Insurers won't have to pass savings to motorists if the small claim limit increases
Responding to a question raised in Parliament by Andy Slaughter MP, the government has conceded it will not impose any demands on insurers to pass on savings to motorists if the small claims limit is raised in motor accident claims.
On 5 January, the government admitted that it ‘will not seek to intervene’ in what it describes as ‘an intensely competitive market’.
The government’s reticence to force insurers to pass on savings to consumers flies in the face of a promise in George Osborne’s autumn statement that consumers would see the benefit of what was hailed as an ‘end the cycle in which responsible motorists pay higher premiums to cover false claims by others’.
The admission that the government does not intend to implement any formal measure to guarantee that the savings of ‘£40-£50 per policy holder’ will be passed on to consumers has come as no surprise to leading law firm Thompsons Solicitors, who have been opposing the proposed changes.
“As suspected, the government has no intention of making the insurance industry do anything. The government is happy to intervene in the market to force up the small claims limit if it helps their friends in the insurance industry. When it comes to forcing the insurers to pass on the £millions they will save to the consumer paying the premiums, they rely on volunteers. Those who are going to benefit here are the insurers and their shareholders,” said Tom Jones, Head of Policy at Thompsons.
“Rather like Lord Nelson in the Battle of Trafalgar, the government ‘expect’ the insurance companies to do the right thing. It’s one thing for Nelson to have expectations of those in uniform serving their country in the heat of battle but George Osborne needs to accept that it’s rather different when you are talking about insurance companies whose first master is their shareholder.
“If insurance companies did the right thing by consumers, premiums would already be going down. If insurance companies did the right thing by consumers, their margins would be much tighter and consumers would have already felt the benefit of the competition that the government lays such store by. The fact is they haven’t.”
Association of British Insurers reports show that the cost of claims have reduced 29% in the last five years and yet the average premium rose 9.2% in the 12 months to September 2015. Direct Line and Admiral have paid out £1.65 billion in dividends over the last three years.
Thompsons argues that without government intervention, there is no evidence that insurers will pass on any savings to consumers.
“In reality, the market is dominated by handful of companies who can pick and choose who they will insure, leaving many out in the cold forced to pay extortionate premiums. If the government insists upon relying on the ‘competitive’ nature of this captive market, then they need to introduce a 10% cap on market share to enforce it.”
“History suggests that motorists are not remotely likely to see their premiums reduce other than possibly temporarily and in no relation to the savings that will be made by the insurers. The changes proposed to the small claims limit will leave those injured through no fault of their own fighting the insurers on their own. On the back of these changes the insurers will be lining their pockets leaving the injured massively out of pocket.” concluded Mr Jones.
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