20/03/2013
Thank you to Claims Magazine for the invitation to be here with you this afternoon for today’s comprehensive look at the UK’s claims market. Speaking immediately after lunch always poses some challenges so I hope that my remarks this afternoon will lead to an interesting debate in the panel session immediately afterwards.
Today I have been asked to provide you with the perspective of the insurance industry on the reforms to the claims environment that will soon be upon all of us. To address some of the criticisms leveled at the insurance industry and discuss the extent to which the reforms will reduce fraud.
A few words first however, on the role of the insurance industry in the claims market.
The Chancellor has just delivered his Budget. We all know that times are tough, the state of the economy is a cause of real concern and that now, more than ever, affordability matters. Insurers recognise that car insurance is a compulsory purchase. And we recognise that the increasing cost of insurance over recent years has been a cause of real concern for many people in the context of stretched household budgets.
Insurers don’t create the society in which we live. They price their policies according to the environment they find. And in Britain we have a society where the compensation culture is alive and well. A society in which claimant lawyers and claims management companies have been riding a gravy train of excessive legal fees for dealing with low value personal injury claims. And a society in which more fundamental questions about compensation for personal injury need to be addressed.
So the operating environment for insurers has been tough as demonstrated by the industry’s underwriting results in recent years.
And the insurance industry has been part of the problem. We are an industry that has a significant amount of work to do in terms of improving the trust consumers have in us. We have paid a heavy reputational price for some of our own practices. Insurance is an industry where trust and integrity are critical to consumer confidence. So it has been a major self-inflicted blow for insurers to participate in a personal injury claims market involving a merry-go-round of referral fees and other unnecessary costs. Even more so when referral fees merely serve to increase personal injury claims frequency which we have so often highlighted as a key factor resulting in increasing premiums. This has fundamentally shaken consumer, media and political confidence in motor insurers. Part of our challenge at the ABI is to work to restore that confidence. And to lead on work to make the motor claims market more efficient, more effective and to strip out the unnecessary costs from the system.
In an environment where the cost of car insurance is a real concern, the Government shares our vision of an improved claims environment. One where cost savings can be passed on to consumers through lower car insurance premiums.
That savings will be passed on is a commitment we made to the Prime Minister when we met at Downing Street last February. Make no mistake about it – politicians, the media and many of you in this room will be watching very closely to ensure premiums come down. And I am confident that they will. Effectively any cost savings insurers make from the reforms coming into force in April will be competed away in the fiercely competitive car insurance market. But it will be the consumer that benefits from those reduced costs and competition when they next buy their car insurance.
Thank you to Claims Magazine for the invitation to be here with you this afternoon for today’s comprehensive look at the UK’s claims market. Speaking immediately after lunch always poses some challenges so I hope that my remarks this afternoon will lead to an interesting debate in the panel session immediately afterwards.
Today I have been asked to provide you with the perspective of the insurance industry on the reforms to the claims environment that will soon be upon all of us. To address some of the criticisms leveled at the insurance industry and discuss the extent to which the reforms will reduce fraud.
A few words first however, on the role of the insurance industry in the claims market.
The Chancellor has just delivered his Budget. We all know that times are tough, the state of the economy is a cause of real concern and that now, more than ever, affordability matters. Insurers recognise that car insurance is a compulsory purchase. And we recognise that the increasing cost of insurance over recent years has been a cause of real concern for many people in the context of stretched household budgets.
Insurers don’t create the society in which we live. They price their policies according to the environment they find. And in Britain we have a society where the compensation culture is alive and well. A society in which claimant lawyers and claims management companies have been riding a gravy train of excessive legal fees for dealing with low value personal injury claims. And a society in which more fundamental questions about compensation for personal injury need to be addressed.
So the operating environment for insurers has been tough as demonstrated by the industry’s underwriting results in recent years.
