Raising the small claims threshold will not reduce whiplash fraud

Let's all agree: bringing down the cost of car insurance is a good thing. Curbing fraudulent or exaggerated claims is a good thing too. Even more so if, as insurance companies claim, these add about £90 a year to the average motoring policy. Apparently we are already seeing the result of the hard work by insurers and the government in tackling 'compensation culture', with a steady drop in premiums in the past few years. In fact, although average premiums fell 34 per cent last year, they are still double the 2007 average.

Motor insurance is like professional indemnity. You're not legal without it. But on the open market, choice is only about the number of suppliers. Insurers are in the driving seat, both when it comes to setting premiums and when it comes to handling claims. Motorists are unhappy and MPs are angry. The insurance industry as a whole was "damaged", and "motorists pick up the bill in the form of higher premiums", the transport committee said in its report on the cost of motor insurance earlier this week.

The report focuses on whiplash fraud, widely blamed for pushing up premiums, and considers the government's proposal to bring RTA claims up to £5,000 within the small claims portal. But there was no evidence, the committee said, that the move would help combat whiplash fraud. Further, MPs warned, this could restrict access to justice. Because the costs recoverable in portal cases are so low, claimant lawyers would be less likely to be involved, leaving greater numbers of motorists to pursue claims without representation.

At the heart of the problem is defendant insurers' practice of making early settlement offers. Evened out across millions of policies this makes economic sense. Handling claims efficiently means keeping costs down, irrespective of the genuine nature of a claim or its seriousness. The perverse outcome is that this encourages fraudsters to claim, knowing that in most cases insurers will pay up rather that investigate and resist the claim. Now even the sector's representative body has accepted insurers were partly responsible for the problem. In evidence before the committee, ABI assistant director James Dalton admitted that "the insurance industry has played a part in that dysfunctional system". Dalton's admission echoes the government's own observations that insurers had "encouraged excessive and unnecessary claims".

In its push for greater efficiency the government has forgotten the main purpose of the justice system: to ensure the public has access to justice, not just on paper but in real life too. A system where individuals find it impossible, in practice, to bring genuine claims and obtain redress does not provide true access to justice. Much as Chris Grayling disagrees, this sometimes means involving lawyers. So before he pushes for an even higher portal threshold, he needs to consider properly whether lawyers are to blame or whether the cause of the dysfunction lies elsewhere.