Personal injury pay outs up to 17 times higher in the UK than in some other European countries are, in turn, forcing up the cost of insurance for drivers, particularly young drivers, according to the RAC Foundation.
The differences are highlighted in a European-wide comparison of insurance markets, carried out for the RAC Foundation by Nick Starling, the former director of general insurance at the Association of British Insurers.
The report says meeting the long-term care costs of some of those catastrophically injured in road accidents can result in compensation payments of around £10m in the UK, significantly ahead of Germany (£6m) and France (£6m). In Sweden, compensation might be as little as £0.6m.
The study argues that national differences in levels of compensation are likely to become even greater now that the UK Government has changed the so-called ‘discount rate’. This is likely to result in insurers having to pay much larger up-front lump sums to fund ongoing care for those most badly hurt on the roads.
The report says: “The UK Government’s own calculations for a young quadriplegic requiring £100,000 a year in care costs is that the lump sum award will increase from £5-6m to £9m – up around 60%. The UK Prudential Regulation Authority has estimated that overall claims costs could rise by £2bn annually.”
Steve Gooding, director of the RAC Foundation, said: “While direct comparisons with the rest of Europe are hard to make, all the signs are that we pay more for our insurance than our continental cousins.
“One reason is the high pay outs insurers must make when people are badly hurt on the roads.
“The report also points to the culture of whiplash claims as a UK phenomenon, driven by claim handling companies. We were therefore pleased to hear the commitment in the recent Queen’s Speech to tackling fraudulent claims which load costs back onto responsible drivers.
“Everyone should pay a fair price for insurance, but if people are priced out of the market the danger is they choose to drive uninsured and that’s a risk to us all.”
While the report identifies the UK as having high initial premiums for young drivers, it says these can fall rapidly through the system of no-claim discounts. Also, increasingly common telematics-based insurance offers more affordable cover to young people.
The study says that, overall, the UK has one of the most competitive insurance markets in Europe. An estimated 70% of policies are bought online, predominantly through price-comparison websites.