UK insurers' move to cut costs backed

Motor-insurance fraud is rendering some regions in Britain 'almost uninsureable'. Photo: AP

TWO separate official inquiries have backed attempts by British insurers, including Insurance Australia Group's troubled British business, to clamp down on the crippling costs of personal injury claims arising from car accidents.

A judicial investigation into civil litigation funding has recommended that "success" and referral fees charged by lawyers who help accident victims to make claims be either capped or abolished to rein in surging insurance costs.

The proposal by Lord Justice Jackson is being considered by the British government.

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At the same time, the Parliament's all-party transport committee has supported the industry's case that the cost of insurance claims has blown out to record levels. Evidence given to the inquiry indicated that some parts of England in particular were gripped by a "compensation culture".

The committee, which recently handed down the results of a six-month probe into the cost of car insurance, recommended more should be done to crack down on fraudulent personal injury claims.

It also urged that referral fees charged by lawyers be made more transparent.

According to IAG, motor-insurance fraud is rendering some regions of Britain "almost uninsurable". The domestic industry's lobby group, the Association of British Insurers, estimates that fraud costs £930 million ($A1416 million) a year - equivalent to £39 on every premium.

The association told MPs on the committee that the average legal cost of an injury claim (£2100) was almost equal to the amount of money the claimant received for the injury they had sustained (£2430).

As part of their recommendations to overhaul the system, the MPs urged the British government to inquire into efforts made internationally to curb the increase in bodily injury claims such as whiplash from car accidents.

But the moves to tort reform such as those instituted by the former Carr government in New South Wales in 1999, which cut the cost of accident compensation, are unlikely to result in major changes before next year.

At a briefing for investors last week, Ian Hoy, the chief executive of IAG's British division, played down the impact of an immediate legal overhaul in helping to restore the business to profitability.

While "positive steps" were being made on the reform front, he was still concerned about the increase in personal injury cases being driven by "claims farming", particularly by specialist claims management companies.

The exposure of the British operations to such claims was largely responsible for the division's half-year loss of $121 million in the six months ending December 30. Mr Hoy is anticipating a further loss in the second half although it should be lower than that of the first six months.

Analysts estimate the full-year deficit will be between $150 million and $200 million when IAG reports its results for the year ending on June 30. The group has lost more than $300 million in Britain in the past two years.

Conditions in Britain are restricting IAG's long-term plans, including a possible sale. Its best hopes are that the British arm may break even next year or in early 2013.