7 November 2013
Shailesh Vara replies to a debate on the Transport Committee’s recent report on the cost of insurance and whiplash claims.
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The Parliamentary Under-Secretary of State for Justice (Mr Shailesh Vara): It is a pleasure, Mr Robertson, to speak in a debate that is chaired by your good self. I congratulate the hon. Member for Liverpool, Riverside (Mrs Ellman) on securing this timely debate. Indeed, this is my second debate as a Justice Minister and the second debate that I am replying to that has been secured by the hon. Lady.
On 29 October, the hon. Lady asked a number of questions in a letter to my right hon. Friend the Secretary of State for Justice. I will try to address some of those issues in my remarks today. If there is any shortfall, I will expect her to have a reply very soon.
I was a little disappointed that the hon. Member for Hammersmith (Mr Slaughter) was so critical of everything that the Government seek to do, particularly as this is something that will actually benefit the public. He asked me who the winner will be. Let me assure him that, at the end of the day, it will be the public. I hope that when I have finished my comments, he will be slightly persuaded that this is actually a good news story, rather than a negative one.
There have been some real challenges for the Government in seeking to put right some of the imbalances in the criminal justice system. Such imbalances have led to a disproportionate growth in personal injury claims, especially whiplash claims, and in the considerable costs of dealing with them. Too many claims are being brought inappropriately. We know that reported road traffic accidents have fallen from 190,000 in 2006, to 150,000 in 2012—a reduction of more than 20%. Yet at the same time, the number of personal injury claims resulting from road traffic accidents has risen from 520,000 to 820,000—an increase of almost 60%. That is a clear indication that there is a problem.
Mr Slaughter: I will not interrupt the Minister every five minutes, but does he accept that whiplash claims fell by about 60,000 in the last year that figures were available, which is, I think, 2012-13? They are now down to the sort of levels of 2008-09.
Mr Vara: If the hon. Gentleman would give me the opportunity to speak, he will find that I address a little bit later the disparity of numbers and what is a genuine whiplash claim now compared with what it was before.
It is worth noting that the proportion of road traffic accident claims that relate to whiplash has dropped to 58% recently. However, further study of Department for Work and Pensions statistics suggests that that is misleading and that a change in claims labelling may be responsible. Many claims are now labelled as soft tissue neck injuries when notified to the DWP. When those claims are considered with those labelled “whiplash”, the figure increases to around 87% of claims. Even though the number of accidents is falling, there has been a large increase in the number of personal injury claims, which is real evidence of a system crying out for reform.
Sir Greg Knight: As the effects of whiplash are normally felt within seven days of the accident and usually do not last more than a year, will the Minister address the point raised by the Transport Committee, which suggested that the period of limitation in such cases be reduced from three years to one year? If he cannot cover that matter today, will he write to me on that specific subject? There is a case for reducing the limitation period for these claims.
Mr Vara: I am grateful to my right hon. Friend for his comments. The Government did indeed consider that recommendation, but we do not intend to take any action on it. The limitation period is of long standing and applies to wider personal injuries than just those in road accidents. It is important to bear that in mind. This debate is specific to whiplash claims.
The Government accept that many claims may be genuine, but many speculative, exaggerated or even outright fraudulent claims are clearly being made. It is not right that people who cheat the system should get away with it and force up the price of insurance for honest, hard-working motorists. I make no apology for targeting the exaggerated claims of whiplash fraudsters to drive down premiums.
People seemingly now claim for whiplash injuries sustained in the most minor of incidents, and Government data show that more than 1,900 claims a day are made. According to the Association of British Insurers, the cost to the industry from whiplash claims is £2 billion, resulting in £90 being added to the average motor insurance premium. That is why the Government were committed to reducing the number and cost of whiplash claims at the Prime Minister’s insurance summit last year. We need to take action to tackle speculative, fraudulent and exaggerated whiplash claims, but we must not lose sight of the needs and legitimate expectations of those who have suffered a genuine injury. A reduction in the number of such claims will lower the costs for insurers, which will in turn allow them to continue to reduce motor premiums for consumers.
