Car insurers are cashing in on your crash!

Have you ever wondered why your car insurance premium seems to go up every year despite you not making any claims?

Every year thousands of motorists complain that their car insurance premium has been hiked up even though they’ve maintained a perfect driving history. The insurance companies tell us that this is because the cost of claims has gone up. However, the shocking truth is that insurers themselves are to blame for the amount they pay out per claim increasing.

Here’s how it works:

Insurers’ cheeky scam

So, you have a minor accident but no one’s seriously hurt. You swap car insurance details with the other driver who doesn’t appear to be injured either. In some situations the police will turn up and direct traffic, make sure the scene is safe or get broken down cars out of the road.

Perhaps you have a bit of a sore neck the next day – maybe it’s whiplash, but it doesn’t hurt too much. Anyway, you make an insurance claim for the damage to your car.

And then the fun begins. Before you know it, you’re bombarded with texts and calls from “claims management” companies who advise you to make a claim for compensation – and they can help.

But how did they get your number? Shockingly they probably got it from your insurance company.

Referral fees

Insurers earn something called a “referral fee” for passing on your details to claims management companies or “ambulance chasers”. The fees are pretty hefty – normally between £200 and £1,000 for each set of data sold.

Claims management companies will convince you that if you’ve had an accident that’s not your fault and you’ve been injured, you’ll be entitled to compensation. Many claims management companies offer “no win no fee” deals leading to speculative claims.They’ll often advise you to make a claim for whiplash.

Whiplash is common in car crashes, difficult to prove and easy to fake. It’s one of the most common components on personal liability claims after a car crash. The cost of treating whiplash to the NHS is £8 million, but the cost of related claims to the insurance industry is a whopping £2 billion.

If you decide to go ahead with the compensation claim, the claims management company will hire a solicitor to do the legal work involved with making a claim against the other driver’s insurer. If you win the case, the insurance company will have to pay up, paying you compensation and covering both sets of legal fees.

So how does it recoup its losses? By increasing premiums for all its customers of course.

Police cashing in too

And it’s not just the insurers that are up to no good: the police are in on it too. Police charge “admin fees” of up to £25 by tipping off garages when there is a crash. Garages then collect and store the cars - and charge the driver's insurer. And these costs will again be passed on to consumers in the form of increased premiums.

One police force alone made £1.3 million in just one year in “fees” that it charged to vehicle recovery companies.

What do insurers say?

When the scandal came to light last week, AXA stepped up and became the first insurer to say it would refuse referral fees. But other insurers won’t budge on the issue. Aviva said its position "remains unchanged".

RBS Insurance, which owns Churchill and Direct Line, doesn’t deny that it sells policyholder's details but said it only does so when it felt it was “appropriate”.

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Former home secretary MP Jack Straw has launched a campaign to expose the widespread practice of insurance companies selling customers’ details. He uncovered the racket after a constituent in his Blackburn constituency was bombarded with texts and calls from claims management companies after a minor accident.

According to Straw, at a meeting with the Association of British Insurers (ABI), a senior executive told him: "This is the industry's dirty secret. It's we, the insurance companies, who sell on this personal information."

Curiously the ABI seems to have known about the fees merry-go-round for some time, is aware that its members are involved, but has done little to stop it.

It’s bad enough that the UK has been dubbed “the European capital of whiplash”, but now we discover insurance companies are cashing in on our crashes and passing the costs back to us. Nice.

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