Increasing litigation isn't the only reason for rise in insurance premiums

Steven Smart is an expert in the area of motor insurance

As the pressures of the cost of living affect individuals, the rising cost of motor insurance has been a source of frustration for road users. The average premium increased by 12 per cent between the third and fourth quarters of 2023. The average motor insurance policy was 25 per cent more expensive in 2023 as compared to 2022. Further increases are anticipated to meet rising costs in 2024.

Whilst a number of attributable factors such as rising repair costs contribute to the overall rise, another area which cannot be lost in Scotland is the increasing cost of litigation.

The valuation of personal injury claims are set to see a marked increase as the 17th edition of the Judicial College Guidelines for the Assessment of General Damages claims was published last Friday. The Guidelines are applicable to England and Wales only; however, the figures proposed are generally accepted by the courts in Scotland as forming a reasonable basis to value injury claims.

It had been highly anticipated that a significant increase for every type of injury was on the horizon. The new edition increases the valuation of all injuries, apart from certain brackets of personal injury arising from sexual and/or physical abuse, by 22 per cent. This is in keeping with the use of the Retail Price Index (RPI) to revise the Guidelines in previous additions. There will be noticeable increases across the range of injuries, from the lower valued minor injuries to the much higher valued severe injuries. An example taken from the 16th Edition to 17th Edition would see the likes of a minor neck injury increase from £2,450 to £2,989.

For several years now, the calculation of legal costs of a Court action has been based on the number of “units” for certain work done. Legal costs in more modest claims can often amount to more than the damages sought. This has become increasingly more evident following the introduction of the 10 per cent increase in the value of the unit for work done to £18 post-June 2023.

In addition, in line with the current structure, Scottish Court fees are due to increase by 2 per cent this month. However, in light of inflation, budget constraints and the significantly increased costs of operating the courts system, the Scottish Government are seeking views in a consultation on a proposed further 10 per cent increase in Scottish Court fees to commence in November 2024. The Government also seeks views of a potential targeted additional 10 per cent increase on a limited number of other court fees and some further minor technical and remedial amendments to the current court fees orders.

Parties are also seeing the cost of instructing the bodies necessary to conduct litigation rise. The costs pressures affecting all are inevitably finding their way into fees for instructing experts, for example.

The effect of this is important for all court users and they ought to note the potential costs exposure when conducting litigation. In the meantime, while the unprecedented rise in premiums over such a short period appears to be slowing down as the economy recovers, the premiums to be paid by Scottish policyholders will continue to be impacted by the costs associated with litigated personal injury claims.

Steven Smart is a Partner, Horwich Farrelly