stocks

Law firm plunges 50% on 'whiplash' law changes

Australian-listed law firm, Slater & Gordon saw its share price lose over half of its value on Thursday after U.K. government announced changes to payouts for personal injury claims.

Slater & Gordon shares crashed to a record low, closing down 52 percent at 94 cents ($0.67) after U.K. Chancellor George Osborne revealed plans to restrict cash payments for whiplash claims, in his annual Autumn Statement and spending review on Wednesday.

A queue of traffic in south-east London in the U.K.
Ben Stansall | AFP | Getty Images

The legal group, which purchased the professional services division of U.K. firm Quindell, which specialises in personal injury claims, said they did not expect there to be any impact on its full year 2016 performance.

"U.K. government has overnight announced proposals, which if implemented would impact on rights of people injured in road traffic accidents," Slater & Gordon said in a statement.

Under the new measures, insurers will offer claimants with minor whiplash injuries physiotherapy and treatment over cash payouts, a move that Osborne says will save customers money on their car insurance premium.

UK Chancellor of the Exchequer George Osborne speaks at a Conservative Party Conference.
UK Chancellor Osborne: We are putting 'security first'

U.K. insurer Aviva said it welcomed the Government's announcement to cut £1 billion from the cost of motor insurance, and the group pledged to pass on the cost benefits to customer.

The group said its research showed that 80 percent of U.K. motor claims are for whiplash and soft tissue related injuries, compared to 3 percent in France, suggesting "British necks are 27 times weaker than French necks."

Aviva said fraud is prevalent across the U.K. motor insurance market, with 60 percent of the fraud Aviva detects is motor fraud, worth more than £57 million annually.

The firm said it currently has more than 16,000 suspicious motor claims under investigation - equivalent to 44 claims every day.

"We welcome this bold and necessary step by the Government on behalf of honest people – it is all about standing up for the consumer against the fraudsters. The Government is putting the brakes on the whiplash gravy train. It is great news for consumers. Aviva has long championed the need to tackle the fraud pandemic in the UK motor insurance market," said Group CEO of Aviva Mark Wilson in a statement.

The group expects average motor premiums to reduce by more than 10 percent, equivalent to £40-£50, 100 percent will passed onto customers, it said.

Aviva shares traded 0.9 percent lower on Thursday, while peers Standard Life, and RSA Insurance climbed 1.5 percent and 0.7 percent respectively.