UK Auto Injury Costs Shoot Upward

A study by two insurance trade groups has found costs for vehicle injury claims in Britain are soaring and claims are rising despite a drop in the auto death and injury rate.

The total cost of bodily injury claims paid by U.K. auto insurers has significantly outstripped inflation over the past decade, rising at 9.5 percent a year between 1996 and 2006–more than double the growth in average earnings, the Fourth UK Bodily Injury Awards Study reported.

Over the last 20 years costs have risen by 840 percent, according to the study commissioned by the International Underwriting Association (IUA) and Association of British Insurers (ABI).

It also found that the number of claims jumped 3 percent a year between 1996 and 2006 despite government statistics showing the number of people killed or injured on British roads fell by 19 percent over the same period.

According to the study, claims with the biggest dollar amount are increasing most dramatically. The decade up to 2006 saw claims inflation of 6 percent a year for cases less than ?80,000 [$163,000] but 10 percent for claims of more than ?80,000.

Additionally, it found that costs per insurance policy for claims of more than ?5 million [$10.2 million] have jumped by an estimated 30 percent per annum over the last five years. There are now more and more very large claims emerging with the market currently handling three cases greater than ?15 million [$30.5 million] and one uninsured driving claim estimated at ?20million [$40.7million], the study noted.

The rising cost of claims was attributed to various legislative and legal changes including the introduction of insurers having to routinely reimburse the National Health Insurance fund for the cost of treating auto bodily injuries, increased life expectancy in calculating compensation and growing amounts awarded to fund care regimes.

Possible changes to the law on damages and an increased take-up of periodical payments could both lead to further claims inflation in the future. The cost of medical treatment has also risen faster than average inflation, the report found.

Dave Matcham, IUA chief executive, said: “Our latest research shows that the increasing cost of motor bodily injury claims is not a recent phenomenon. This is a trend which has now been sustained for decades and shows little sign of abating.

“Ultimately, however, such increases are unsustainable,” he added.

Stephen Haddrill, ABI director general, said: “These figures underline the urgent need for reform of personal injury compensation. Genuine claimants need to get their compensation and have access to rehabilitation more quickly.

“Key to achieving this is reducing legal costs, which now account for 10 percent of every motor premium. The government needs to implement its reform proposals quickly so the genuine claimant is placed at the heart of a streamlined, cost-effective process.”

Other findings from the Fourth UK Bodily Injury Awards Study include:

o Legal costs funded by insurers have continued to rise much faster than national average earnings. Insurers pay lawyers 43 pence for every ?1 of compensation that goes to claimants.

o A growing use of rehabilitation by insurers has gone some way to helping control the cost of claims, but rehabilitation is still far from being a routine part of the bodily injury claims process. An updated version of the Rehabilitation Code was recently published by IUA and ABI providing an approved framework for claimant representatives and compensators to work together.

o The speed of settlement of claims above ?100,000 has increased substantially to the benefit of claimants and insurers alike.

o Uninsured driving costs around ?500 million a year, or around ?30 for every motor insurance policyholder.

o The Fourth UK Bodily Injury Awards Study is the biggest exercise of its kind ever undertaken, involving analysis of two million claims over a decade. It investigated trends in motor insurance injury claims in the UK and the key legislative and legal developments affecting them. More than 20 motor insurers supplied data for the research, focusing primarily on private car business and representing over 90 percent of the industry's bodily injury claims for 2005 and 2006.