Susan Brown explains why the Ministry of Justice must adjust proposed reforms to the claims sector to ensure stopping the dishonest minority doesn’t restrict access to justice for the honest majority
This article first appeared in Modern Claims Magazine Sustainability Supplement, November 2016
The claimant community was braced for bad news whenever the Government’s “whiplash” claims process consultation was to be published. Regrettably it didn’t disappoint. Removing compensation, raising the small claims limit and now a set tariff of compensation are all proposed at the expense of evidence, justice and plain common sense. The potential impact of these ugly proposals would only be slightly offset by the welcome ban on pre-medical offers by insurers.
LASPO and the introduction of MedCo suffered from not actively taking on board the advice from the claimant sector, and for being rushed through and flawed in their delivery. This Government are about to make all the same mistakes. It is an agenda being pursued without adequate research or scrutiny of the possible consequences. It risks treating everyone who makes a claim as either fraudulent, frivolous or an unnecessary expense, regardless of the circumstances of the claim, irrespective of fault or no-fault, injury or non-injury.
The relentless narrative of the last few years from the insurers and media, of the ‘compensation culture’, ‘cash-for-crash’ and ‘ambulance-chasing lawyers’ has undoubtedly left a deep impression. It is more than possible that such headlines have themselves contributed to a culture where otherwise law-abiding citizens have been tempted to make a claim for an injury they did not receive or exaggerate the impact of an accident they were involved in.
We all agree that fraud has blighted the sector for too long and must be tackled with all our energies. Action to target fraud must not, however, affect how an accident victim is treated and their basic right to seek recompense for injuries sustained through no fault of their own. Abolishing the right to damages caused by someone else’s negligence to save costs for the insurance sector would run contrary to any meaningful definition of justice. Potentially, a pedestrian struck by a motor vehicle would be entitled to claim compensation for soft tissue injuries, but a driver of a vehicle struck from behind by somebody recklessly exceeding the speed limit would not. Outside but hit by the car, you can claim, sitting inside and hit by another car you could not.
A system that refuses to compensate for some types of legitimate claims, but not others, threatens the very principles of our insurance and justice systems. To effectively outlaw the majority of claims, however legitimate they are, is nothing short of legislative vandalism that rides roughshod over hundreds of years of legal tradition.
Cold calling consequences
The whole claims sector – insurers, defendant or claimant solicitors – surely wants the same thing. It wants to look after the interests of the majority who are legitimately seeking justice after misfortune has struck through no fault of their own. A majority who have, by the way, paid their high compulsory motor insurance in the expectation that they will be recompensed and looked after. Introducing a regulatory regime where the just majority are penalised for the actions of the unjust minority is surely not the right way to tackle the problem.
The government and insurers say that they wish to further reduce the number of claims and the associated costs. If anything, the proposed regime could lead to an increase in costs, with claims values rising to mitigate contingency arrangements. The number of claims may increase as well, together with the levels of fraud. We could all suffer from more cold calling and other unwanted marketing communications. CMCs will adapt and potentially flourish under the proposed system, exploiting loopholes whilst stepping over the debris of a crippled legal sector. Indeed there have already been public hints that this is precisely what will occur. Potentially opening the claims process to allow Litigants in Person to use it and, struggling with the complexities of representing themselves, many will likely fall prey to CMCs to direct claimants how to use it, taking an even larger slice of damages away from the accident victim. Have we learned nothing from how the PPI market operated? Tragically, but inevitably, some accident victims will likely not seek compensation for their injuries at all, but the costs will be borne by us all through the NHS. A dysfunctional market benefits no-one in the sector.
What the statistics say
The facts do not provide the evidence for the proposed actions. Motor PI and whiplash claims have fallen by 70,000 claims a year since their peak in 2011-12, having progressively fallen for four years in a row. The number of claims per year was falling even before LASPO was implemented in April 2013. Serious road traffic accidents reported to the police have fallen in recent years, but the Department of Transport still estimates that there were in the region of 630,000 “slightly injured” in 2015, of which 519,000 casualties were unreported. The ABI’s own unpublished figures reveal that claims costs have fallen 29% since 2010 with the amount paid out annually by motor insurers falling from £8.3 billion in 2010 to £5.89 billion in 2014 – a decrease and saving to insurers of £2.41 billion.
