Motor insurers in the UK should brace for further obstacles ahead following the “questionable” effectiveness of the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO), specialist information provider Verdict Financial has said.
According to the firm’s latest report, the UK private motor insurance market is seeing a new wave of tighter legislation to further reduce claims costs, which have begun to stabilize.
The new reforms aim to disrupt the role of claims management companies (CMCs) and solicitors in encouraging personal injury claims, and also to confront the UK’s whiplash epidemic.
“It is clear that the next few years will be a pivotal time for motor insurers, with new legislation and proposed reforms holding potentially market-changing implications for this sector,” said Danielle Cripps, Verdict Financial’s analyst for general insurance.
“However, regulators will have to watch out for CMCs and solicitors finding loopholes in regulation in order to avoid a repeat of LASPO, where anticipated benefits did not fully materialize,” she added.
Introduced in 2013, LASPO was primarily intended to reduce the expense associated with personal injury claims, according to Cripps.
“It was hoped that the reforms would also lead to a reduction in claims numbers due to incentives for fraudulent and speculative claims being reduced. However, the effectiveness of the legislation has been questionable,” Cripps said.
Cripps explained that LASPO had initial benefits, but CMCs and solicitors that profit from processing claims have adapted and continued their practices.
The Verdict Financial report said premiums which fell in anticipation of LASPO’s benefits subsequently rose rapidly over 2015. This was in response to the falling rates’ impact on market profitability as a result of the lower-than-expected decline in claims costs.
The rate of decline of gross claims incurred has been slowing, only falling minimally by 1.9% in 2015 with the market being able to adjust.
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