Insurers are estimated to pay out £2 billion a year in legal costs to resolve legal battles for personal injury claims. Most of these cases chug through the courts in lengthy and costly legal actions and as a result, around £200 of the average car insurance premium goes towards the risk of having to pay out on a personal injury claim. So any move to cut these costs should result in a meaningful reduction in car insurance premiums.

In this context the recent move by the Association of British Insurers to get personal injury cases out of the courts and into an independent arbitration system, is certainly to be welcomed. A similar system was set up in Ireland last year and as a result legal costs were slashed by 75% and cases are resolved much quicker than in Britain.

Whereas today each personal injury claim is decided individually in court, the proposed arbitrator would map out benchmark payments for each type of injury. For example in Ireland, a back injury that recovers within twelve months, is allocated the euro equivalent of £11,000 whilst a neck whiplash injury, which recovers over the same time frame, is worth £9,400.

Not surprisingly, the British legal profession are none too keen on the proposals! The Association of Personal Injury Lawyers believe that the ABI’s proposals would leave the injured in the hands of the insurers adding that it’s own research showed that the initial offers by insurers were, on average, 50% of the final agreed compensation and that 66% of defendants initially deny liability.

However, the Lawyers objections are not backed up by experience in Ireland. Here compensation values remain at similar levels to pre-arbitration, but compensation is paid three times quicker at a quarter of the legal cost.

We say roll on arbitration and, for a change, lets see the cost of car insurance fall.