And the insurance industry has been part of the problem. We are an industry that has a significant amount of work to do in terms of improving the trust consumers have in us. We have paid a heavy reputational price for some of our own practices. Insurance is an industry where trust and integrity are critical to consumer confidence. So it has been a major self-inflicted blow for insurers to participate in a personal injury claims market involving a merry-go-round of referral fees and other unnecessary costs. Even more so when referral fees merely serve to increase personal injury claims frequency which we have so often highlighted as a key factor resulting in increasing premiums. This has fundamentally shaken consumer, media and political confidence in motor insurers. Part of our challenge at the ABI is to work to restore that confidence. And to lead on work to make the motor claims market more efficient, more effective and to strip out the unnecessary costs from the system.
In an environment where the cost of car insurance is a real concern, the Government shares our vision of an improved claims environment. One where cost savings can be passed on to consumers through lower car insurance premiums.
That savings will be passed on is a commitment we made to the Prime Minister when we met at Downing Street last February. Make no mistake about it – politicians, the media and many of you in this room will be watching very closely to ensure premiums come down. And I am confident that they will. Effectively any cost savings insurers make from the reforms coming into force in April will be competed away in the fiercely competitive car insurance market. But it will be the consumer that benefits from those reduced costs and competition when they next buy their car insurance.
The ABI’s perspective on the reforms
In April, the litigation landscape will change significantly. The Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) 2012 will come into force, bringing long awaited and much needed reform to the current system. As you know, many of the changes introduced by the Act resulted from the recommendations of Lord Justice Jackson’s review of the civil litigation system. Sir Rupert’s carefully considered recommendations were designed to reduce the costs in, and increase the efficiency of, the civil litigation system whilst ensuring that genuine claimants retain an ability to pursue cases.
The ABI has long supported both the integrated and holistic implementation of the Jackson reforms and the LASPO legislation. By removing the “no win no fee” system and the “have a go” compensation culture it encourages, important behavioural changes will be introduced into the system.
Importantly, LASPO will ban the payment and receipt of referral fees – something the ABI campaigned strongly for. As I mentioned earlier, referral fees were the equivalent of a smoking gun insurers found in our own hand when the spotlight began to shine on us as an industry.
And later in April we will see substantial reductions in the fixed legal fees personal injury lawyers receive for filing RTA claims in the Portal. We have long argued that with referral fees coming out of the system, solicitors’ fees needed to come down. The Government’s policy direction on this point was clear at the end of 2011. Everyone had the opportunity to make their respective cases to the Government through two separate consultation exercises run by the Ministry of Justice. The Government carefully considered all the arguments and evidence. And we have now received confirmation that the fee for stages 1 and 2 will reduce from £1200 to £500 from the end of April.
In a desperate, last ditch attempt to derail the Government’s reform programme, the Association of Personal Injury Lawyers and the Motor Accident Solicitors Society – launched a judicial review of the decision to reduce fixed legal fees. The Law Society intervened in their role as a covert claimant organisation.
As you know, the judicial review failed.
The commentary on the decision by many claimant lawyers has completely baffled me. Some have argued that there was a conspiracy between the insurance industry, Government and members of the judiciary. That the only reason the judicial review failed was because a judge of the Court of Appeal and the former Solicitor-General had somehow been lobbied by the ABI or pressured by Ministers to reach a particular outcome.
That assertion comes from legally qualified professionals who understand and operate in a legal system where the separation of powers has provided the foundation stone for centuries. So it strikes me as little more than the paranoid ranting by the conspiracy theorists who also probably believe that there was never a landing on the Moon.
You may not like the Court’s decision and you may not like Government’s changes. But as Lord Justice Elias said in delivering his decision on the judicial review, this is a matter for the ballot box and not a matter for the courts.
I said earlier that the insurance industry has had to take a long, hard look in the mirror over recent years. Unfortunately, the reflection was not an attractive one. As an industry, we are working on change. Change that should improve the behaviour of all the actors operating in the motor claims system. And change that will deliver positive consumer outcomes.
The LASPO reforms and reduced fixed fees in the Portal will both be in force in less than six weeks. Change is coming. And claimant lawyers continuing to hide their heads in the sand will not help.