Motor insurance premiums are beginning to fall. Figures published by the AA’s British insurance premium index in October, as I said earlier, show that quotes for annual comprehensive car insurance have fallen by 12% over the past year. Incidentally, regarding some remarks made earlier by the hon. Member for Hammersmith, I refer him to what the Association of British Insurers said in oral evidence to the Transport Committee. The ABI said that it expects savings from the Government reforms that have been implemented to result in a decrease in insurance premiums.
That is a good start, but the Government fully expect insurers to continue to meet their commitment to pass on the savings from the Government reforms that are driving down the costs of civil litigation. In December last year, the Ministry of Justice launched a consultation seeking stakeholder views on the creation of independent medical panels to support better diagnosis of whiplash and options for increasing the small claims threshold for personal injury claims to £5,000.
The consultation closed on 8 March. I thank all the individuals and organisations who took the time and trouble to contribute. A healthy 292 responses were received from a wide range of stakeholders, providing the Government with a strong evidence base to inform our decisions for reform.
The Government published our response to the consultation and to the Transport Committee report, “Cost of motor insurance: whiplash”, on 23 October. Our response detailed the Government’s direction of travel on whiplash reform and announced a number of reforms to the medical evidence and reporting system for whiplash claims. Exaggerated and speculative compensation claims have helped force up insurance premiums, and such unnecessary and costly claims will be targeted by the Government’s new and robust medical evidence scheme.
The new system will ensure that only evidence from fully accredited medical professionals qualified to carry out thorough medical examinations can be considered when pursuing a claim, so people who aim to cheat the system will be deterred, while victims with genuine injuries can still get the help that they need. Improvements to the system to support medical experts will include an approved accreditation scheme, new best practice guidance, better accident information and access to medical records, where appropriate, and an improved medical report form to speed up settlements.
The Government are particularly pleased that representatives from the insurance, legal and medical sectors have put aside their differences and submitted a consensus approach to improving medical evidence and reports. Such a consensus can only be positive for all involved and provides the Government with a clear mandate for our reforms. We look forward to working closely with stakeholders to build an effective and rigorous new system on that solid base of agreement. Ministers plan to meet representatives from key stakeholder groups to outline the way forward and identify experts to work with officials on the detail of the new system. It is both important and sensible to involve industry experts when designing the detailed changes. Such input will be invaluable as we work up an appropriate and effective accreditation process, methods to control the use of pre-medical offers, robust examination techniques and best practice guidance and an improved medical reporting process and report form.
Details of the most appropriate funding method for the new scheme are still to be developed, but the Government believe that there are areas of common ground with the industry. We will talk to stakeholders about funding opportunities for meeting the costs of setting up and running the new system and for ensuring that the Government achieve our intention that such costs should not fall on the taxpayer. We aim to work at pace with stakeholders on those and other issues, and we intend to start implementing improvements to the system next year. I assure the hon. Member for Hammersmith that we are actively considering a timetable for implementation.
In addition to the work on the new medical reporting scheme, the Government will also work with stakeholders to improve the provision of data relating to whiplash. As the Committee indicated in its report, accurate data and statistics are needed to have a baseline to work from. Ministry of Justice officials will be working with colleagues in other Departments and with representatives from the insurance and legal sectors, including Claims Portal Ltd, to identify and compile baseline data. That will ensure that future work in this area can be underpinned by a robust evidence base.
Mr Slaughter: I appreciate all that, but in considering the cost of insurance premiums, will the Minister also consider insurance company profits? Admiral has just said that it is delivering £80 per policyholder to its shareholders—a sum equivalent to whiplash costs—and Direct Line has just announced that its overall operating profit has risen 73% in the past nine months.
Mr Vara: I assure the hon. Gentleman that we want to get this right, and we are speaking actively with all stakeholders: insurance companies, lawyers, claimants, defendants and the judiciary where applicable. I hope that there will be consensus, and that we will get it right. If he wishes to have any input other than this debate, I will certainly welcome it. He is welcome to write to me, as indeed he has done with all the questions that I have helpfully answered in this debate.
