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2013 research from IFoA shows legal costs for whiplash claims are increasing

1). Despite a 15% drop in quoted premiums, the costs of insurance claims for private motor insurance rose by 7% in the last year; contributing to the expected £371 cost of a typical motor insurance premium. 2). For every case involving a lawyer an average of £2,500 goes on legal fees for whiplash type claims. 3). Whiplash-like claims account for 85% of the number of third party motor injury claims and just under half of the cost. 4). Each small third party personal injury claim[1] now costs insurers more than £10,000 on average to settle. For last year’s data this figure stood at £8,400. 5). The proportion of claim costs going to claimants has not increased since 2010

[1] We define small claims as all those expected to cost under £100,000 in 2010 money (indexed at 7% per year).  These claims exclude very serious personal injury claims.

The Institute and Faculty of Actuaries (IFoA) has updated its 4th annual report collating 2012 data from across the motor insurance industry looking at ‘third party injury (TPI) and third party damage (TPD) UK motor insurance claims data’. The new data analysis looked at legal costs.

In 2010 the Ministry of Justice (MoJ) established a portal system for notifying third party motor personal injury claims. One of the aims of this portal was to reduce legal costs. Yet the average cost of legal fees on claims involving lawyers has continued to increase since the portal’s introduction. The average legal costs for small, whiplash-like TPI claims now stands at £2,500 per claimant, an increase of 15% since 2010 when the Ministry of Justice introduced new measures which sought, in part, to contain legal costs. (It should be noted that the Legal Aid, Sentencing and Punishment of Offenders Act was introduced in April 2013 and could potentially reduce the cost of legal fees).

David Brown, one of the authors of the IFoA report said;

“As we reported back in June, whiplash-like injury claims continue to increase for third party motor insurance, despite a 15% drop in quoted premiums and the fall in the number of damage claims over the same period. It now costs insurers more than £10,000 to settle small whiplash-like claims, a year-on-year increase of 26%.  The impact of this claim inflation is significant and contributes 85% of the numbers of small injury claims, and just under half the cost. This inflation of cost to insurers does not mean that claimants are proportionally receiving more. For these types of claims the average amount typically received by claimants has remained at around 45% (of the cost to the insurer) since 2010.

“We believe that the cost of claims for 2013 will be £371 per policy, up from £354 in the preceding year.  Clearly insurance claims have a significant impact on consumers but despite this the average quoted cost of a motor insurance policy in the UK continues to fall and is now 21% lower than 2010.” 


[1]We define small claims as all those expected to cost under £100,000 in 2010 money (indexed at 7% per year).  These claims exclude very serious personal injury claims.

The small TPI average cost per policy inflation post the introduction of the MoJ portal in 2010 is now in the range of 6-9%, whereas between 2007 and 2009 it was in the range of 13-19%.

For further comment, a summary of the updated findings of the report inclusive of charts, a full copy of the report, a jpeg image of David Brown or to answer any questions that you may have please contact Karen Wagg at the IFoA on 077 255 58 551 

Editorial notes:
About the Institute and Faculty of Actuaries
  1. Actuaries provide commercial, financial and prudential advice on the management of a business’s assets and liabilities, especially where long term management and planning are critical to the success of any business venture. They also advise individuals, and advise on social and public interest issues.
  2. Members of the IFoA have a statutory role in the supervision of pension funds and life insurance companies. They also have a statutory role to provide actuarial opinions for managing agents at Lloyd’s.
  3. Members are governed by the Institute and Faculty of Actuaries. A rigorous examination system is supported by a programme of continuing professional development and a professional code of conduct supports high standards reflecting the significant role of actuaries in society.
  4. The IFoA is available to provide independent expert comment to the media on a range of actuarial- related issues, including enterprise risk management, finance and investment, general insurance, health and care, life assurance, mortality, and pensions.

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