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Motor Insurance Regulation

Volume 532: debated on Tuesday 13 September 2011

Motion for leave to bring in a Bill (Standing Order No. 23)

I beg to move,

That leave be given to bring in a Bill to reform the regulation and operation of the market in motor insurance; and specifically, to ban the payment of referral fees; to establish new standards relating to the evidence required and damages payable for whiplash; to reform the Pre-Action Protocol for Personal Injury Claims in Road Traffic Accidents; to set requirements in respect of risk pricing for personal injury claims; and for connected purposes.

The last time I had a ten-minute rule Bill was as a young and callow Back Bencher—

Thank you.

That was in April 1980, with my Police Authorities (Powers) Bill. Successive Home Secretaries were unpersuaded by the merits of my proposals until a new Home Secretary took over 17 years later, in May 1997, and progressively implemented most of the Bill.

The contrast between the fate of that first Bill and the fate of the Bill before the House today could not be more stark. Even before I had had this opportunity to move it, the Government announced last Friday that they were accepting one of the fundamental propositions of the Bill—the abolition of referral fees. The problems in the insurance market are, let me say, not of this Government’s making. As I have already expressed during Question Time, I am very grateful to the Justice Secretary and his Ministers for recognising the need for change, and to the backers of this Bill from across the House in giving momentum to the campaign that I have been mounting. Although there has been that welcome announcement by the Government, which will implement a key recommendation of the Jackson report, there are other necessary reforms that my Bill covers and which I hope the Government will also adopt.

First, let me spell out the concerns that exist in all parties about the wholly unacceptable state of the motor insurance market. In the past year alone there has been a 40% increase in the average premiums paid by Britain’s motorists to insure their cars. Young drivers face premiums of £2,500 or more, even if they can find underwriters to cover their risk. Older drivers with impeccable records who live in certain urban areas have been especially hard hit.

The principal factor behind these rocketing premiums has been an extraordinary increase in the number and value of claims for personal injuries—but this increase in personal injury claims has in no sense been caused by any commensurate increase in the number of accidents leading to such injuries. Indeed, the number of accidents has been going down, not up. Britain’s roads, long among the safest in the world, have been getting safer still, with fewer accidents and, where accidents do occur, fewer serious injuries. Those improvements have been paralleled by a dramatic drop in the number of thefts of and from vehicles.

Instead, the increase in claims has been artificially generated by a new industry, unheard of 20 years ago—a “claims industry”—with, I am afraid, the complicity of the insurance companies themselves. Claims management companies, personal injury lawyers, credit hire companies and repair and recovery firms have built a lucrative and self-serving merry-go-round in which the personal information of anyone involved in any collision with another vehicle, no matter how trivial its effects, is traded like a commodity, typically for £600 to £800 a shot, with the aim of pursuing a claim—any claim—provided that it brings rich rewards to all those involved in this industry.

Some police and NHS employees have been unlawfully engaged in this trade. Some police authorities have officially been charging recovery firms to pass on information about drivers and vehicles involved in accidents; one such made over £1.3 million in two years. I can also tell the House that some NHS acute trusts have been making money from this so-called industry, charging ambulance-chasing lawyers to advertise their services to patients waiting in accident and emergency departments. I have here data which show that since 2006, in aggregate, 70 NHS acute trusts have received £2 million in this way. As the Information Commissioner, Mr Christopher Graham, told the Justice Committee this morning, data protection and telecommunication laws are routinely broken by this claims industry as firms cold call, harass and browbeat individuals whose details they have purchased into pursuing claims.

Often such claims are for whiplash, which is not so much an injury, more a profitable invention of the human imagination—undiagnosable except by third-rate doctors in the pay of the claims management companies or personal injury lawyers. Whiplash now accounts for 80% of all personal injury claims, adding about £66 to every premium. Latest figures suggest that 1,200 claims for whiplash are now made in the United Kingdom each day. The bait of £3,500 in compensation for no discernible injury and sometimes for no accident at all, which features so prominently in the text messages, telephone calls and high-pressure advertising, characterises this extensive and grubby industry.

Driving out the parasitic practitioners and cleaning up the motor insurance system will be complex and will take time. I suggest to the House that my Bill would make an important start. Clause 1 would make it unlawful to solicit, offer or pay a referral fee relating to a personal injury road traffic claim, although I would like to see that extended across the piece. Breach would be a criminal offence. That, in my view, is the only way to stamp out this unethical and unwholesome practice. I was pleased to hear earlier from the Lord Chancellor that he accepts that view.

Clause 2 deals with whiplash. Some jurisdictions abroad restrict the payment of damages for whiplash to claims where there is clear objective evidence that real injury has been suffered. Clause 2 provides for the need for such objective evidence. No one who has genuinely suffered an injury would be in any way disadvantaged by the provisions in the Bill.

In my Blackburn constituency, and in many other constituencies, there are law firms with banners outside their offices promising £650 in cash in return for any new personal injury claim. They can make those promises and pay out because the flat fee that insurers pay the lawyers for claims below £10,000 has been set too high. Such claims are now processed through an electronic portal, which costs the law firm no more than £100 in staff time to operate. The flat fee is £1,200, so even if a firm pays a £650 introduction fee it can make exorbitant profits. Clause 3 would cut the fee in half.

I will now deal with the fourth provision in the Bill. Honest law-abiding drivers in my constituency, and in many similar urban areas, especially in the north and the midlands, have faced even higher increases in premiums than most drivers, despite their impeccable driving records and inherent low risk of a future claim. That is because of postcode discrimination by insurers. Such practices do not harm those involved in the rackets, but they do harm entirely innocent people. Clause 4 would prohibit insurers from isolating the level of risk arising from personal injury claims in an area smaller than Wales, or a standard English region.

There are other measures that need to be taken alongside this Bill. There is already provision on the statute book for tougher custodial sentences for selling and trading in data contrary to section 55 of the Data Protection Act 1998. Those provisions, in the Criminal Justice and Immigration Act 2008, should be brought into force without delay. The prosecuting authorities should consider whether criminal proceedings under the Bribery Act 2010 should be instituted against some of the worst abuses, as the Bar Council has suggested. All the regulators—not just the Information Commissioner who, commendably, is seeking to do so—must toughen up their approach.

The changes in my Bill would make a significant difference for Britain’s hard-pressed motorists. The insurance companies would have to start stabilising their premiums and, as their costs came down, would have to reduce their premiums. I commend the Bill to the House.

Question put and agreed to.


That Mr Jack Straw, Sir Alan Beith, Sir Peter Bottomley, Steve McCabe, Graham Jones, Penny Mordaunt and Mr David Ward present the Bill.

Mr Jack Straw accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 20 January 2012, and to be printed (Bill 229).