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Car insurance costs will be pushed up further by firms unfairly inflating the cost of crash repairs and replacement vehicles, experts have warned.
These areas are seeing an influx of claims management companies (CMCs), seeking new ways to make money as they anticipate an end to big profits from bringing inflated or fake whiplash claims from next year.
These whiplash profits will be brought down when the Civil Liability Bill, which is waiting for royal assent, becomes law.
And whiplash claims will also become less profitable because the Government plans to keep more of these claims out of the higher courts to strip out legal costs.
Whiplash claims, which are often spurious, total around £2bn a year and add around £48 to the £480 average car insurance premium, according to the Association of British Insurers (ABI), a trade body.
Also, CMCs will no longer be able to bring claims for mis-sold payment protection insurance (PPI) after 29 August 2019.
CMCs help consumers to claim money, in return for payment, for example from an insurance claim. This increases costs for the companies who have to pay out larger sums, which can cause costs to be driven up for all customers as a result. Some CMCs are accused of encouraging claims that do not deserve to be brought, cynically jacking up costs for other customers.
The clampdown on whiplash and PPI is meant to put money back in consumers’ pockets, but as these claims areas are restricted for CMCs, others are starting to grow.
An ABI spokesman said as “disingenuous personal injury claims recedes, CMCs will undoubtedly be seeking to pounce on other areas”.
CMCs are increasingly bringing claims that hike up costs for car repairs, storage, recovery and the drop in value of the car following a crash.
One area that is rising fast is “diminution in value” claims, which are meant to win extra cash for drivers whose cars have lost value after a crash.
Speaking at a credit hire conference last week, Emma Fuller, of law firm DAC Beachcroft, said these were traditionally for 3 to 4pc of the car’s value.
But over the last year many claimants have been goaded on by CMCs to say their car price had fallen by up to 15pc.
She said: “The net result is that the amount being claimed for diminution has risen by around £500 per claim, making the average diminution claim worth £2,250.”
While insurers and their lawyers catch many such inflated claims, those claims that are accepted increase costs, which are passed onto drivers in higher premiums.
And premiums are also at risk of ballooning due to increased costs for credit hire, which deals with the supply of hire cars after a crash and repair of the original vehicle.
Credit hire firms pay fees to insurers to get the details of not-at-fault customers who have had a crash.
They then contact these customers offering a replacement car and recoup the costs from the insurer of the at-fault driver.
Some credit hire firms also offer claims management and repair services.
But many are accused of inflating costs, which ultimately hikes premiums for all drivers.
Andrew Morrish, of insurer Aviva, said the growth in these inflated repair costs could undo the savings drivers would otherwise have had from the end of whiplash.
Mr Morrish said: “Are we seeing an increase in credit repair, non-fault repair schemes? Yes, we absolutely are.
"This is where there is a good chunk of risk that what could and should be saved from the Civil Liability Bill being spent on areas of claims inflation.”
Some of the rise in car repair costs is because modern vehicles are more technologically advanced and cost more to fix when damaged.
An Aviva spokesman said customers who took out a credit hire car ended up keeping it for 30pc longer than if they had picked a car supplied by Aviva.
A credit hire car can also cost 60pc more than an equivalent standard hire car.
The Aviva spokesman said: “Insurers are obliged to pay for these inflated costs, even though they have no control over them, which in turn pushes up the cost of motor insurance for all of us.”
Some credit hire firms also encourage drivers to take a luxury hire car to replace their own vehicle, which costs more than a more modest car and inflates costs.
DAC Beachcroft has seen a 30pc rise in the numbers and values of such claims over the past ten years.
Kirsty McKno, of the Credit Hire Organisation, a trade body, said most credit hire firms signed up to agreements to limit the cost and duration of repairs and replacement cars.
However, she said some smaller firms that do not sign up to these deals could be the issue.
Aside from some credit hire sharp practices pushing up overall insurance costs, drivers should be aware that they can end up with high bills if they accept a credit hire car.
If the at-fault insurer rejects a credit hire claim, perhaps suspecting inflation, the customer can end up lumbered with the bill.
DAC Beachcroft alone has detected £100m of suspected credit hire fraud over the past ten years.
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