Last reviewed 23 October 2013
Vikki Woodfine, Associate at DWF LLP considers the ever-growing issue of the rising costs associated with road traffic collisions. Anybody involved in operating a fleet of vehicles should be increasingly proactive in trying to minimise claims against them. This article highlights issues to look out for and ways to try to avoid them.
One of the main legal issues for transport operators over the next few years will continue to be escalating claims costs arising out of road traffic accidents.
A report by the Financial Services Authority suggests that insurers lost 24p for every £1 of premium they charged in 2010 on private policies and 10p on commercial policies.
The Office of Fair Trading (OFT) referred the private motor market to the Competition Commission, but its findings, and those of other recent surveys, make interesting reading for those in the fleet market too.
The main areas of concern for the OFT were the inability of the “at fault” driver’s insurer to exercise influence over the way repairs are carried out and replacement vehicles provided, and to assess whether the costs of both are reasonable. This then gives incentives to other organisations, including credit hire/repair organisations, to take advantage and increase the costs that the insurer has to meet.
The trade organisation for the credit hire companies put the turnover of the credit hire industry at over £600 million per year. On average 76% of the “not at fault” drivers who received a replacement vehicle obtained one on a credit hire basis.
But why the concern? What is it that is so damaging for the “at fault” driver if the other party uses a credit hire company for a replacement vehicle? The answer is clear and worrying: money.
The OFT found that replacement vehicles were 106% more expensive when the “at fault” insurer does not control the process, amounting to £560 per hire. Average rates are higher (£59 vs £39 per day) and hire periods longer (19 vs 14 days), equating to a total cost to the industry of £215 million per annum.
This isn’t the only area where there are cost implications. When vehicles were repaired on a credit basis the average cost increased from £1375 to £1530, equating to an increased spend of £80 million per annum.
Last year, an Actuaries Institute report revealed that there was an 18% increase in the proportion of accidents involving injury (the greatest year-on-year increase since their records began) and a 9% increase in the average cost of small third-party bodily injury claims between 2010 and 2011 — all of which comes against a decrease of 11% in third-party damage claims.
Basically this means that, although there are fewer accidents occurring, the number of injury claims being pursued is on the rise. Statistics from the insurer Allianz suggested a 117% rise in whiplash claims between 2005 and 2011.
In Germany, and even in the USA, often considered a litigious society, only 1 in 10 rear-end shunts results in a claim; in the UK it is 1 in 1.75. Manchester, Liverpool and Birmingham have a much higher proportion of injury claims than other parts of the country: 52% of third-party accidents in Liverpool result in an injury claim, possibly linked to the number of claims management companies (CMCs) that operate in those areas. The same report suggested a 20% jump in the number of CMCs over the last 12 months, but a 50% jump in the hotspots.
Are necks really weaker in the North West than they are in the South West, or is it just a claims culture that has been fostered? Is it that the driver not at fault in an accident can only take so many text messages saying that they are entitled to compensation before, in the current economic climate, they give in and make a claim? With vehicle operators being up against these claims all the time, there is an increased concern to try to manage the spiralling costs of dealing with them.
The Association of British Insurers (ABI) puts the cost of motor fraud in the UK in 2012 at £610 million.
In one case four men were arrested in Liverpool following a “crash for cash” scam involving a bus that they chartered to take 30 people to a dog track. The passengers got the driver to pull over, telling the driver that the bus had been in a collision. Damage was understandably minor, but all 30 on the bus indicated to the driver that they had suffered whiplash: assuming an average of £5000 per person for injuries and costs, a total potential claims cost of £150,000, further assuming that the cases were not litigated. We increasingly see similar press reports of people being arrested for schemes like this.
Crash for cash scams are becoming more sophisticated following increased media attention. Straightforward slam-ons have been replaced with accidents using “stooge” vehicles, making the “at fault” driver feel that the person they hit was also an unwitting victim of the actions of the other stooge vehicle.
Some “accidents” never occurred, but were created on paper. Fleets are particularly vulnerable. The perpetrators simply take details of vehicles, livery, route, time, etc and then allege an incident occurred. Because of the amount of information they have taken, it adds credibility to their account.
The investigations that insurers, solicitors and agencies can carry out are much more detailed than they used to be, and with agencies such as the Insurance Fraud Bureau and dedicated police teams, there is a greater desire to take action against fraudsters.
But the scale of the problem means that at the moment, together with the issues identified above, the continued increase in claims costs is inevitably passed on by the insurers through higher premiums. If a business is self-insuring or has a high deductible, then the increase in the claims cost will be coming directly off its bottom line.
Are we simply trying to put the genie back in the bottle, the claims culture having already become established?
The Government has hosted a number of motor insurance summits recently, out of which came possible consultations on ways of working with industry to reduce whiplash, and a possible threshold (5mph) below which injury claims could not be made. There were proposals to put all whiplash claims in the small claims track, although there were concerns this could lead to a lack of access to justice for claimants.
There is a demand for medical reports to be obtained from an accredited expert specifically dealing with whiplash claims, and in addition claimants having to prove that they visited their GP soon after the accident. The Ministry of Justice is set to publish its final ruling in relation to whiplash claims soon.
From 1 April 2013 the Government introduced a ban on the payment and receipt of referral fees in personal injury cases. Success fees and after-the-event (ATE) premiums are no longer recoverable from defendants where the funding arrangement is entered into after this date.
With the addition of fixed recoverable costs in road traffic accident claims worth up to £25,000 this ought to see a decline in the number of litigated cases. However, it is uncertain whether this will address the underlying problems: TV and radio advertising, for example, will continue trying to entice people involved in accidents to make claims. It is likely to be a while yet before we are able to see the real difference the changes have made to the industry, and whether costs and the number of claims have been reduced.
In order to ensure that exposure to claims is minimal, fraudulent or otherwise, we advise that there is a “golden hour” after an accident. Use that time to collect as much information at the scene of the accident as possible, as drivers are the ones who are on the front line, and training them in what to do at the scene of the accident could considerably reduce claims exposure.
As well as the normal details exchanged at the scene, drivers should take photographs of the parties, vehicles and debris. The reason for this is that sometimes the vehicles are further damaged before an engineer inspects them, and sometimes the people who say they were in the car weren’t. Drivers should take full details of all parties and witnesses (including full contact details, so that if necessary contact can be made with them).
Vehicle operators can use cards that drivers hand out containing information for the “not at fault” driver to use so that the operator is the first to offer repairs/replacement vehicle to minimise exposure to credit hire and credit repair and the inevitably higher costs.
Camera technology is also becoming cheaper: it can be the difference between your insurer deciding to make a payment because there is a litigation risk and the claim never getting out of the blocks.
At the moment the trend to increased claims costs shows no signs of abating, and where businesses have a fleet and the ability to influence driver behaviour, part of the solution to reducing claims costs lies with those businesses — and so policies should be considered in line with the above points.