28 April 2020
Earlier this week, the Lord Chancellor Robert Buckland announced that motor insurance whiplash reforms are being put back to April 2021, citing the COVID-19 pressures as a key reason for the delay. The expectation at the start of the year was for these reforms to come into force on 1 April 2020, but this date has now been pushed back twice in as many months.
So, how will this latest delay affect insurers?
Pricing and profitability
Whiplash reform, part of the Civil Liability Act 2018, was expected to reduce the cost of third party injury claims by introducing measures including:
- introducing a tariff structure for common soft tissue injuries;
- banning insurers from settling claims without medical assessment; and
- increasing small claims track limit for road traffic accident related personal injury claims from £1,000 to £5,000.
The UK motor market is extremely competitive. Some insurers might have looked to get a competitive edge by pricing the expected benefits of these reforms into policies in advance of the implementation date, possibly as early as Q3 2019. Therefore, all else being equal, there may be a financial impact to insurers arising from the delay.
In more normal times, we might expect the industry to respond by raising prices, tightening claims procedures, or absorbing the cost of delay in their bottom lines. However, the current COVID-19 lockdown has led to significant reductions in vehicle use, and this is expected to be beneficial to motor insurers’ bottom lines. The financial impact of whiplash reform delays will almost certainly be insignificant compared to this.
Future PR risk
One of the key objectives of the Civil Liability Act 2018 was to lower the price paid by consumers for compulsory motor insurance. The government’s expectation was that insurers would pass on the full benefit of reforms to consumers and that they would be able to evidence having done so.
The delayed implementation presents some additional challenges for insurers to consider.
- Year on year price comparisons may be distorted by the impact of COVID-19 related trends. Insurers may have already offered premium rebates or reduced rates in response to reduced vehicle miles. All of these “muddy the waters” when demonstrating that price reductions have been passed on to customers.
- There will likely be increased scrutiny of insurers in the aftermath of the pandemic. The whole industry faces negative publicity over the exclusion of pandemic cover from business interruption policies, whether the exclusion is legitimate or not. Furthermore, tough economic times are expected to follow any easing of lockdown restrictions, so there will likely be heightened media sensitivity to costs faced by consumers.
Will there be further delays?
Whiplash reform has been delayed several times since the passing of the Civil Liability Act in 2018. It is clear from the Lord Chancellor’s statement that there is no appetite to implement these reforms during the pandemic. However, as soon as attention turns to the economic fallout, you can expect legislation that saves consumers money to be a key priority for the government.
As for whether we’ll have reached that stage by April 2021… only time will tell. In the intervening time, insurers should be reviewing their plans for clearly evidencing that any cost savings are passed onto consumers to a fair extent.