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This note outlines some of the factors influencing the cost of motor insurance premiums and what government and the industry have done.

The market for motor insurance is seen by many as being dysfunctional. Premiums rise and fall sharply and unpredictably. Fraud against the industry is widespread but the relationship between the industry and car hire and repairers and legal claims firms seems equally dubious.  For these reasons the industry has attracted the attention of public opinion, the competition authorities, and government and Parliamentary enquiries. 

Reforms have focussed on

  • the specific issue of how to reduce the incidence of ‘whiplash claims’ by both reducing the monetary rewards for making a claim and limiting the role of the claims industry in encouraging;
  • Making changes to the legal claims system
  • Providing the industry with new powers to reject fraudulent claims.

Another standard note (SN/HA/6015) deals in detail with the issue of referral fees.

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