High injury compensation rates and associated legal fees are pushing up the cost of motor insurance claims for drivers in Northern Ireland, according to new evidence heard in Stormont today.
Representatives from the Association of British Insurers (ABI) told members of the Committee for the Economy this morning that claims costs in Northern Ireland are now 33% higher than the UK average.
The bodily injury component is 40% higher than UK average (£20,100 vs £14,000 for England & Wales) and contributing significantly to these higher total claims costs.
Other factors adding pressure to costs include a smaller network of garages, leading to delays to repair; a greater presence of claims management companies and a high rate of people being killed or seriously injured on Northern Ireland’s roads.
Across the UK, while premium rises have begun to stabilise (1% rise in Q1’24), claims continue to rise (up 8% in Q1’24). According to EY, for every £1 collected in premiums by insurers in 2023, they pay out £1.14 in claims and expenses.
New rates for compensation set by the Northern Ireland judiciary at the start of April show stark increases, which have driven up the gap between Northern Ireland and the rest of the UK.
Under the new 'Green Book’ guidelines, compensation for minor whiplash claims with symptoms lasting fewer than six months has increased to up to £5,000, and those lasting six months to one year can now attract up to £7,500. In contrast, compensation for a whiplash claim in England and Wales with symptoms lasting between three and six months would be £495.
A larger Claims Management Company (CMC) presence compared to the rest of the UK is also adding pressure to costs. CMCs actively pursue customers post-incident to offer advice or services for making claims to pursue compensation. CMCs involved in personal injury claims charge customers for their services and can add up to 30% to the total cost of a claim.
Northern Ireland also has a higher rate of deaths and serious injuries from road collisions than the rest of the UK. To note, 20% of those killed or seriously injured are aged 24 and under.
Furthermore, for life changing injuries where a very large amount is paid out to support a victim for the rest of their life, an additional sum, dictated by the Personal Injury Discount Rate (PIDR) is applied.
Northern Ireland’s PIDR of minus 1.5% is the lowest rate in the world, which pushes compensation costs higher.
With pressures on costs so extreme, the insurance industry launched a 10-step roadmap of action back in February, which includes:
Tackling road fatalities with the use of graduated drivers’ licences for new and novice drivers.
Working with road safety organisations and the government to make roads safer.
Calling on the UK Government to reduce the tax on insurance to ease pressures on consumers (Insurance Premium Tax adds 12% to the cost of motor cover).
Working with police forces, vehicle manufacturers and government to help tackle vehicle theft.
Alastair Ross, ABI’s head of public policy in Northern Ireland, said:
“We understand how difficult it is for motorists in Northern Ireland right now and wanted to explain the facts of the matter to Stormont on why prices are rising.
“Insurance premiums are set based on the claims they need to pay. Significant increases in the cost to pay injury compensation, combined with factors like road safety and repair capacity are all taking their toll, but we hope that we can begin to tackle these costs, through initiatives carried out in partnership with governments, police forces and vehicle manufacturers.”