So it is time for personal injury lawyers to look in the mirror as well.
Its time to stop the self-righteous rhetoric that access to justice is coming to an end. Noone believed it four years ago and noone believes it now. Arguments based on lawyers being essential in order to help claimants are completely transparent. Everyone recognises it is simply an argument that seeks to retain the excesses of the current system.
Stop pretending that the English legal system is about to collapse because the gravy train of excessive fees has finally hit the buffers. PI lawyers will still have work to do after April.
And stop stalling over the changes. It is time lawyers got on with adapting their business models to the new economic reality – something that should have started long ago.
Whiplash
Which brings me to the timing of the Government’s reform programme. Given that the changes have long been signalled, consulted on and discussed at length, I don’t accept the argument that there is too much change too quickly.
And the Government recognises that LASPO and reduced fixed fees are only the first step. There is still much work to do to put genuine claimants at the heart of an efficient and effective personal injury compensation system.
The Government has recently consulted on additional proposals to help tackle Britain’s whiplash epidemic.
As an industry we have been - and always will be - committed to ensuring that those injured in car crashes receive the compensation and support that they need as quickly as possible. We know whiplash can be a debilitating injury. We know that a number of claimants have evidence to demonstrate their injury, whether that be an MRI scan or otherwise. And we know that as an industry, it is our job to help those claimants get back to a normal life.
But in the debate about whiplash we aren’t talking about those claimants. We are talking about opportunists, having a go with an exaggerated whiplash claim. It is simply inconceivable that one person every minute, of every hour, of every day has a genuine and legitimate whiplash injury. The current medico-legal system encourages exaggerated claims for whiplash to be filed because of the money that can be made.
The surge in the number of whiplash claims insurers are currently seeing merely serves to reinforce this fact. CMCs and lawyers are trawling through all their old cases and filing claims to take advantage of fixed fees at their current level. And honest car insurance customers are paying the price – whiplash alone costs insurers over £2 billion per year adding £90 to the average car insurance premium. And we know the whiplash claims hotspots: Liverpool, Birmingham and here in Manchester which directly correlate with the locations of claims management companies.
So given the changes coming on line in April, now is the right time to be asking what else needs to be done.
In response to the Ministry’s consultation, the ABI has suggested:
- claimants should be assessed by an independent medical expert. And by “independent” I mean that the doctor has demonstrated that they have no financial link to the organisation that has commissioned the medical report from them;
- An accreditation framework for doctors which involves demonstrating their knowledge of the latest diagnostic and treatment information for whiplash injuries along with an element of continuing professional development;
- Accreditation should also involve medical experts undergoing training on the bio-mechanics of car crashes. This should enable them to offer an informed comment on the likelihood of a claimant experiencing the symptoms they report rather than jotting down the self-reported symptoms of the claimant and ticking a couple of boxes;
- We have also suggested that bio-mechanical evidence needs to be considered by the Courts. It is no longer good enough that judges place almost determinative weight on medical reports and so little on the other available evidence, especially given the recognised problems of the current system.
As with so many things, the devil here will be in the detail. We have set out a direction of travel for the policy changes that we think are needed. For those to be delivered, there will need to be further, and more detailed, work. That should involve other stakeholders including MROs, doctors, claimant solicitors and others. We know what the problems are but we don’t have all the answers. We want to work with others to ensure that improvements to the system can be made. But people have to accept that change is needed first.
We also support an increase in the Small Claims Track (SCT) limit to at least £5000. The SCT is a user-friendly and simple route for settling straightforward low-value claims. The claims limit was last considered in 1991 when 50% of personal injury claims were within the SCT threshold. Today around 9% of cases fall to the SCT. When you combine general claims inflation since 1991, a near 10% increase in general damages in the latest Judicial College Guidelines and a further 10% increase in general damages to be introduced next month following the Court of Appeal’s guidance in Simmons, fewer and fewer cases will benefit from the efficient process that the SCT provides.