The Government are also keen for the insurance sector to work with the claimant lawyer groups to share available data on fraudulent claims. Doing so would enable many such claims to be stopped at source. Ministry of Justice officials will work with stakeholders to assess the work undertaken so far, consider the issues on both sides that are slowing agreement and identify solutions to enable both sides to reach agreement on this vital issue.
The sharing of data on fraudsters will be of immeasurable help to claimant lawyers when considering whether to take on a case and will be a considerable step forward in the fight against fraudulent claims. However, the Government consultation document contained a further proposal on whether the small claims threshold for personal injury claims should be raised from £1,000 to £5,000. Right hon. and hon. Members already know that, following a thorough assessment of the evidence submitted to the Government from both consultation responses and from other sources, we decided to defer the raising of the small claims threshold for now. For the moment, more work is needed to support litigants in person, consider how best to regulate the personal injury claims sector, mitigate any impact on the online portal used to process road traffic accident claims where liability is admitted and assess the impact on the market of other Government reforms.
As Members will also be aware, the Government have undertaken a major programme of reform to civil litigation and costs with significant impacts on the personal injury litigation sector. The implementation of part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 on 1 April introduced major changes to no win, no fee conditional fee arrangements, the provision of after-the-event insurance and a ban on the payment and receipt of referral fees in personal injury cases.
Those reforms, and the subsequent changes to the road traffic accident pre-action protocol and associated fixed recoverable costs, have already begun to have an impact on the personal injury market. However, the Government believe that time is needed for the changes to bed in completely and for the savings that they will create to be fully realised before further reform to the sector is undertaken. I ought to make it clear that the Government have not ruled out further reform to the personal injury market. The consultation document and the Transport Committee inquiry both highlighted areas where further reform would be possible, and the Government may wish to consider such proposals in due course. However, our primary focus for now is on the effective implementation of the measures outlined in the announcement by my right hon. Friend the Lord Chancellor on 23 October.
It is also our desire to identify and eradicate dysfunctional behaviour by those who operate in this sector, and we would like all stakeholders to work together with us to address this issue. In addition, we await with interest the Competition Commission’s forthcoming report and recommendations on the personal motor insurance market.
There is an opportunity now for insurers, claimant lawyers and others to build on the recent spirit of co-operation that was shown in agreeing a sensible consensus position on medical evidence. I call on all interested parties in this market to come together to build a personal injury process that deters speculative and fraudulent claims, while providing the genuinely injured with the help and support that they need to recover from an accident.
I thank the Transport Committee for its valuable inquiry and report on the cost of whiplash claims on motor insurance premiums. The report was well-balanced and thought provoking, and it provided much useful evidence that helped to inform the Government’s final decisions on whiplash reform.
As Members are no doubt aware, Ministers helpfully agreed to defer the publication of the consultation response to allow the Committee’s recommendations to be considered in full. The Committee published its recommendations on 31 July, and my predecessor wrote to the hon. Member for Liverpool, Riverside on 25 September to propose that a combined response to the consultation and the Committee should be published. I understand that the Committee was content with this approach, and the response was published on 23 October.
As I have already mentioned, the Government agreed with a number of the Committee’s conclusions, such as those on improvements to medical reporting, data sharing and evidence gathering and on whether to raise the small claims threshold for personal injury claims, so I will not go into them again now. I should point out that the Committee’s report addressed areas where the Government felt, on balance, that change was either not required or not appropriate.
Whiplash is a complex issue and all options, including whether it would be proportionate and appropriate to make changes to primary legislation, were looked at before final decisions on the way forward were made. For example, the Government considered the Committee’s recommendation on whether to amend the limitation period for whiplash claims, and I have already dealt with that issue. As I said, the limitation period is long-standing and applies to all personal injury actions arising from negligence or breach of duty. However, the Government decided that the available evidence did not at present support such a change.
As I said in my opening remarks, we have received the letter of 29 October from the hon. Member for Liverpool, Riverside, and we hope to reply to her more substantively very shortly.
I conclude by noting that the Transport Committee issued a further call for evidence on Tuesday relating to the publication of the Government’s response document. The Government will, of course, provide an appropriate contribution, and I look forward to the Committee’s further report.
