Why can’t insurance premiums be fixed?

Posted by Neille Ryan

Partner & Head of Personal Injury

James Dalton, Head of Motor and Liability for the Association of British Insurers (ABI) says that it is time for a "public policy debate" on removing all damages for “low value, low impact and very minor injury claims.”  He also questions whether there is a place for personal injury lawyers at all in what he describes as “low-value factory-based claims”.  So in their ideal world the ABI would not have to pay any compensation to the vast majority of injured innocent victims of motor accidents, and even those whose injuries would be deemed serious enough to warrant compensation might find themselves unable to get a lawyer to help them.  Those are, to say the least, pretty radical ideas.

But are there not equally “radical” issues to be debated surrounding the position of motor and employers liability insurers?

Consider the following:-

  1. Both have a guaranteed market, because motor and employers liability insurance are compulsory in this country.
  2. The ABI are basically saying that all “low-value” claims are the same in terms of the work a personal injury lawyer is required to do.  They have been so successful in persuading the Government on this point that where the injured Claimant is seeking damages up to £25,000.00, the lawyers costs are basically fixed.  We can discuss elsewhere whether £25,000.00 compensation for injury should be considered “low value” – all I would say is that it may seem that way to the ABI and to Government, but to an individual Claimant it is a great deal of money.
  3. The level at which the lawyer’s fee is fixed in the vast majority of claims is so low that it is hard, in many cases impossible, for the lawyer to pursue the matter economically.  The thinking behind the ridiculously low fees seems to be that lawyers do not need to advertise or market themselves in any way so the fees make no provision for any kind of marketing budget.  Furthermore, the fees are calculated on a basket of cases, in other words the assumption is that a lawyer will attract sufficient numbers of cases that, taken across the board, while there may be some where the fees are uneconomic, there will be others on which the lawyer can make a profit and the two balance themselves out.
  4. All the arguments made in the previous point could be applied equally to compulsory motor and employers liability insurance – the “work” insurers have to do in terms of issuing the policy is basically the same from one insured to the next.  I do not know, because the insurance industry refuse to allow we Claimant representatives access to their data but let us say, for arguments sake, that an 18 year old driver is more likely to have an accident, and is therefore a greater risk to an insurer than a 38 year old driver, generally speaking.  However when you apply the “basket of cases” approach, surely that risk evens itself out – there will be cases where the insurers do not make money, and plenty of others where they do.
  5. Furthermore, why do insurers need to advertise – I know I said this earlier but motor and employers liability cover are compulsory so we have no choice – we have to get insurance so we have to go to someone.  If the insurers literally sat back and did nothing, we would still come.  The same cannot be said for personal injury lawyers yet we apparently do not need a marketing budget.  Surely motor and employers liability insurers have even less justification for advertising yet they run high profile media advertising campaigns and sports sponsorship which must cost them tens of millions of pounds per annum?
  6. So my question is this – why can’t insurance premiums be fixed, and at a level which removes the insurers vast marketing budget?  Yes, there would be winners and losers but, across the board, by definition the total premiums paid would be reduced.  Why is that debate any less worthy or any less likely to find favour with the Government than the changes which have already been imposed on personal injury Claimants and their lawyers, and those further changes which the ABI are now suggesting?


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