But it shouldn’t just be whiplash cases that benefit. All PI claims resulting from an RTA should be treated in the same way. There is no logic in having one system for a neck sprain just because it is defined as a “whiplash injury” and a separate system for a back sprain arising from the same accident circumstances.
So we look forward to seeing the outcomes of the consultation process and working with others to improve the system, including the Transport Select Committee as they re-open their enquiry into whiplash claims.
What next on whiplash?
Fundamentally though, there is a need for a wider public policy debate about the UK’s whiplash epidemic.
As I said earlier, insurers don’t create the society in which we live. They price the risks that society presents. High compensation awards for whiplash injuries leads to high insurance premiums. So we need an open and honest public debate about the level of general damages that should be awarded for whiplash injuries and other low-value personal injury claims. Clearly there are implications from changing our current compensation system. But if we collectively want lower premiums for all, then we should have the debate about the level of compensation awarded to the few.
I’m not talking here about special damages for the genuine costs of rehabilitation or care. What I am talking about is the right to receive significant compensation for simply being in an accident. An accident that may have caused little or no harm. And in the case of minor whiplash an injury the claimant can’t prove they have sustained. Fundamentally, the question society needs to ask is whether a minor, low-speed shunt in a Tesco car park resulting in a sore neck for a couple of days justifies thousands of pounds in compensation with the resulting impact on insurance premiums.
And underpinning all of this is a debate about the role of personal injury lawyers. If the policy settings and legal framework are right, where there are no disputes about liability and claimants understand their rights, why does a genuine claimant need a personal injury lawyer at all? What do they really add to the process?
Those are questions for another day. But please don’t misunderstand what I am saying. There will always be a need for independent and professional legal advice. It is a hallmark of a civilised society that people have access to that. But legal advice needs to come at a cost that is proportionate to the amount in dispute and the amount of work required to manage a claim.
I’m just asking some broader, more fundamental, questions about the nature of the personal injury system and whether that best serves consumers’ interests. As I said, this is a debate society needs to have. But it needs to be a grown-up debate: with analysis rather than anecdotes and evidence rather than emotion. And so it needs to be a debate in stark contrast to the public policy discussions we’ve witnessed in recent years in getting to where we are today.
Addressing the critics
There are plenty of people who will disagree with what I’ve said this afternoon. That’s fine. But I thought I would also take some time to address some of the criticisms of the proposals we have advocating for.
Some have said that increasing the SCT limit and removing lawyers from the process will result in a reduction in access to justice. It’s the same tired old soundbite we’ve heard before with no evidence to support the argument, so I leave that to one side. The other concern that people have raised, however, is that if the SCT limit is increased, claimants will be left to the mercy of big, nasty insurers in getting fair compensation for their injuries.
There is, of course, a framework designed to protect claimants dealing with insurers directly. The ABI’s Third Party Assistance Code sets out how an insurer should assist self-represented claimants and provides information to the claimant about what their rights are when dealing with an insurer. And, of course, insurers have obligations to the Financial Service Authority as the industry’s regulator to treat customers fairly. So although claimant lawyers might not like the fact that they don’t have the ability to add on their own fees, third party assistance provides a more efficient system to get genuine claimants, fair compensation quickly.
But there is more that we can do. So we are currently working to strengthen our Third Party Assistance Code of Conduct and will make announcements about that later this year.
The best thing that can be done to protect claimants though – whether they are legally represented or not – is to introduce a predictable damages framework. This was proposed by Lord Justice Jackson and is an important part of his interlocking package of reforms that remains outstanding. A transparent, independently controlled and regulated system of predictable damages should address the problem of self-represented claimants having to assess the value of their own case for the purposes of a claim for general damages.
Other commentators have said that increasing the SCT limit will not do anything to reduce fraudulent PI claims. Time will tell. But by raising the limit, the economic factors that have weighed against insurers challenging individual claims should be substantially weakened. And, claimants may be less likely to pursue fraudulent and/or exaggerated claims when faced with the consequences of losing their qualified one way costs protection.
