It's been a bad couple of weeks for Colin Poole, the chief executive of Claims Direct. After a primetime television roasting from Anne Robinson on BBC's Watchdog who accused the company of charging high premiums, he was grilled by industry experts at the Insurance Times Claims Debate. Mike Cooper reports....
Claims Direct found itself in the firing line at the Insurance Times Claims Debate. A number of topics were covered by the distinguished panel, including the culture of claims handling, the effect of conditional fee agreements (CFA) on claims costs and premiums, and the question of whether these costs should be regulated. But, despite the wide-ranging brief, there was one subject that the panel kept coming back to – the effect the UK's most successful claims management company is having on the industry.
Debate chairwoman Georgina Squire, head of litigation at solicitors Rosling King, kick-started the discussion by asking if the insurance industry was being driven by a compensation culture.
Chris Ward, managing director of Accident Line, said that from his experience claims were rising: "People are more aware of their legal rights and want to be able to seek access to justice. That has fuelled where we are today."
Claims on the up
Charles Wright, UK general manager of DAS, thought there had been no watershed date for this change. He said: "Claims have been cranking up over the last 15 years. More people are expecting more money for less serious injuries." While he did not think any one factor was to blame for the rise, Wright believed the state was in part responsible by its increasingly nannying approach.
Claims Direct chief executive, Colin Poole, turned the compensation culture debate on its head. He said the real issue was social responsibility. He acknowledged that some people in the insurance industry had pointed the finger at claims companies for rising claims costs. But, he said Claims Direct was not deserving of this blame.
He said: "We are not promoting small claims. It is the British stiff upper lip of struggling on with an injury which has gone."
Poole said that while his company received approximately 10,000 calls each week, it usually only took on 1,500 of these, with the other 8,500 being told they had no grounds to a claim. Poole said Claims Direct only proceeded with cases that had more than a 51% chance of success. He denied that Claims Direct cherry picked its claims and said its main criteria for taking on cases was that they exceed the small claims court limit of £1,000.
AIG Europe vice-president of casualty claims Arthur Lightbody, disagreed with Poole. He said Britain had built up a compensation culture over the years, much of it inherited from America.
Lightbody stressed that AIG did not have any issue with legitimate awards, but was concerned with the reasonableness of additional legal costs stemming from conditional fee agreements. "Lawyers have been driving up compensation in the US as a result of their taking a cut of an injured party's compensation under no-win, no-fee agreements."
Ward from Accident Line said society would eventually foot the bill for rising claims costs. He said: "The emphasis is being shifted to the defendant's insurer. These costs will ultimately come out of higher premiums as they reflect the heavier risks insurers are carrying."
Poole thought the Lord Chancellor had made an error in proposing that a claimant's compensation award should be protected. He explained: "Clients who have had a successful case are happy to pay for that service. But the Lord Chancellor got it wrong and now the industry is having to sort out the mess."
Wright of legal expenses insurer DAS said there were hidden costs with the CFA system in the form of higher levels of underinsurance as premiums become unaffordable for smaller firms.
Accident Line's Chris Ward highlighted a positive side to CFAs as they would be successful in bringing access to justice for a huge swathe of middle England, people who were currently without legal expenses cover because of the withdrawal of legal aid.
Chris Wheal, editor of Insurance Times, said that before-the-event policies had not taken-off because they had not been marketed very well.
However, Poole said it was closely examining before-the-event cover as possibly suitable for the eight in ten people it had to turn away at the moment.
Poole rejected the suggestion that television adverts, including those of Claims Direct, were encouraging claims.
He said Claims Direct had faced accusations of ambulance chasing but said it had specifically avoided the questionable tactics of some claims handling companies, such as seeking personal injury claimants in hospitals. Nevertheless, he believed there was a need for government regulation of the claims handling industry.
DAS UK general manager, Charles Wright, said he did not feel that MULRA should take on this regulatory role but believed the General Insurance Standards Council (GISC) would eradicate unethical claims handling tactics.
Paying for the law
Discussion moved on to legal costs, particularly success fees paid to solicitors, under CFAs.
Poole thought the purpose of success fees was unclear and needed clarifying. He said: "Solicitors are not taking on any more risk in pursuing a claim, it's the underwriters who are shouldering the risk if the claim fails."
Wright said he was concerned about the huge variation in legal costs.
"There is a need for regulation but the government appears to have dumped its responsibility for this. The Woolf reforms aimed to keep costs to a reasonable level, but at the moment costs are being left to the courts to settle."
Poole stressed that if insurers and lawyers were unable to agree on what constituted a reasonable level of costs, the government may step in and fix premium costs.
Poole rejected suggestions that Claims Direct would sever its links with a legal firm which had a high failure rate. "We have 350 legal firms on our panel and in five years, fewer than a handful had left because of their failure rates."
He said legal costs were not the only issue since there were other ways insurers could save costs.
"The marketplace has changed, but there are benefits for defendant insurers, particularly in using information technology to reduce claims paperwork."
He said Claims Direct was launching a system next April that would allow insurers to monitor the progress of claims using a secure internet site.