Jack Straw has lifted the lid on the widespread practice of insurers selling customers' data to claims companies
The car insurance industry is heading for the most almighty crash ? and much of it looks to be self-inflicted, according to Jack Straw. The former justice secretary has lifted the lid on an industry that has been caught selling on the personal details of customers to claims-management companies and "ambulance chasing" lawyers. If your car insurance premium has shot up this year, this is the reason why.
Straw, who is still the MP for Blackburn, says that insurers have been trading their customers' personal details, in the knowledge that this has contributed to a dramatic rise in claims. The scandal came to light as a result of investigations by Straw following complaints from constituents. He recently confronted two big insurers, which admitted they were selling personal data to claims companies ? the type of companies that advertise their services on daytime TV promising a big payout if you were involved in an accident.
However, news that this has been happening has long been an open secret in the insurance industry. The reason it's been happening is simple: money.
Last year, UK car insurers collectively lost more than �2bn despite pushing through some of the highest price increases for new business ever seen. And it happens like this. Facing an end of year balance sheet that shows an insurer paid out more in claims than it took in premiums, some bright executive decides to sell their claims data on to a third-party company. The money received ? which could be as much as �1,000 a customer ? can be enough to put the firm back in the black, for that year at least.
What was good for one firm was quickly copied by rivals. Before long, the claims started to pour in. Unscrupulous buyers began exploiting lax rules on proving "whiplash" injuries to drive a sharp increase in claims and payouts. Armed with this information, it comes as no surprise that the cost of personal injury claims has doubled over the last 10 years ? from �7bn to �14bn. This is in spite of a fall in the number of road accidents involving personal injury. What's even more extraordinary is the fact that we have all been paying for this collective madness. The latest AA British Insurance Premium Index shows the average premium for an comprehensive car insurance policy is now 40% higher than a year ago.
The only question is: what should be done? Straw is right when he describes it as a "racket" ? and nothing short of a complete overhaul of the industry and the way it manages its data is long overdue. Instead of trying to defend this mess, the Association of British Insurers (ABI) needs to summon the industry to a summit to find a way to drive out this pernicious practice. Those firms that won't sign up to a deal should be named and shamed.
However, they also need help. The ABI is right when it says that it is not just insurers that are trading in this data. Policemen, health workers and others have also been caught selling on data after attending crashes/dealing with victims, and the information commissioner needs to look at this whole area. Should it be possible for an ambulance man to sell on details of the person he picked up earlier that day? I would venture not.
Source: http://www.guardian.co.uk/commentisfree/2011/jun/27/jack-straw-car-insurance-racket
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