Peter Dobie, underwriting manager for Allianz Legal Protection, looks at the sustainability of after-the-event insurance

Last month, tetraplegic Anthony Burton won £6.4m in compensation, after being left paralysed following a road traffic accident – all thanks to after-the-event insurance (ATE) underwritten by Allianz Legal Protection (ALP).

In August 2001, Burton was involved in a car crash on the A27 in Portsmouth. His friend was driving with his girlfriend in the back. The driver lost control and veered over four lanes careering down a 20 foot embankment. Being left with tetraplegia (paralysis of both arms and legs), he now relies on a wheelchair controlled only by head movement.

Although he suffered no brain damage and can talk freely, he will need care for the rest of his life. He sought compensation in London’s High Court for his loss of earnings and pain and suffering – and to make sure he has somewhere suitable to live.

The big question hanging over the legal expenses market still remains – is there a future for ATE?

This case reveals how there is every need to write ATE business in the future. Had it not been for this insurance and our agreement to offer further indemnity, Anthony would have had no option but to settle for the initial offer of £4m, prohibiting him from receiving the expert care he needs, to lead as normal a life as possible.

Both sides sought evidence on the medical issues, including the issue of life expectancy, from medical experts in the field of spinal cord injuries. Brian Gardner, consultant surgeon at Stoke Mandeville Hospital, gave evidence for Anthony and in his report said that probably the most important determinant of life expectancy for a spinal cord injured person was the quality of care.

He cited a US paper by Dr deVivo and others in 1995 which stated: “Undoubtedly the long-term quality of care received by persons with a spinal cord injury, as well as many psychosocial factors, are also important determinants of survival, but these have received relatively little attention.”

Allison Hampshire, partner at Eric Robinson Solicitors and Burton’s solicitor, highlighted how pay-outs for spinal injury claims for amounts above £2m or £3m are extremely rare: “Many insurers would have caved in when the first offer was made, let alone the second offer of £6.4m. Working with Allianz Legal Protection allowed us to pursue this matter and ensure the claimant was able to achieve the true value of the claim. This compares to the current highest compensation claim for a spinal injury which currently stands at £9.3m.”

While it is understandable that liability insurers want to keep their legal costs to a minimum, all claimants should have the opportunity to be represented and adequately protected if they embark on litigation, with a reasonable chance of success.

Many may believe six years is a long time for a legal case to come to a close, but there are many issues to take into account, with major considerations and amounts of money being deliberated.

However defendant insurers need to consider their own behaviour. Questions could be raised as to why they didn’t settle earlier. After all, it may have saved them literally tens of thousands of pounds in legal fees and other costs.

The defendant’s motor insurers did not dispute liability but did contest the value of the claim; but with Burton’s case the intractability of the defendant insurers may have had a role to play in the time taken to reach a settlement.  Initially not admitting liability until two days before the five-day High Court trial in April 2005 – already eight months on from the incident occurring – the defendant insurers then only put forward an offer to settle 22 days before the quantum trial. 

However, this was a complicated injury case, with numerous damages needing consideration. These included loss of earnings, wheelchair technology, paid care to the age of 50, physiotherapy and adaptations for his housing.

Since being introduced in 2000, the past years have shown that ATE is far from being a licence to print money. From an insurer’s point of view, it requires highly skilled staff and the risk itself can be long-tail, with the limit of indemnity of £100,000 often being called upon and at times exhausted.

“ATE is not necessarily going to be the dominant part of the legal expenses market, but in the name of fairness to claimants, it needs to exist

Peter Dobie

It is important to have a strong ATE market with adequate choice for claimants – the current climate with the Ministry of Justice consultation underway makes this difficult.

While other classes of insurance have been attracting newcomers, legal expenses cover remains niche and given the complexity, few expect other major insurers to enter the sector.

But, while there are established providers, some solicitors and other sellers of cover continue to offer policies from offshore insurers – with such companies being outside of regulation by the FSA, can this be in the consumers’ best interests?

All legal expenses insurers should spend a great deal of time analysing the performance of their solicitors and work with them to establish best practice, be it in risk assessments or case management.

That partnership of underwriter and solicitor is at the heart of our approach at ALP. This has enabled us to consistently take a leading role in the provision of realistically priced, fully underwritten ATE insurance throughout the troubled years, since Access to Justice.

Better risk assessment translates into lower premiums, but it is a ‘hands-on’ role for an ATE insurer, not suited perhaps, to a remote underwriter who is not too concerned about a long-term involvement.

In some cases, the lawyers selling these ATE policies are not aware of issues such as insurer security and related consumer protection. This suggests that there is still an education process required – and that the Law Society should play the lead role in this.

For insurers, the key to success in ATE cover – in both setting our reserves and improving accuracy in underwriting– is predictability in costs.

ATE is not necessarily going to be the dominant part of the legal expenses market, but in the name of fairness to claimants, it needs to exist.

There still remains little evidence that solicitors are shopping around for the best cover for clients, but the more awareness clients have of the risks of litigation and how insurance works, the better.

The ATE market remains relatively immature in the UK and the proactive nature of before-the-event insurance obviously remains a more affordable and accessible option for many consumers. But ATE is necessary for those who do not purchase this.

All those committed to its long term sustainability must ensure that the needs of these claimants are met and we work together to offer insurance that is readily understandable and provides value together with quality legal representation.