Insurers are also criticised for making offers of compensation before they have a medical report as this encourages fraudulent or exaggerated claims. I cannot in all honesty stand before you and say that every offer an insurer has made without a medical report has been to a genuinely injured claimant. But given the rarity with which a medical report comes back with anything other than a diagnosis of whiplash, combined with the ludicrous prognosis times they provide, insurers have lost faith in a system that is little more than an expensive rubber-stamping exercise by doctors. So I agree that pre-med offers send out the wrong message. But this merely serves to reinforce my point that reform of the medical evidence used in whiplash cases is urgently needed.
Fraud remains a key issue for the industry. In 2011, insurers detected £441 million in fraudulent motor insurance claims and we estimate that a further £1 billion went undetected. So an increased SCT limit will act as a complement to the significant investment the industry continues to make in tackling fraud through the Insurance Fraud Enforcement Department IFED, Insurance Fraud Bureau and the Insurance Fraud Register. Insurers continue to have a zero tolerance approach to the fraud which drives up costs for honest customers. And there remain open questions about whether a PI claim, especially a low-value one, should be automatically dismissed in its entirety where part of the claim has been exaggerated, even though another part of the claim is genuine.
Conclusion
In conclusion, significant change will soon be upon us. And improving the claims market is an opportunity not to be missed. Consumers expect the personal injury claims system to deliver the right outcomes at a proportionate cost. By improving behaviours and by stripping unnecessary costs out of the system, in an environment where the cost of living continues to rise, consumers will see the benefits of reform through lower car insurance premiums.
The reforms coming into force in April represent an important first step in cleaning up our market. Any by “our market” I mean personal injury lawyers, credit hire firms, CMCs as well as insurers. The Competition Commission is, of course, looking at the non-personal injury aspects of our market.
But there is more work to do. The Government’s consultation setting out its proposals to reduce the number of whiplash injuries represents an important next stage in the evolution of the personal injury claims environment. When combined with the work insurers are doing ourselves both to tackle fraud and deliver third party assistance, I hope that we will begin to see a claims environment where lawyers have a role but they are not the starting point. If there is anything in the sound bite, access to justice is about getting the right outcome for the claimant not preserving fees for lawyers.
And I think there is an important third step. That is to start a genuine and open public discussion about the level of damages received by claimants. High compensation awards mean higher car insurance premiums. If insurers pay less in compensation, insurance premiums will reduce further. And the industry will have more capital available to invest in well-run companies or infrastructure to support the economic growth which today’s Budget reminds us is so desperately needed. There is a trade-off in here and society needs to have the debate.
So thank you once again to Claims Magazine for the opportunity to speak today, and I look forward to our panel discussion.
In April, the litigation landscape will change significantly. The Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) 2012 will come into force, bringing long awaited and much needed reform to the current system. As you know, many of the changes introduced by the Act resulted from the recommendations of Lord Justice Jackson’s review of the civil litigation system. Sir Rupert’s carefully considered recommendations were designed to reduce the costs in, and increase the efficiency of, the civil litigation system whilst ensuring that genuine claimants retain an ability to pursue cases.
The ABI has long supported both the integrated and holistic implementation of the Jackson reforms and the LASPO legislation. By removing the “no win no fee” system and the “have a go” compensation culture it encourages, important behavioural changes will be introduced into the system.
Importantly, LASPO will ban the payment and receipt of referral fees – something the ABI campaigned strongly for. As I mentioned earlier, referral fees were the equivalent of a smoking gun insurers found in our own hand when the spotlight began to shine on us as an industry.
And later in April we will see substantial reductions in the fixed legal fees personal injury lawyers receive for filing RTA claims in the Portal. We have long argued that with referral fees coming out of the system, solicitors’ fees needed to come down. The Government’s policy direction on this point was clear at the end of 2011. Everyone had the opportunity to make their respective cases to the Government through two separate consultation exercises run by the Ministry of Justice. The Government carefully considered all the arguments and evidence. And we have now received confirmation that the fee for stages 1 and 2 will reduce from £1200 to £500 from the end of April.
