Claims fraud pushes up cost of car insurance by 30 per cent

The soaring cost of motor insurance was partly due to staged accidents, in which drivers deliberately crashed to claim payouts, the Commons Transport Committee found.

Yorkshire has long been considered one of the UK’s cash-for-crash hot spots, with Bradford being named the worst city for scams in a 2009 survey.

Huddersfield, Halifax and Leeds also featured in a list of the country’s top 20 towns and cities for fraudulent claims. The committee’s chairman Louise Ellman, Labour MP for Liverpool Riverside, said: “Wider access to justice is to be welcomed, but it has come at a significant cost, with far more personal injury claims being made than in the past.

“The police made plain to the committee that ‘staged accidents’ are on the increase and that, so far, we have been lucky there have been no fatalities resulting from such incidents.

“That luck may run out unless the insurance industry acts rapidly to help the police target this kind of insurance fraud.”

MPs heard evidence from the AA, which reported that average premiums quoted to motorists for comprehensive cover increased by 29.9 per cent in the year to October 2010.

That month, West Yorkshire Police confiscated £150,000 from former garage owner Mohammed Rashid, who was jailed for five years in 2008 for running a major scam in Keighley.

His company Autotransform was investigated by Airedale and North Bradford CID and the Insurance Fraud Bureau after it lodged a suspiciously high number of claims with multiple insurers.

The committee also called on the Government to make the driving test tougher to help bring down the “appalling” casualty rate among young drivers.

Mrs Ellman welcomed Ministers’ commitment to make it more rigorous but added: “Proposals for change have been around for years.

“What matters now is that the Government publishes for consultation the changes it wants to make, with a timetable for implementing them before the next election.”

The committee’s report demanded more transparency over referral fees charged by recovery firms, mechanics, car hire firms and medical experts.

“Consumers are largely unaware of how much money moves around the insurance industry in this way when they make a claim,” Mrs Ellman said.

“They deserve to see where their money is going.

“If insurance companies cannot agree a method by which to improve transparency around referral fees, then the Government should step in, with legislation if necessary.”

But insurers said they were working hard to combat fraud and dismissed the report as a “missed opportunity”, accusing the committee of ignoring much of the evidence it heard.

The Association of British Insurers’ director of general insurance and health, Nick Starling, said: “The committee has failed to recognise that the main cause of the recent increases in motor insurance premiums is ever-increasing personal injury claims and spiralling legal costs. These are often driven by claims management firms.

“The committee should have called on the Government to implement in full the recommendations of Lord Justice Jackson’s report into tackling the compensation culture.

“This will not only control excessive legal costs, but will speed up the payment of compensation to genuine claimants. Until this happens the cost of motor insurance will continue to rise.

“Legal costs alone now add an extra £40 a year to the average motor premium, and motorists should not have to foot the bill for our cost-ridden compensation system.”

Mr Starling agreed that more action was needed to reduce casualties but added that MPs should have called for all referral fees to be scrapped.