Banning UK motor insurers from receiving any type of referral fees would be positive for the industry, as it would represent a more meaningful step towards combating the rise in fraudulent claims and the increasing cost of bodily injury claims, says Fitch Ratings.
The measure, proposed by MPs on the Transport Select Committee Thursday, would go beyond the narrower ban announced last year, which was limited to referral fees from law firms that pursue personal injury claims.
Last year's ban fell short of curtailing the "claims-encouragement" industries that have emerged in recent years, in our view.
The Transport Committee also said that the threshold for receiving compensation in whiplash cases should be raised, and if the number of claims did not fall as a result, legislation requiring objective evidence of a whiplash injury and of it having a significant effect on the claimant's life, should be introduced.
These are also potentially positive, as they would bolster insurers' own efforts to combat the rising costs of settling bodily injury claims and of fraudulent personal injury claims, about which we have been sceptical in the past.
Lastly, Prime Minister David Cameron's announcement last week of plans to cap lawyers' fees from personal injury cases at GBP25,000 could help control insurers' legal costs - a key element in combating the negative impact of claims-encouragement, as we identified in our sector outlook published in December.
Fitch has a stable outlook for the UK non-life insurance sector in 2012, believing its capitalisation, underwriting and operating trends will generally support the ratings. We continue to believe motor insurers that counter claims-encouragement through tighter underwriting terms and superior claims management will hold an advantage over competitors that focus solely on pricing.
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