The myth of reduced insurance premiums

Posted by Malcolm Johnson on
Car insurance

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The BBC has reported that motorists could see their car insurance premiums reduced as a result of government plans to cut compensation for whiplash injuries.

Insurance companies claim that whiplash claims have risen by 50% over the past decade, costing insurance companies about £1 billion a year. They have also pledged to pass on the savings to motorists, worth about £40 a year.

The government is now looking at scrapping the right to compensation or capping it.

Other proposed measures include:

  • Introducing a tariff system for compensation, payable for more significant injuries than whiplash
  • Allowing small claims courts to handle all personal injury claims up to £5,000, rather than just £1,000, so reducing legal costs
  • Requiring medical reports from an accredited expert before any claims can be paid 

The real truth of whiplash claims and reduced insurance premiums is somewhat at odds with these brave new measures.

In September 2016, the Association of Personal Injury Lawyers Newsletter published an article on the subject of reduced insurance premiums. The article stated that far from going down, premiums had actually gone up by 10% in the past year.

APIL referred to an article published by The Times in August 2016. This reported that insurance companies were overcharging motorists for cover despite measures that had helped the industry to save half a billion pounds in the past three years. 

According to APIL (an organisation which has a long standing reputation for checking its facts), the insurance industry has saved considerably more than a mere half billion.

APIL’s analysis of Association of British Insurers' (ABI) statistics shows that, since 2013, both the number and average cost of settled personal injury motor claims has fallen by more than 6%. As a result of these changes, insurers will have saved £518 million on personal injury motor claims in 2015 alone.

At the same time, ABI data shows motor insurance premiums have increased by 10% in the past year. Even the £518 million figure is likely to underestimate the savings being made by insurers, because ABI data only captures a fraction of personal injury motor claims settled, unlike the Government’s Compensation Recovery Unit (CRU), which captures all claims.

APIL reported that at an insurance summit held with the Prime Minister in February 2012, it was noted that insurance companies would pass on savings of approximately £1.5-£2 billion from these very reforms.

The reduction in the costs of claims is not restricted to claims against insured drivers. Today the MIB (Motor Insurers Bureau) handles over 20,000 claims a year against uninsured and untraced motorists. The levy for 2015 was £244 million against payments of £205 million although this is to be compared against a high of £417 million in 2008. Uninsured and untraced driver remains a serious problem but over the years, but the measures introduced by the MIB, the police and the DVLA have been reducing its incidence dramatically. On their website, the MIB estimate that the level of uninsured driving has reduced by some 50% in the last ten years. Police enforcement has resulted in the seizure of well over a million uninsured vehicles since the introduction of the Serious Organised Crime Act 2005 and in 2015 alone the number seized was 120,687. The MIB levy (which is paid by motor insurers) has actually reduced over the years.

Neil Sugarman, President of APIL put it succinctly in his blog of August 2016:-

"The evidence clearly shows that whatever is responsible for premium hikes, it is not personal injury claims. We believe that to introduce the proposed reforms on the basis of promises which insurers have been breaking for years is, at best, naive. It is time to hold the insurance industry to account."

See also Neil's blog on the government announcement today.

So why are we not seeing reduced insurance premiums? There does not appear to be any answer to that question. Motorists wait in vain for this elusive bounty to pour down upon their heads.

The government is putting out a much vaunted promise, which has been doing the rounds for far too long. It is an old banger of vehicle accompanied by those hackneyed outriders – the twin epidemics of whiplash fraud and compensation culture.

The government now needs to consign this old banger, on which the insurance and MOT has long expired, to the scrapyard of misguided political gestures.

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Malcolm is an Senior Associate in our London office, with nearly twenty years' experience.

Malcolm Johnson
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