Car insurance companies are professional gamblers. They weigh up the likelihood of a driver claiming on a policy and the likely cost and set the premium accordingly.
Underwriting the policy – or risk assessment – is taking a number of factors relating to the driver and comparing his or her profile to historical claims data to predict whether a claim is likely.
Risk factors include where the driver lives, the type of car, local crime rates and other statistics relating to claims for drivers of that age and gender.
The problem is the merry-go-round of accident-chasing lawyers, claims management firms and fraudsters are wreaking havoc with the system, leaving the motorist to pay the bill.
Car insurance is broken and someone needs to fix it, otherwise the costs will keep on spiralling upwards.
Take a scenario where a driver lives in a postcode area that is blacklisted due to excessive fraudulent claims. Insurance companies persistently deny they have a blacklist but they do have postcodes where they hike the costs so much that drivers just can’t or won’t pay.
Pricing someone out of the market due to their postcode is just another way of running a blacklist.
Many of these drivers pay premiums that equal a significant percentage of the price of their car. At some stage, the two will converge and the cost of insurance will stop people driving. It’s already happening to young drivers
The industry needs to stamp on the brakes and look at ways to jump start a better, fairer insurance market for motorists.
Fraudsters and drivers with insurance should have no sympathy, and suffer their vehicles scrapped as a penalty for their crooked ways.
A fairer car insurance system also means someone living in the wilds of Wales should not subsidise the costs of other drivers in claims blackspots like Birmingham, Bradford and Bolton.
Perhaps the solution is to remove the cash reward expectation from car insurance.
If claimants did not receive any cash but simply had their cars repaired and their bills paid to a capped level while unable to work for minor injuries, the crash for cash whiplash claim would disappear.
Obviously someone who is severely disabled should clearly receive compensation – but that would be a second tier claim at a level above the basics.
The point is crash for cash scammers feign minor injuries to claim compensation and will stop short at self-inflicting major disability.
Changing the way insurance pay out will change claims – and reducing the number of false and excessive claims will reduce the cost of car insurance.