearly another 50p is then paid to the claimant’s lawyer in costs.

The Bill gives us an excellent opportunity to fix the current broken system, a system that is not working for millions of motorists throughout the country. It will bring about long-overdue reforms of personal injury compensation. It will provide a fairer system for claimants, insurance customers and taxpayers by creating a more proportionate compensation system in the case of both whiplash-style claims and claims to which the personal injury discount rate is applied, while ensuring that claimants still receive 100% compensation. Part 1 sets a new fixed tariff for pain, suffering and loss of amenity, and sets a higher financial threshold for lawyers’ recovery of their legal fees from insurers. The new system will also make it much easier and faster to make a claim, with a new online portal ensuring that small claims can be processed efficiently.

It is important to note that larger claims following serious injuries, and any payments for medical bills or loss of earnings, will be unaffected. The savings will result from the cutting out of a very expensive middleman, which must be a win-win for our constituents. The findings of a recent survey back that up, showing that nine people out of 10 think that in this area legal costs are too high, and 71% would be happy to use an online portal to make their claims rather than requiring legal representation.

Supporting this Bill will help provide a fairer environment that will inevitably lower motor insurance premiums for millions of motorists. The Government consider that the reforms would lead to savings of about £1.1 billion and rightly expect that to be passed on to motorists, which would result in an average saving per motor insurance premium of about £35. Many insurers have already committed to pass on cost benefits to their customers in a letter to the Lord Chancellor, which was signed by firms representing 86% of the ABI’s UK motor and liability insurance business members. That letter provides the clear intention of the industry and, significantly, the benefits that this Bill represents to every motorist in the UK.

I had hoped to speak a little more about the discount rate, but time is against me. I am, however, very supportive of the reforms and it is striking that the Government have had to set aside £6 billion extra for the NHS alone just to cover potential claims over the coming years. Every day that these reforms are not put into effect customer premiums will remain higher than should be the case, which will have a particular impact on old and young drivers who usually already have to pay the highest premiums.

Finally, although this is not directly attached to the Bill, I welcome the wider proposals which suggest an increase to the small claims track limit to £5,000. The current level has not been increased since 1991 and has been changed to £10,000 for virtually all other types of claim.

It is clear that compensation culture has got way out of hand and penalises everyone who insures a car. When I first started in insurance, whiplash or soft tissue injury claims were virtually non-existent, but over time they have grown to become a significant manifestation, which, as we have heard, cost motorists anywhere between £40 and £90 extra on their policy.

Critically, this is an industry where in many instances the claimant is not the main beneficiary. The measures put forward in the Bill will not, as is suggested by its opponents, affect the ability of people to seek fair compensation for their injuries or suppress access to justice, but will, more reasonably, cut the incentives for a claimant industry to disproportionately profit from our constituents’ misfortune.

I have had dicussions with a range of insurers and they are committed not only to passing on the savings directly to consumers, but also to provide a renewed focus on rehabilitation from the injuries, which from my experience of dealing with genuinely injured customers was exactly what they wanted. These reforms are long overdue and will deliver benefits to millions of motorists, while delivering on the Government’s manifesto commitment to

“reduce insurance costs for ordinary motorists by cracking down on exaggerated and fraudulent whiplash claims”.

That is why I am backing the Bill’s progress today.