In a desperate, last ditch attempt to derail the Government’s reform programme, the Association of Personal Injury Lawyers and the Motor Accident Solicitors Society – launched a judicial review of the decision to reduce fixed legal fees. The Law Society intervened in their role as a covert claimant organisation.
As you know, the judicial review failed.
The commentary on the decision by many claimant lawyers has completely baffled me. Some have argued that there was a conspiracy between the insurance industry, Government and members of the judiciary. That the only reason the judicial review failed was because a judge of the Court of Appeal and the former Solicitor-General had somehow been lobbied by the ABI or pressured by Ministers to reach a particular outcome.
That assertion comes from legally qualified professionals who understand and operate in a legal system where the separation of powers has provided the foundation stone for centuries. So it strikes me as little more than the paranoid ranting by the conspiracy theorists who also probably believe that there was never a landing on the Moon.
You may not like the Court’s decision and you may not like Government’s changes. But as Lord Justice Elias said in delivering his decision on the judicial review, this is a matter for the ballot box and not a matter for the courts.
I said earlier that the insurance industry has had to take a long, hard look in the mirror over recent years. Unfortunately, the reflection was not an attractive one. As an industry, we are working on change. Change that should improve the behaviour of all the actors operating in the motor claims system. And change that will deliver positive consumer outcomes.
The LASPO reforms and reduced fixed fees in the Portal will both be in force in less than six weeks. Change is coming. And claimant lawyers continuing to hide their heads in the sand will not help.
So it is time for personal injury lawyers to look in the mirror as well.
Its time to stop the self-righteous rhetoric that access to justice is coming to an end. Noone believed it four years ago and noone believes it now. Arguments based on lawyers being essential in order to help claimants are completely transparent. Everyone recognises it is simply an argument that seeks to retain the excesses of the current system.
Stop pretending that the English legal system is about to collapse because the gravy train of excessive fees has finally hit the buffers. PI lawyers will still have work to do after April.
And stop stalling over the changes. It is time lawyers got on with adapting their business models to the new economic reality – something that should have started long ago.
Whiplash
Which brings me to the timing of the Government’s reform programme. Given that the changes have long been signalled, consulted on and discussed at length, I don’t accept the argument that there is too much change too quickly.
And the Government recognises that LASPO and reduced fixed fees are only the first step. There is still much work to do to put genuine claimants at the heart of an efficient and effective personal injury compensation system.
The Government has recently consulted on additional proposals to help tackle Britain’s whiplash epidemic.
As an industry we have been - and always will be - committed to ensuring that those injured in car crashes receive the compensation and support that they need as quickly as possible. We know whiplash can be a debilitating injury. We know that a number of claimants have evidence to demonstrate their injury, whether that be an MRI scan or otherwise. And we know that as an industry, it is our job to help those claimants get back to a normal life.
But in the debate about whiplash we aren’t talking about those claimants. We are talking about opportunists, having a go with an exaggerated whiplash claim. It is simply inconceivable that one person every minute, of every hour, of every day has a genuine and legitimate whiplash injury. The current medico-legal system encourages exaggerated claims for whiplash to be filed because of the money that can be made.
The surge in the number of whiplash claims insurers are currently seeing merely serves to reinforce this fact. CMCs and lawyers are trawling through all their old cases and filing claims to take advantage of fixed fees at their current level. And honest car insurance customers are paying the price – whiplash alone costs insurers over £2 billion per year adding £90 to the average car insurance premium. And we know the whiplash claims hotspots: Liverpool, Birmingham and here in Manchester which directly correlate with the locations of claims management companies.
So given the changes coming on line in April, now is the right time to be asking what else needs to be done.
