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Car cover costs must be cut, MPs demand

Transport Committee blamed referral fees for spiralling insurance.

Hard-pressed motorists forced to cope with ever-increasing insurance premiums may soon get some good news. A cross-party MPs' committee this week challenged the insurance industry to reduce charges.

The committee said car cover prices have spun out of control because of increasing claims for whiplash injuries. And it accused insurers and lawyers of cashing in on crash victims by taking fat fees for passing their names on to claims companies.

"Insurers, solicitors and claims management companies have themselves driven up the cost," said Louise Ellman MP, chairwoman of the Transport Committee.

She demanded more transparency about the charges and that consumers be given clear information on referral fees and who earns money from them.

That prompted finger-pointing between the insurance and legal industries, with both trying to blame the other for rising charges.

Desmond Hudson, chief executive of the Law Society, said: "The insurance industry itself is fuelling the costs of accidents and passing them back to motorists. The fact that it sellsaccident details to third parties inevitably fuels the number of claims. Some firms have a record of seeking to pay off the victim of an accident whether or not that victim has been injured."

John Spencer, director of Spencers Solicitors, said: "Insurers often make offers without requiring any medical evidence. Their hope is that they can 'buy off' a claim before the injured person seeks independent legal advice and is properly represented."

Insurers were swift to hit back. Nick Starling, director of general insurance at the Association of British Insurers, said: "Referral fees should be banned altogether and not made more transparent – and that ban should apply to all organisations receiving them, not just insurers."

Andy Goldby of Direct Line agreed. He said: "The committee is correct to point out that referral fees need to be banned across the board. However lawyers' fixed costs also need to be reduced."

So how is this squabbling good for drivers? With all sides recognising that there's a major problem, the Government is heading down a road which will end in serious embarrassment if it doesn't do something to curb car insurance premiums.

The Transport Committee said the Government should establish a cross-departmental ministerial committee to look at reducing the cost of motor insurance. Meanwhile, questions about the high cost of insurance for young drivers will be followed up in a forthcoming inquiry on road safety.

Progress by these committees and inquiries will be slow. But a crackdown on outrageous premium hikes looks more likely to follow than ever.