ABI Motor Conference
Tuesday 22nd November
Keith Morris, Chairman, Sabre
Chairman, ABI Motor Committee
Introduction
Good afternoon everyone. I hope you enjoyed your lunch and found this
morning‟s sessions interesting and informative. This morning Otto outlined five
priority areas for the industry to deliver a better deal for consumers.
Otto rightly placed his speech in the present, tackling the issues at the top of the
industry‟s agenda, and the key priorities he identified certainly resonate with me.
Before I talk specifically about two of these issues – whiplash and application
fraud; I want first, as Chairman of the ABI Motor Committee, to offer a sense of
perspective of the challenges the industry has faced over the last two decades.
Challenges for Motor Insurers over the last 20 years
In the early 1990s, we saw a rapid increase in theft claims as a result of the
recession. Perhaps akin to the “grab what you can” culture emerging now.
Toward the end of the 1990s, we experienced under-reserving as a result of new
Ogden tables and a discount rate review.
The last decade, was punctuated by the introduction of the „no win no fee‟ system
which caused a dramatic increase in the number of personal injury claims. This
paved the way for the inadequate and dysfunctional compensation system we are
urgently seeking to reform today.
In the middle of the last decade, we dealt with a rapid increase in credit hire costs,
something that continues to plague the industry.
And from the end of the last decade through to today, we have been challenged
again this time by a rapid increase in fraudulent behaviour. Namely, application
and whiplash fraud.
These challenges are compounded for an industry that has consistently made an
underwriting loss for each of the past sixteen years; and one whose businesses
and consumers are feeling the effects of the global economic crisis.
As insurers, it is our role to accurately price the risk within the chaos, and offer
protection to our consumers in the event of misfortune.
What underwriters look for is stability, as this allows them to price appropriately.
The challenges of the last twenty years have not lead to stability and instability
usually leads to losses and often an over-reaction in terms of rate increases.
Whiplash Claims
With regard to today‟s challenge of the boom in whiplash claims, it is ultimately
society that has to decide what it wants.
If society wants people who say they have suffered whiplash to be compensated
without objective proof of an injury being presented, then, providing we can reach
a steady state where underwriters will just price accordingly, the consequence will
be high premiums that may price some individuals off the roads.
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If, as I am sure many in this room agree, society wants to minimise unnecessary
cost and pay genuine claimants quickly and effectively, then we must eradicate
spurious whiplash claims.
Insurers know that a significant proportion of whiplash claims presented are at
best exaggerated and are at worst fraudulent.
However, as the current benchmark for medical evidence when making a claim is
very low and the incentive for securing a whiplash diagnosis is so high, it is little
surprise that we have become as Otto mentioned this morning, the whiplash
capital of Europe.
In his 10 minute bill, Jack Straw has suggested that whiplash should not be
compensated unless the crash velocity exceeds 15 mph. The former Justice
Secretary has also suggested reversing the burden of proof to put the emphasis
on the claimant to prove they have whiplash. The issue with the 15mph, is how
the impact speed is determined; this notwithstanding, 15 mph does seem rather
too high to me.
The issue with reversing the burden of proof, is that if we cannot prove objectively
that whiplash has not occurred, then how can a claimant prove objectively that it
has?
It seems to me that a middle ground is required. Maybe that middle ground is an
objective test that the courts accept, and yes, that includes areas where claims
are prolific, like Birkenhead.
It is likely that the elimination of referral fees will have an impact on stemming the
growth in whiplash claims as it can be no coincidence that the incidence of
whiplash is highest where claims management companies are flourishing.
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The least credible claims management companies thrive because they encourage
people, who do not have whiplash but who have some pretext for contending that
they do to put forward a claim.
And I‟m sure that many in the audience will have received a text offering a quick
and easy £3500 to pursue a claim for an accident that most likely never occurred
in the first place.
I am hopeful that the ban on referral fees will mean the end of the worst of these
practices. However, without further measures, such as those I described
previously, this will not eliminate dubious whiplash claims entirely.
Application Fraud
The other area I wanted to talk about is application fraud, where the industry is
working hard to obviate as much of this as possible.
There is clear evidence that some applicants are lying to insurers about a number
of different parameters.
In extreme cases this might include the applicant‟s age. However, false
information about the number of previous claims and convictions, such as points
for speeding and where the vehicle is kept, are unfortunately all too common.
I haven‟t come across an applicant falsifying their gender yet, but as we rarely see
the policyholder these days, it wouldn‟t be surprising. Perhaps a positive
unintended consequence of the otherwise odious European Court of Justice ruling
on gender will make this a moot point anyway.
So what are we doing?
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First, as Otto touched on briefly this morning, we are working with the Department
for Transport and the DVLA to gain access to driver licence information.
Among other things, this will tell us the drivers‟ age, driving entitlement, date
licence passed and conviction history and will provide a basic form of identity
check.
Second, we are restructuring the CUE database to make it more complete and to
enable its use at point of quote to give a comprehensive claims history.
And third, we are looking at the prospect of an electronic method of confirming No
Claims Discounts.
Consequently, it should be possible to get much of the information required for a
motor quotation from trusted sources rather than request it from the proposer.
Naturally, there is a lot of work to do before we achieve all of this, but we are
already making progress.
Concluding remarks
While these three actions outline what we are doing, ultimately we must measure
success by the quality of the outcome.
If we can reduce exaggerated and fraudulent whiplash claims then premiums will
reduce.
If we can reduce application fraud, premiums for honest policyholders will reduce.
We cannot allow the legitimate many to pay the price for the opportunistic and
fraudulent few. Particularly in a climate where spending is tight, fuel prices are
rising, and motoring forms such a crucial lynchpin in millions of consumers daily
lives.
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If, as I suspect, action to tackle whiplash and application fraud creates a more
stable environment, underwriters can be confident that the prices they are
charging are correct.
In turn, this will increase the prospect of a more profitable market with fewer price
swings.
It is unfortunate that Mike Penning is not able to be with us today but I am very
grateful to John Woodcock, the Shadow Transport Minister, for agreeing at such
short notice to provide our first keynote address this afternoon. The industry
worked closely with Jim Fitzpatrick, former Parliamentary Under-Secretary of
State at the Department of Transport, and we enjoyed a close working relationship
with his Administration when Labour was in office.
So we look forward to working with John Woodcock over the years ahead, to
show that we are playing our part as an industry, are an intrinsic part of British life
and determined to improve our offering to our customers.
And I‟m looking forward to hearing what John Woodcock has to say especially in
relation to his proposals around “work journeys only” car insurance policies.
I hope you find the breakouts and plenary sessions on costs to the industry
insightful and topical and I will now hand you back to Susanna to introduce the
Shadow Transport Minister.
Thank you.
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