In response to the Ministry’s consultation, the ABI has suggested:
• claimants should be assessed by an independent medical expert. And by “independent” I mean that the doctor has demonstrated that they have no financial link to the organisation that has commissioned the medical report from them;
• An accreditation framework for doctors which involves demonstrating their knowledge of the latest diagnostic and treatment information for whiplash injuries along with an element of continuing professional development;
• Accreditation should also involve medical experts undergoing training on the bio-mechanics of car crashes. This should enable them to offer an informed comment on the likelihood of a claimant experiencing the symptoms they report rather than jotting down the self-reported symptoms of the claimant and ticking a couple of boxes;
• We have also suggested that bio-mechanical evidence needs to be considered by the Courts. It is no longer good enough that judges place almost determinative weight on medical reports and so little on the other available evidence, especially given the recognised problems of the current system.
As with so many things, the devil here will be in the detail. We have set out a direction of travel for the policy changes that we think are needed. For those to be delivered, there will need to be further, and more detailed, work. That should involve other stakeholders including MROs, doctors, claimant solicitors and others. We know what the problems are but we don’t have all the answers. We want to work with others to ensure that improvements to the system can be made. But people have to accept that change is needed first.
We also support an increase in the Small Claims Track (SCT) limit to at least £5000. The SCT is a user-friendly and simple route for settling straightforward low-value claims. The claims limit was last considered in 1991 when 50% of personal injury claims were within the SCT threshold. Today around 9% of cases fall to the SCT. When you combine general claims inflation since 1991, a near 10% increase in general damages in the latest Judicial College Guidelines and a further 10% increase in general damages to be introduced next month following the Court of Appeal’s guidance in Simmons, fewer and fewer cases will benefit from the efficient process that the SCT provides.
But it shouldn’t just be whiplash cases that benefit. All PI claims resulting from an RTA should be treated in the same way. There is no logic in having one system for a neck sprain just because it is defined as a “whiplash injury” and a separate system for a back sprain arising from the same accident circumstances.
So we look forward to seeing the outcomes of the consultation process and working with others to improve the system, including the Transport Select Committee as they re-open their enquiry into whiplash claims.
What next on whiplash?
Fundamentally though, there is a need for a wider public policy debate about the UK’s whiplash epidemic.
As I said earlier, insurers don’t create the society in which we live. They price the risks that society presents. High compensation awards for whiplash injuries leads to high insurance premiums. So we need an open and honest public debate about the level of general damages that should be awarded for whiplash injuries and other low-value personal injury claims. Clearly there are implications from changing our current compensation system. But if we collectively want lower premiums for all, then we should have the debate about the level of compensation awarded to the few.
I’m not talking here about special damages for the genuine costs of rehabilitation or care. What I am talking about is the right to receive significant compensation for simply being in an accident. An accident that may have caused little or no harm. And in the case of minor whiplash an injury the claimant can’t prove they have sustained. Fundamentally, the question society needs to ask is whether a minor, low-speed shunt in a Tesco car park resulting in a sore neck for a couple of days justifies thousands of pounds in compensation with the resulting impact on insurance premiums.
And underpinning all of this is a debate about the role of personal injury lawyers. If the policy settings and legal framework are right, where there are no disputes about liability and claimants understand their rights, why does a genuine claimant need a personal injury lawyer at all? What do they really add to the process?
Those are questions for another day. But please don’t misunderstand what I am saying. There will always be a need for independent and professional legal advice. It is a hallmark of a civilised society that people have access to that. But legal advice needs to come at a cost that is proportionate to the amount in dispute and the amount of work required to manage a claim.
I’m just asking some broader, more fundamental, questions about the nature of the personal injury system and whether that best serves consumers’ interests. As I said, this is a debate society needs to have. But it needs to be a grown-up debate: with analysis rather than anecdotes and evidence rather than emotion. And so it needs to be a debate in stark contrast to the public policy discussions we’ve witnessed in recent years in getting to where we are today.
Addressing the critics
There are plenty of people who will disagree with what I’ve said this afternoon. That’s fine. But I thought I would also take some time to address some of the criticisms of the proposals we have advocating for.
Some have said that increasing the SCT limit and removing lawyers from the process will result in a reduction in access to justice. It’s the same tired old soundbite we’ve heard before with no evidence to support the argument, so I leave that to one side. The other concern that people have raised, however, is that if the SCT limit is increased, claimants will be left to the mercy of big, nasty insurers in getting fair compensation for their injuries.
