Feet to the fire: making insurers accountable for passing on savings

Ministerial speeches are not usually a source of great amusement. But I recall well the sceptical laughter at the Association of Personal Injury Lawyers annual conference in 2016 that met then justice minister Lord Faulks telling delegates that the government “fully expects” insurers to pass on the savings from whiplash reform through lower premiums.

Lord Faulks said ministers shared the concern that insurers would not reduce premiums, but insisted that the competitive nature of the insurance market provided them with “significant incentives” to do so.

“You have my assurance that the government will be holding insurers’ feet to the fire on this” he said.

For some considerable time thereafter, however, there was no sign of the Ministry of Justice making any specific provision for doing so, falling back on the ‘it’s a competitive market’ excuse so beloved of the insurance industry.

However, one of the few successes during the passage of what is now the Civil Liability Act 2018 through Parliament was that the government finally accepted the need for a formal checking process.

As a result, insurers will be required under the act to provide information to the Financial Conduct Authority, which will be used by the government to judge whether the market as a whole has passed savings on to customers.

The details of how this will work have recently been the subject of a Treasury consultation. The information must include audited figures for the total amount paid by an insurer to settle personal injury claims brought by third parties and the mean settlement.

Separate totals must be given for claims settling at £100,000 or less, and those settling at over £100,000 in an effort to show how the discount rate reforms impact larger settlements, and the whiplash reforms smaller ones.

Insurers must give the “total premium income from relevant policies where the cover starts in the reporting year”, the mean premium charged for those policies and the total amount by reference to the “technical price”, excluding optimisation and market pricing factors.

They must also estimate the claims costs and premiums which they “might reasonably have expected” if the act had not been passed.

This doesn’t go far enough. Insurers should be obliged to make full disclosure of all premium and claims information, separating out the different elements of any payments they make.

All of this information should also be provided for the three years up to 1 April 2020, so that everyone can see the true trends and patterns over a prolonged period before and after the reforms, which will allow for a genuine comparison to be made on the actual impact of the Act.

The danger is that insurers may try to play unfairly. Take their increased rhetoric in recent months about an escalation in repair costs – we fear that they are already lining this up as another excuse for not passing on savings.

So, we need to see a greater level of detail and transparency from insurers to ensure this does not happen.

The fact is that lower insurance premiums are the core rationale for these reforms. If that does not demonstrably occur, then consumers will have lost out twice, given the reduction in access to justice that the reforms represent.

Most frustrating of all, though, is that the act says the report only has to be produced at some point between 1 April 2024 and 31 March 2025 so there are three years of post-reform data.

But that is a very long time to wait when there is so much at stake. And who knows what will happen if the savings haven’t been passed on – the act makes no provision for sanctions.

How effective this check on insurer behaviour will actually be is questionable. Unfortunately, once again it demonstrates the uneven playing field between powerful insurers and injured victims.

Qamar Anwar is managing director of First4Lawyers first4lawyers.com