Damages have not increased proportionally as fast as the proposed new small claims limit – damages awarded today may be the same as or less than awards made in the early 1990s. No-one, claimant or insurer, has produced a figure for fraud higher than 11%, and solicitors contend that the level of fraud is unlikely to exceed 1-3%. Whatever the true level, there is clearly unanimous agreement that the vast majority of claims are legitimate. Insurer fraud figures combine both proven and what it calls “suspected” fraud, based on a number of highly questionable criteria. When the figures are separated, the incidence of proven fraud drops dramatically. It is undeniable that there is a problem with fraud, but this does not justify the attack upon the fundamental legal rights of accident victims.
Even if insurers did reduce motor premiums for a short period after LASPO, there is little doubt that premiums have risen dramatically in recent years as the insurance cycle turns and insurers pass on the recent Insurance Premium Tax increases. With the latest 2% increase in IPT from June 2017 and some predictions that it will continue to rise until it reaches alignment with the 20% VAT rate, motor insurance premiums look likely to increase for the foreseeable future as it is passed onto consumers. This will be particularly difficult for the so-called JAMs.
Blaming rising legal costs, when all the evidence points to the contrary, will not wash and suggests that there will always be a new excuse for maintaining or raising motor insurance premiums to protect insurers profits. With no mechanism by which the Government will monitor this, let alone force insurers to pass on the supposed savings from reduced motor insurance premiums to consumers, public promises should at best be treated with scepticism. It should be remembered that only two of the ABI’s 209 members, albeit large members, have publicly committed to passing on the full savings of any reform package to customers. Interestingly the consultation’s own Impact Assessment anticipates that only 85% of “savings” will be returned to consumers.
Not too late
It is still not too late to develop an alternative approach. One that tackles some of the many problems that exist in the sector without the known and unknown unintended consequences that would follow if the current government proposals are implemented.
There are many good ideas recommended by the Insurance Fraud Taskforce, although the Government needs to take a more proactive role in driving through their delivery by formalising the legacy vehicle. The industry can only do so much and still needs the Ministry of Justice to encourage, drive and if necessary cajole the sector into action.
The recent structural changes to the MedCo system need time to bed in, but will hopefully weed out those MROs who short-sightedly have attempted to game the system. There are discussions to be had around the notification of claims and the input of information around the source of claims. Insurers need to take a robust position on claims they believe to be fraudulent rather than settling because it is cheaper than fighting them in the courts. We can explore opportunities to extend data sharing, building on the early successes of askCUEPI. We can certainly strengthen the regulatory regime for CMCs. If the government can ban pensions cold calling, there is no reason why they can’t ban cold calling in personal injury. There is a genuine debate to be had about what level the small claims limit should be set at in relation to the current market and what would be proportionate to the growth in damages since it was introduced.
It has been a hard and bumpy journey, but we have already come a long way in reforming the claims market in the last few years – the MoJ Portal and fixed costs, further reduced fixed costs through LASPO including a ban on referral fees, the end of recovery of ATE Premiums and success fees, askCUEPI and MedCo. Solicitors have not always agreed with every measure, and particularly the way in which they have been implemented, but we generally have a more efficient and streamlined claims process now as a result. Far from building upon this progress, the Government’s proposals would re-open the market to abuse and ultimately let down the accident victims that most need the system to work effectively for them.
When the dust has settled on the current debate, the reality is that there will still be hundreds of thousands of claims for the simple reason that there will continue to be hundreds of thousands of motor vehicle accidents in the UK. If the proponents of the reforms win the day, the market will adapt to pursue these claims. It just may not be independent, legal professionals that provide accident victims with guidance on how they can pursue justice and that will undoubtedly be detrimental to the accident victim and sector at large.
Past cross-industry initiatives have demonstrated that so much more can be achieved by an open dialogue to find real solutions rather than conflict and entrenched positions. Insurers and solicitors will not agree on some things, and it would require our collective energies to shape the claims landscape in a way that is fair, legitimate and affordable. Whether we deal with victims, claimants or customers, we owe it to them to try.
Sue Brown, Immediate Past Chair, MASS