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| Parliament TV
The Parliamentary Under-Secretary of State for Justice (Mr Shailesh Vara): It is a pleasure, Mr Robertson, to speak in a debate that is chaired by your good self. I congratulate the hon. Member for Liverpool, Riverside (Mrs Ellman) on securing this timely debate. Indeed, this is my second debate as a Justice Minister and the second debate that I am replying to that has been secured by the hon. Lady.
On 29 October, the hon. Lady asked a number of questions in a letter to my right hon. Friend the Secretary of State for Justice. I will try to address some of those issues in my remarks today. If there is any shortfall, I will expect her to have a reply very soon.
I was a little disappointed that the hon. Member for Hammersmith (Mr Slaughter) was so critical of everything that the Government seek to do, particularly as this is something that will actually benefit the public. He asked me who the winner will be. Let me assure him that, at the end of the day, it will be the public. I hope that when I have finished my comments, he will be slightly persuaded that this is actually a good news story, rather than a negative one.
There have been some real challenges for the Government in seeking to put right some of the imbalances in the criminal justice system. Such imbalances have led to a disproportionate growth in personal injury claims, especially whiplash claims, and in the considerable costs of dealing with them. Too many claims are being brought inappropriately. We know that reported road traffic accidents have fallen from 190,000 in 2006, to 150,000 in 2012—a reduction of more than 20%. Yet at the same time, the number of personal injury claims resulting from road traffic accidents has risen from 520,000 to 820,000—an increase of almost 60%. That is a clear indication that there is a problem.
Mr Slaughter: I will not interrupt the Minister every five minutes, but does he accept that whiplash claims fell by about 60,000 in the last year that figures were available, which is, I think, 2012-13? They are now down to the sort of levels of 2008-09.
Mr Vara: If the hon. Gentleman would give me the opportunity to speak, he will find that I address a little bit later the disparity of numbers and what is a genuine whiplash claim now compared with what it was before.
It is worth noting that the proportion of road traffic accident claims that relate to whiplash has dropped to 58% recently. However, further study of Department for Work and Pensions statistics suggests that that is misleading and that a change in claims labelling may be responsible. Many claims are now labelled as soft tissue neck injuries when notified to the DWP. When those claims are considered with those labelled “whiplash”, the figure increases to around 87% of claims. Even though the number of accidents is falling, there has been a large increase in the number of personal injury claims, which is real evidence of a system crying out for reform.
Sir Greg Knight: As the effects of whiplash are normally felt within seven days of the accident and usually do not last more than a year, will the Minister address the point raised by the Transport Committee, which suggested that the period of limitation in such cases be reduced from three years to one year? If he cannot cover that matter today, will he write to me on that specific subject? There is a case for reducing the limitation period for these claims.
Mr Vara: I am grateful to my right hon. Friend for his comments. The Government did indeed consider that recommendation, but we do not intend to take any action on it. The limitation period is of long standing and applies to wider personal injuries than just those in road accidents. It is important to bear that in mind. This debate is specific to whiplash claims.
The Government accept that many claims may be genuine, but many speculative, exaggerated or even outright fraudulent claims are clearly being made. It is not right that people who cheat the system should get away with it and force up the price of insurance for honest, hard-working motorists. I make no apology for targeting the exaggerated claims of whiplash fraudsters to drive down premiums.
People seemingly now claim for whiplash injuries sustained in the most minor of incidents, and Government data show that more than 1,900 claims a day are made. According to the Association of British Insurers, the cost to the industry from whiplash claims is £2 billion, resulting in £90 being added to the average motor insurance premium. That is why the Government were committed to reducing the number and cost of whiplash claims at the Prime Minister’s insurance summit last year. We need to take action to tackle speculative, fraudulent and exaggerated whiplash claims, but we must not lose sight of the needs and legitimate expectations of those who have suffered a genuine injury. A reduction in the number of such claims will lower the costs for insurers, which will in turn allow them to continue to reduce motor premiums for consumers.
