Bogus claims send premiums soaring

Jan 19 2009 Steve Hughes

DRIVERS are being warned that it has never been more important to shop around for the best insurance deal as personal injury claims send premiums soaring.

Industry insiders predict that car insurance premiums could rise by a further 20 per cent during 2009 as lawyers persuade drivers to sue each other on an unprecedented scale.

Television and radio watchdogs say that a tenth of all advertising revenue is now from firms of lawyers encouraging motorists to sue each other, earning massive fees for the lawyers.

Many cases go undefended because of crippling court costs so insurance companies are shelling out billions of pounds a year in compensation.

The average cost of whiplash compensation now accounts for £66 for every motor policy in the UK.

This is sending premiums rising to an expected average for a driver with full no claims to a new high of about £480 this year, which is an increase of £80.

In the case of older cars the cost of insurance premiums are often as much as the vehicles are worth and in the case of high-powered older vehicles the premiums can be several times more than the worth of the vehicle.

The only way to reduce premiums is to buy a smaller car and to avoid automatic policy renewals.

Drivers who mistakenly believe that they will get a loyalty bonus or discount are actually the ones who pay most because their premiums automatically go up and not down.

Invariably the only way to get cheaper car insurance is to shop around and switch companies.

This is because ``new'' policyholders are given more attractive rates to hook them, whereas existing policyholders almost always face automatic annual rises.

Insurance companies know that no matter how much independent consumer advice is issued, the majority of motorists simply stay with their existing insurance provider because they can not be bothered to shop around.

AA director of insurance Simon Douglas says that several factors are driving up premiums including fraud, with the UK's so-called whiplash bill being 40 per cent higher than anywhere else in Europe.

More than 430,000 people claimed for whiplash last year, which now accounts for two thirds of all personal injury claims in the UK.

Many of the lucrative claims are handled by law firms who urge motorists to contact them before their insurance company.

Drivers then have to sign-up to an agreement to ensure that the lawyers get a slice of the money, either in fees or as a share of the payout.

Mr Douglas says: ``Insurers now pay out £105 for every £100 received in premiums.

``There are suggestions of premium increases of up to 20 per cent this year.''

Swinton chief executive Patrick Smith, says: ``Premiums are currently about 20 per cent lower than they should be.''

The AA's Insurance Premium Index has risen by 8.7 per cent during the last 12 months, making the average policy £486.45, which is double that of 15 years ago when the Index began.