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My car was damaged recently. It was in a car park and I was somewhere else. I claimed on my own insurance, and was directed by them to a repair garage who took my mobile number, ostensibly to contact me when the car was ready. They did not. Instead they sold on my details to a claims management company . I know this because I received a text a week later telling me that I had been in an accident and was entitled to £2,750.00. Coincidentally, the insurance industry blamed a projected rise of 13% in premiums on the rise in personal injury claims.

Whiplash claims now make up 70% of all motor accident claims. Typically neck and back symptoms might last 3 – 6 months with the courts awarding damages of between £1,500 – £3,000, so the claims themselves are not large. However it is an injury which has few objective signs and there is a clear temptation for fraud and exaggeration.

Evidence was placed before the Transport Select Committee in 2011 that the insurance industry loses £2.1bn per annum to fraudulent claims, whether by “cash for crash” staged accidents or invention of symptoms. The industry presents a story of the honest citizen paying the price for a system milked by the unscrupulous.

The first point to make is that the number of claims in Scotland is dwarfed by those of our English neighbours. Figures obtained from the Compensation Recovery Unit show that instead of a proportion of around one tenth based on population, the figure is one twenty fifth.

The Commons Transport Committee Report “The Cost of Motor Insurance” noted that other countries without the whiplash problem included France, Germany, Spain and ………Scotland.

The reason is that Scotland has few claims management companies, and a minimal referral market.

A brief tour round the road traffic claims industry might illuminate where the real opportunities are:-

1. Claims Management Companies These are not lawyers. Their business model consists in the identification and encouragement of possible claimants.

Details are then sold on to solicitors for amounts of between £250 to £600. They operate customer friendly 24 hour helplines and have a ubiquitous online and TV presence. It is claimed that they fulfil a need in that people are too intimidated to speak to a lawyer. Whilst that may have been the case 20 years ago, is it really true of the current consumer? For anyone who can operate a mouse or turn the Yellow Pages, this is an introductory dating service which is wholly unnecessary.

2. Credit Hire Companies These companies will provide a replacement vehicle whilst yours is being repaired. They will have paid a referral fee generally of around £500, typically to a body shop. Their hire costs greatly exceed the market rates. These will then be transferred to the insurer of the at fault driver. An example of the business model in operation is the 2010 case of Clark v. City of Edinburgh Council .

After examining the credit hire arrangement the judge concluded that the unwitting pursuer was effectively required to raise proceedings for the sole purpose of recovering his credit hire payments . His 14 year old Toyota Celica (value of £1,000 with 91,000 miles) had been damaged and the Accident Exchange Company provided a replacement Honda Civic 2 litre GT with 900 miles on the clock. The hapless Mr. Clark then racked up daily hire costs of £161.63. He sued for a total of £12, 857.13. In a withering judgement Lord Turnbull held that a “new vehicle for old” hire approach was not appropriate and awarded him a total of £1,950.00.

3. Your own insurance company Insurers frequently incorporate an add-on which provides legal cover . The claimant is then referred to the insurer’s panel solicitor . You may believe that this recommendation is of a badge of quality. In fact the insurer receives a referral fee for every claimant. The industry is coy about the value of these backhanders, but estimates vary between £2 – 4 billion per annum. These payments never appear in the industry analysis of cost per claim against premium income.

There may be further conditions whereby the solicitor agrees to direct the client to specific medico-legal practices or car hire firms, generating more referral fees. Road traffic claims are not difficult. This is work which any no win, no fee lawyer will do for you without charge.

The Transport Select Committee has recommended that insurers should publish on their website a list of the firms with which they have referral arrangements, an indication of the level of fees paid and a clear explanation of how referral arrangements work and their purpose. They should make it clear that claimants need not use the recommended solicitor, vehicle repairer or credit hire firm .

As you read this someone is receiving a text from a claims management company encouraging a claim to be made.

This is a system which provides profit opportunities for vendors of fresh air at every stage. The Transport Select Committee has described it as “a dysfunctional merry –go-round”. The problem is currently being addressed in England under the “ Legal Aid Sentencing and Punishment of Offenders Bill 2011”, which amongst other things outlaws referral fees. It remains to be seen whether this will cure the English patient.

So when you get your renewal premium don’t blame your fellow motorist, or at least those of us living in Scotland.

And has the time not come for concerted agitation for much more significant postcode discounts?