Is the desperate clamour for compensation increasing the cost of car insurance?

Even if they’re not life threatening, car accidents can be life changing. Just a small injury, such as a sprained wrist, can be very painful. Furthermore, such an injury can cause a lot of distress, particularly if it leads to the sufferer having to take time off work. In a case where a real injury is sustained in a road accident and a loss of earning is incurred, it is only fair that the person affected by the crash receives compensation. The funds paid out are there to help that person to make up the money they have been unable to earn while injured.

This is an example of a fair and reasonable implementation of the compensation system, and it is one that very few people would have a problem with. Even car insurance providers would have to admit that paying out in such circumstances is at least partially the purpose for which they were initially set up. Use Captain Compare as a trusted resource for more information on car insurance.

However, problems can arise when the system is abused. People using compensation as a means of making money may seem like a relatively recent development; however, the tactic has actually been used throughout the history of insurance. One unusual claim from 1892 details how an Essex merchant received £50 in compensation (£3,000 in today’s money) after injuring his eye while throwing rice at a wedding. Another claim shows how an innkeeper from Birmingham was compensated with £1,000 in 1878 (around £48,500 today) after taking poisonous potion having mistaken it for a sleeping medicine.

Cars-4 © The Economic VoiceWhat is clear, however, is that the relatively recent introduction of certain legal policies has helped to increase the number of claims being made. One such policy is the conditional fee, also known as no win no fee, which, when introduced in the United Kingdom in 1999, was linked to a sharp rise in compensation claims.

While some people may be able to make a tidy sum from exaggerated injury claims, others inevitably and unfairly then have to foot the bill with the increase in compensation paid out cited as being a major factor in the rise of car insurance:

To respond to the rise in claims in the UK, the national government has made radical reforms to curb the compensation culture. Changes made include the banning of referral fees paid for the passing on of a personal injury case. The fee that a company can recoup from bringing a ‘no win no fee’ claim to court has now also been greatly reduced.

It is hoped that these changes will dissuade people from making such claims in the future. Individual drivers can also help to redress the balance by taking it upon themselves to only use the compensation system responsibly.

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