Motor insurance premiums are beginning to fall. Figures published by the AA’s British insurance premium index in October, as I said earlier, show that quotes for annual comprehensive car insurance have fallen by 12% over the past year. Incidentally, regarding some remarks made earlier by the hon. Member for Hammersmith, I refer him to what the Association of British Insurers said in oral evidence to the Transport Committee. The ABI said that it expects savings from the Government reforms that have been implemented to result in a decrease in insurance premiums.
That is a good start, but the Government fully expect insurers to continue to meet their commitment to pass on the savings from the Government reforms that are driving down the costs of civil litigation. In December last year, the Ministry of Justice launched a consultation seeking stakeholder views on the creation of independent medical panels to support better diagnosis of whiplash and options for increasing the small claims threshold for personal injury claims to £5,000.
The consultation closed on 8 March. I thank all the individuals and organisations who took the time and trouble to contribute. A healthy 292 responses were received from a wide range of stakeholders, providing the Government with a strong evidence base to inform our decisions for reform.
The Government published our response to the consultation and to the Transport Committee report, “Cost of motor insurance: whiplash”, on 23 October. Our response detailed the Government’s direction of travel on whiplash reform and announced a number of reforms to the medical evidence and reporting system for whiplash claims. Exaggerated and speculative compensation claims have helped force up insurance premiums, and such unnecessary and costly claims will be targeted by the Government’s new and robust medical evidence scheme.
The new system will ensure that only evidence from fully accredited medical professionals qualified to carry out thorough medical examinations can be considered when pursuing a claim, so people who aim to cheat the system will be deterred, while victims with genuine injuries can still get the help that they need. Improvements to the system to support medical experts will include an approved accreditation scheme, new best practice guidance, better accident information and access to medical records, where appropriate, and an improved medical report form to speed up settlements.
The Government are particularly pleased that representatives from the insurance, legal and medical sectors have put aside their differences and submitted a consensus approach to improving medical evidence and reports. Such a consensus can only be positive for all involved and provides the Government with a clear mandate for our reforms. We look forward to working closely with stakeholders to build an effective and rigorous new system on that solid base of agreement. Ministers plan to meet representatives from key stakeholder groups to outline the way forward and identify experts to work with officials on the detail of the new system. It is both important and sensible to involve industry experts when designing the detailed changes. Such input will be invaluable as we work up an appropriate and effective accreditation process, methods to control the use of pre-medical offers, robust examination techniques and best practice guidance and an improved medical reporting process and report form.
Details of the most appropriate funding method for the new scheme are still to be developed, but the Government believe that there are areas of common ground with the industry. We will talk to stakeholders about funding opportunities for meeting the costs of setting up and running the new system and for ensuring that the Government achieve our intention that such costs should not fall on the taxpayer. We aim to work at pace with stakeholders on those and other issues, and we intend to start implementing improvements to the system next year. I assure the hon. Member for Hammersmith that we are actively considering a timetable for implementation.
In addition to the work on the new medical reporting scheme, the Government will also work with stakeholders to improve the provision of data relating to whiplash. As the Committee indicated in its report, accurate data and statistics are needed to have a baseline to work from. Ministry of Justice officials will be working with colleagues in other Departments and with representatives from the insurance and legal sectors, including Claims Portal Ltd, to identify and compile baseline data. That will ensure that future work in this area can be underpinned by a robust evidence base.
Mr Slaughter: I appreciate all that, but in considering the cost of insurance premiums, will the Minister also consider insurance company profits? Admiral has just said that it is delivering £80 per policyholder to its shareholders—a sum equivalent to whiplash costs—and Direct Line has just announced that its overall operating profit has risen 73% in the past nine months.
Mr Vara: I assure the hon. Gentleman that we want to get this right, and we are speaking actively with all stakeholders: insurance companies, lawyers, claimants, defendants and the judiciary where applicable. I hope that there will be consensus, and that we will get it right. If he wishes to have any input other than this debate, I will certainly welcome it. He is welcome to write to me, as indeed he has done with all the questions that I have helpfully answered in this debate.
