You don't know, Jack!

The former Labour cabinet minister, Jack Straw, is in the papers today (The Times, behind the paywall) with a shocking revelation: bogus personal injury claims are driving up the cost of car insurance in the UK. Who knew? Well, actually, who didn't know? But still, Jack has uncovered a couple of interesting tidbits. Apparently treatment of "whiplash" costs the NHS £8 million per year, yet car insurers pay out £2 billion a year to crash victims claiming to be suffering from it. Straw has also found out that insurers pass details of accidents along to ambulance-chasing lawyers, even though they know that the inevitable result will be a much higher, and quite possibly fraudulent, insurance claim. The "referral fees" that insurers receive from doing this are apparently now the major source of profit for the insurers.

I didn't know this, and like Jack Straw I'm appalled by it, but I can't say I'm really surprised. The UK insurance sector seems to break just about every rule in the business handbook. To take just one obvious example, any normal (i.e. non-insurance) businessperson will tell you that your existing clients are like gold dust. It's much cheaper and easier to hang on to your present clients than it is to find new ones.

Not in the insurance business though. Massive churning of the customer base, through the astounding technique of always offering new customers a better deal than existing ones, seems to be the modus operandi of the entire industry. If you'll do something that perverse, there's no reason to think you won't do something else equally dumb, like driving up your claims expenses by selling data to unscrupulous lawyers.

Jack Straw wants something done about the whole referrals game, and no sensible (i.e. non-insurance) person could disagree. However, I'm not sure that he's got to the bottom of it. He quotes a constituent who had been in an accident and received a text message from an ambulance chaser that began "Our records show that you may be entitled to £3,450 compensation for the accident you had". I've had several texts with exactly the same wording and even the same strangely specific amount. And I haven't even had an accident.*

* UPDATE, June 29: A doctor wrote to the papers today to say that she had received one of these messages too. Not only had she not had an accident, she had never even owned a car!