Insurers must beware fraud but will need to deal with genuine claims quickly and sensitively, particularly for parties in financial difficulty.

The shock of the coronavirus pandemic has had an impact on motor insurers and the claims market already. Its ripples will continue as the UK regains some sense of normality in the coming weeks and months.

In the short term, the restrictions on movement and the closures of many workplaces have resulted in fewer journeys requiring a motor vehicle being made. While government data has indicated vehicle usage has been creeping up compared to the past four weeks, the number of journeys undertaken remains considerably lower than usual.

Reflecting this new reality, one major UK insurer has already offered a rebate to customers to compensate for the decline in motor use; a similar measure has already been introduced by insurers in France and the US. Fewer journeys mean fewer collisions, which in turn drives claims numbers and the associated costs to insurers down. Many insurers have indicated reported claims numbers have been down as much as 50%.

The impact of the lockdown can also be seen in how personal injury claims resulting from motor claims are progressed. This is not only affected by the reduction of collisions, but also by the ability of claimant solicitors to obtain, instruct and progress these claims while operating remotely.

Personal injury claims fall

The figures for personal injury claims entering the claims portal in March 2020 confirmed a 14% drop compared to the previous month. We would expect April’s figures, when published, to show an even more precipitous drop, resulting from the first full month in which the country was in lockdown.

As occurrences of the everyday “rear-end shunt” have fallen, there have been several reports of increased occurrences of excessive speeding on quieter roads, while cyclists and pedestrians exercise within the limits prescribed by the government. Collisions that do occur may therefore result in more serious injuries.

Beyond the unrefined data on the immediate impact of the lockdown, there will be other impressions on the motor insurance and claims market during these extraordinary times.

The renewal of MOT certificates was extended for six months where a test was due after 30 March 2020, yet defects within vehicles ordinarily identified within the MOT procedure may yet go unnoticed and result in accidents giving rise to claims.

Insurers will have been taking preventative measures and using intervention strategies to minimise disruption to both their policyholders and non-fault third parties, whether by repairing or replacing damages vehicles as soon as is practicable. These strategies will help to avoid prolonged periods of hire – particularly from a third-party perspective – and reduce claims costs that are arising at the moment.

In the medium term, if the restrictions on movement are eased, even with social distancing measures in effect, increases in commuter travel and journeys to beaches, shopping centres and other leisure activities are likely to result in an increased number of motor collisions.

As those claims numbers begin to increase again over time, the unfortunate reality is many people across the country will find themselves in financial difficulty. This, in turn, could prompt a rise in fraudulent claims. By way of comparison, reports from the time of the financial crisis in the late 2000s confirmed increases in motor and other insurance fraud.

In the short term, the restrictions on movement and the closures of many workplaces have resulted in fewer journeys requiring a motor vehicle being made

In light of these possibilities, the further delay of the ongoing whiplash reforms until April 2021 may have a part to play. The government’s decision to provide certainty and ensure the reforms are introduced when fit for purpose should be welcomed, but it further delays efforts to prevent fraudulent claims. Whether a claim is genuine or not, the more generous damages awards for whiplash injuries will continue to be available until April 2021 and may prove a financial incentive for those in difficulty.

From an insurer’s perspective, they have developed ever more complex and efficient measures to root out motor fraud and are well placed to root out fraudulent claims of various types. However, they cannot afford to rest on their laurels. Fraudulent personal injury claims may not be the only battle to be fought in the aftermath of the pandemic.

There will be genuine injuries which are dishonestly exaggerated, meaning intelligence gathering by insurers will remain a crucial tool in rooting out this behaviour and ensuring dishonest exaggeration of claims is appropriately punished.

Vehicle write-offs

The last recession also saw increased attempts to write off vehicles. There has been a marked increase in the use of personal contract purchase deals to finance vehicles in recent years. Some individuals may be unable to continue to make the monthly payments so may seek an exit strategy. In addition, households that have two or more vehicles, one of which is no longer needed or affordable, may attempt to obtain funds from the write off of one of those vehicles.

Both during and after the restrictive social distancing measures, insurers will be expected to deal with claims sensitively and quickly, particularly genuine claims for parties in financial difficulty. The Association of British Insurers has moved quickly to make commitments to ensure the smooth progression of claims signing up to various cross-industry agreements. However, this understanding will need to be balanced against the need to continue to root out fraudulent and exaggerated claims.

In the long term, the impacts of the pandemic may prove to be positive for motor claims. The lockdown has, in effect, tested whether a large proportion of workers in the UK can carry out their roles remotely with the same effectiveness. There are businesses that may now move to an increased use of homeworking and meeting remotely, which will lower the need for commuting and other business travel.

This article first appeared in Insurance Day.