The Government are also keen for the insurance sector to work with the claimant lawyer groups to share available data on fraudulent claims. Doing so would enable many such claims to be stopped at source. Ministry of Justice officials will work with stakeholders to assess the work undertaken so far, consider the issues on both sides that are slowing agreement and identify solutions to enable both sides to reach agreement on this vital issue.
The sharing of data on fraudsters will be of immeasurable help to claimant lawyers when considering whether to take on a case and will be a considerable step forward in the fight against fraudulent claims. However, the Government consultation document contained a further proposal on whether the small claims threshold for personal injury claims should be raised from £1,000 to £5,000. Right hon. and hon. Members already know that, following a thorough assessment of the evidence submitted to the Government from both consultation responses and from other sources, we decided to defer the raising of the small claims threshold for now. For the moment, more work is needed to support litigants in person, consider how best to regulate the personal injury claims sector, mitigate any impact on the online portal used to process road traffic accident claims where liability is admitted and assess the impact on the market of other Government reforms.
As Members will also be aware, the Government have undertaken a major programme of reform to civil litigation and costs with significant impacts on the personal injury litigation sector. The implementation of part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 on 1 April introduced major changes to no win, no fee conditional fee arrangements, the provision of after-the-event insurance and a ban on the payment and receipt of referral fees in personal injury cases.
Those reforms, and the subsequent changes to the road traffic accident pre-action protocol and associated fixed recoverable costs, have already begun to have an impact on the personal injury market. However, the Government believe that time is needed for the changes to bed in completely and for the savings that they will create to be fully realised before further reform to the sector is undertaken. I ought to make it clear that the Government have not ruled out further reform to the personal injury market. The consultation document and the Transport Committee inquiry both highlighted areas where further reform would be possible, and the Government may wish to consider such proposals in due course. However, our primary focus for now is on the effective implementation of the measures outlined in the announcement by my right hon. Friend the Lord Chancellor on 23 October.
It is also our desire to identify and eradicate dysfunctional behaviour by those who operate in this sector, and we would like all stakeholders to work together with us to address this issue. In addition, we await with interest the Competition Commission’s forthcoming report and recommendations on the personal motor insurance market.
There is an opportunity now for insurers, claimant lawyers and others to build on the recent spirit of co-operation that was shown in agreeing a sensible consensus position on medical evidence. I call on all interested parties in this market to come together to build a personal injury process that deters speculative and fraudulent claims, while providing the genuinely injured with the help and support that they need to recover from an accident.
I thank the Transport Committee for its valuable inquiry and report on the cost of whiplash claims on motor insurance premiums. The report was well-balanced and thought provoking, and it provided much useful evidence that helped to inform the Government’s final decisions on whiplash reform.
As Members are no doubt aware, Ministers helpfully agreed to defer the publication of the consultation response to allow the Committee’s recommendations to be considered in full. The Committee published its recommendations on 31 July, and my predecessor wrote to the hon. Member for Liverpool, Riverside on 25 September to propose that a combined response to the consultation and the Committee should be published. I understand that the Committee was content with this approach, and the response was published on 23 October.
As I have already mentioned, the Government agreed with a number of the Committee’s conclusions, such as those on improvements to medical reporting, data sharing and evidence gathering and on whether to raise the small claims threshold for personal injury claims, so I will not go into them again now. I should point out that the Committee’s report addressed areas where the Government felt, on balance, that change was either not required or not appropriate.
Whiplash is a complex issue and all options, including whether it would be proportionate and appropriate to make changes to primary legislation, were looked at before final decisions on the way forward were made. For example, the Government considered the Committee’s recommendation on whether to amend the limitation period for whiplash claims, and I have already dealt with that issue. As I said, the limitation period is long-standing and applies to all personal injury actions arising from negligence or breach of duty. However, the Government decided that the available evidence did not at present support such a change.
As I said in my opening remarks, we have received the letter of 29 October from the hon. Member for Liverpool, Riverside, and we hope to reply to her more substantively very shortly.
I conclude by noting that the Transport Committee issued a further call for evidence on Tuesday relating to the publication of the Government’s response document. The Government will, of course, provide an appropriate contribution, and I look forward to the Committee’s further report.
| Hansard