There is, of course, a framework designed to protect claimants dealing with insurers directly. The ABI’s Third Party Assistance Code sets out how an insurer should assist self-represented claimants and provides information to the claimant about what their rights are when dealing with an insurer. And, of course, insurers have obligations to the Financial Service Authority as the industry’s regulator to treat customers fairly. So although claimant lawyers might not like the fact that they don’t have the ability to add on their own fees, third party assistance provides a more efficient system to get genuine claimants, fair compensation quickly.
But there is more that we can do. So we are currently working to strengthen our Third Party Assistance Code of Conduct and will make announcements about that later this year.
The best thing that can be done to protect claimants though – whether they are legally represented or not – is to introduce a predictable damages framework. This was proposed by Lord Justice Jackson and is an important part of his interlocking package of reforms that remains outstanding. A transparent, independently controlled and regulated system of predictable damages should address the problem of self-represented claimants having to assess the value of their own case for the purposes of a claim for general damages.
Other commentators have said that increasing the SCT limit will not do anything to reduce fraudulent PI claims. Time will tell. But by raising the limit, the economic factors that have weighed against insurers challenging individual claims should be substantially weakened. And, claimants may be less likely to pursue fraudulent and/or exaggerated claims when faced with the consequences of losing their qualified one way costs protection.
Insurers are also criticised for making offers of compensation before they have a medical report as this encourages fraudulent or exaggerated claims. I cannot in all honesty stand before you and say that every offer an insurer has made without a medical report has been to a genuinely injured claimant. But given the rarity with which a medical report comes back with anything other than a diagnosis of whiplash, combined with the ludicrous prognosis times they provide, insurers have lost faith in a system that is little more than an expensive rubber-stamping exercise by doctors. So I agree that pre-med offers send out the wrong message. But this merely serves to reinforce my point that reform of the medical evidence used in whiplash cases is urgently needed.
Fraud remains a key issue for the industry. In 2011, insurers detected £441 million in fraudulent motor insurance claims and we estimate that a further £1 billion went undetected. So an increased SCT limit will act as a complement to the significant investment the industry continues to make in tackling fraud through the Insurance Fraud Enforcement Department IFED, Insurance Fraud Bureau and the Insurance Fraud Register. Insurers continue to have a zero tolerance approach to the fraud which drives up costs for honest customers. And there remain open questions about whether a PI claim, especially a low-value one, should be automatically dismissed in its entirety where part of the claim has been exaggerated, even though another part of the claim is genuine.
Conclusion
In conclusion, significant change will soon be upon us. And improving the claims market is an opportunity not to be missed. Consumers expect the personal injury claims system to deliver the right outcomes at a proportionate cost. By improving behaviours and by stripping unnecessary costs out of the system, in an environment where the cost of living continues to rise, consumers will see the benefits of reform through lower car insurance premiums.
The reforms coming into force in April represent an important first step in cleaning up our market. Any by “our market” I mean personal injury lawyers, credit hire firms, CMCs as well as insurers. The Competition Commission is, of course, looking at the non-personal injury aspects of our market.
But there is more work to do. The Government’s consultation setting out its proposals to reduce the number of whiplash injuries represents an important next stage in the evolution of the personal injury claims environment. When combined with the work insurers are doing ourselves both to tackle fraud and deliver third party assistance, I hope that we will begin to see a claims environment where lawyers have a role but they are not the starting point. If there is anything in the sound bite, access to justice is about getting the right outcome for the claimant not preserving fees for lawyers.
And I think there is an important third step. That is to start a genuine and open public discussion about the level of damages received by claimants. High compensation awards mean higher car insurance premiums. If insurers pay less in compensation, insurance premiums will reduce further. And the industry will have more capital available to invest in well-run companies or infrastructure to support the economic growth which today’s Budget reminds us is so desperately needed. There is a trade-off in here and society needs to have the debate.
So thank you once again to Claims Magazine for the opportunity to speak today, and I look forward to our panel discussion.