Ronnie Conway: Why personal injury claims end up costing every single one of us

Dubious whiplash incidents are only the tip of the complex and costly insurance iceberg that is driving up premiums

MY CAR was damaged recently. It was in a car park and I was somewhere else. I claimed on my own insurance, and was directed by them to a repair garage which took my mobile number, ostensibly to contact me when the car was ready. They did not. Instead they sold on my details to a claims management company. I know this because I received a text a week later telling me I had been in an accident and was entitled to £2,750. Coincidentally, the insurance industry blamed a projected rise of 13 per cent in premiums on the rise in personal injury claims.

Whiplash claims now make up 70 per cent of all motor accident claims. Typically, neck and back symptoms might last three to six months, with courts awarding damages of £1,500-£3,000, so the claims themselves are not large. However, whiplash is an injury which has few objective signs and there is a clear temptation for fraud and exaggeration. Evidence was placed in 2011 before the Transport Select Committee that the insurance industry loses £2.1 billion per annum to fraudulent claims, whether by “cash for crash” staged accidents or invention of symptoms. The industry presents a story of the honest citizen paying the price for a system milked by the unscrupulous.

The number of claims in Scotland is dwarfed by those in England. Figures obtained from the Compensation Recovery Unit show that instead of a proportion of around one tenth based on population, the figure is one twenty-fifth. The Commons Transport Committee report The Cost of Motor Insurance noted other countries without the whiplash problem included France, Germany, Spain – and Scotland, which has few claims management companies, and a minimal referral market.

A brief tour around the road traffic claims industry might illuminate where the real opportunities are.

1 Claims management companies: these are not lawyers. Their business model consists in the identification and encouragement of possible claimants. Details are then sold on to solicitors for amounts of £250-£600. They operate customer-friendly 24-hour helplines and have a ubiquitous online and TV presence. It is claimed they fulfil a need in that people are too intimidated to speak to a lawyer. That may have been the case 20 years ago, but is it true of the current consumer? For anyone who can operate a mouse or turn the Yellow Pages, this introductory dating service is wholly unnecessary.

2 Credit hire companies: these companies will provide a replacement vehicle while yours is being repaired. They will have paid a referral fee, generally of about £500 and typically to a body shop. Their hire costs greatly exceed the market rates. These will be transferred to the insurer of the at-fault driver.

An example of the business model is the 2010 case of Clark v City of Edinburgh Council. After examining the credit hire arrangement, the judge concluded the unwitting pursuer was effectively required to raise proceedings for the sole purpose of recovering his credit hire payments.

His 14-year-old Toyota Celica (value £1,000, 91,000 miles) had been damaged and the Accident Exchange Company provided a replacement Honda Civic two-litre GT with 900 miles on the clock. The hapless Mr Clark racked up daily hire costs of £161.63. He sued for £12,857.13. In a withering judgment, Lord Turnbull held that a “new vehicle for old” hire approach was not appropriate and awarded him £1,950.

3 Your own insurance company: insurers frequently incorporate an add-on which provides legal cover. The claimant is then referred to the insurer’s panel solicitor. You may believe this recommendation is a badge of quality. In fact, the insurer receives a referral fee. The industry is coy about the value of these backhanders, but estimates vary from £2 billion to £4bn per annum. These payments never appear in the industry analysis of cost per claim against premium income. There may be further conditions whereby the solicitor agrees to direct the client to specific medico-legal practices or car hire firms, generating more referral fees. Road traffic claims are not difficult. This is work which any no-win, no-fee lawyer will do for you without charge. The transport select committee has recommended insurers should publish a list of firms with which they have referral arrangements, an indication of the level of fees paid and clear explanation of how referral arrangements work and their purpose. They should make it clear claimants need not use the recommended solicitor, vehicle repairer or credit hire firm. As you read this, someone is receiving a text from a claims management company encouraging a claim to be made – in a system which provides profit opportunities for vendors of fresh air at every stage. The transport select committee described it as “a dysfunctional merry-go-round”. The problem is being addressed in England under the Legal Aid, Sentencing and Punishment of Offenders Bill 2011, which among other things outlaws referral fees. It remains to be seen whether this will cure the English patient.

So when you get your renewal premium, don’t blame your fellow motorist, or at least those of us living in Scotland. And has the time not come for concerted agitation for much more significant postcode discounts?

• Ronnie Conway is a solicitor advocate and a partner with Bonnar & Co. The third edition of his book, Personal Injury Practice in the Sheriff Court, has just been published by W Green.