How insurance companies contribute to higher premiums

Cars are safer than they have ever been. With crumple zones, impact panels, airbags and seat belts good car design has helped to make the roads safer and despite the increasing traffic the number of accidents involving death or injury is falling steadily. Cars are also cheaper to buy in real terms, and easier to repair. So, why are car insurance premiums rising so rapidly?

The insurance companies point to fraud and the compensation culture as being the main culprits. There is undeniably a lot of truth in this, but are they insurance companies not partly to blame for this themselves?

Most car insurance fraud is ridiculously easy to spot. The favourite one is the popular 'whiplash' claim and nowadays these are some common that in some postcodes in England it is virtually impossible to get car insurance at any price because of the epidemic of sore necks that suddenly appear whenever there is a minor traffic accident. This type of injury was of course practically unheard of before some well-publicised and very lucrative compensation claims and it is difficult to accept that all of a sudden the necks of people in England have all of a sudden become far weaker than before. The extent of this problem can be judged by the fact that around 80% of injury claims are now put down to whiplash injury; despite all the safety features and head restraints in a modern car. There is no escaping the inevitable conclusion that a very high proportion of these, possibly the majority, are fraudulent.

And yet, in very few cases do the insurance companies investigate these claims as thoroughly as they should. The reason? It costs money. And if the case goes to court, it costs even more money. It is very often far cheaper to pay up, and to fight but, as the old saying goes, 'he who pays the Dane Geld will never get rid of the Dane'; in other words the more they pay out the more people will try it on which means there will be even more to pay out. Not a problem, it is we who pay it in our insurance premiums, not them.

The compensation culture is put forward as another major cause of increasing car insurance premiums, with the finger pointed at the claims management companies. However, where do they get their business from?

Would you believe, a huge amount of it comes from the insurers themselves? When a motorist is involved in an accident for which someone else can be shown to be at blame that motorist becomes a hugely valuable commodity. By passing on the names of their clients who have been involved in no – blame accidents the insurance companies pocket fees that they receive not only from claims companies but also solicitors, garages, car hire companies. How much they receive is a closely guarded secret but industry insiders have suggested that it is not far short of £5 billion a year!

Officially The Association of British Insurers deplore this situation. When asked to ban it however they have refused to do so on the grounds that by accepting these fees the insurance companies are merely recouping their losses. The mind boggles.

Our insurance companies really so keen to keep insurance premiums down? Bearing in mind the number of people who take a call from the premiums that we pay, the more expensive the premium the higher the profits for everyone. Except the poor car insurance purchaser, who has no choice in the matter.

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