Looming personal injury reforms will have a knock-on effect on the before the event (BTE) insurance market, according to the CEO of legal expenses insurer MSL.
BTE insurance provides policyholders with access to legal advice and help in the event of an accident and injury. The typical gross cost of a policy is between £20 and £28, but often BTE is provided to brokers by insurers at no cost, chief executive Nick Garner explained.
“The government believes BTE insurance could fill the gap and provide customers with access to justice. However, it is not that simple,” Garner said.
“In a post-reform market, BTE insurance premiums will increase because the income generated from claims will reduce, and the cost of claims to the BTE insurer will increase if legal costs are not recovered from the third-party insurer,” the CEO of the Cheshire-based insurer said.
Insurers and brokers will need to increase premiums to maintain income levels, but in the price-sensitive motor insurance market, consumers are likely to opt-out of voluntary add-on covers such as BTE if premiums go up.
Garner said that the Insurance Distribution Directive (IDD), which will make it more difficult to sell BTE as part of a bundled insurance product and is set to come in next February, is there to protect customers but will likely dampen take-up of BTE insurance.
“Following a reduction of, say, 25-30% in BTE take-up post reform, insurers will seek an increase of between £10 and £15 in BTE premium to make up the shortfall, and brokers a 25-30% increase in commission,” he commented.
“If a cap is imposed on compensation for a low value whiplash claim, as the government proposes, the customer could pay up to £25 extra per policy. That’s 70% of the government’s suggested £35 saving. If no payments are made for PSLA (pain, suffering and loss of amenity), the premium will increase by 100%, with customers paying an extra £15 per policy.”
Ultimately, BTE insurance is a potential solution to the post-reform world that the government should encourage, according to Garner.
He added: “It provides customers with legal representation at no extra cost. Claimants without cover risk being unrepresented or incurring additional unrecoverable legal costs – that is a bad outcome for access to justice.”
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