Can we live without lawyers?

Removing lawyers from the claims process does not reduce claimants' settlements, according to research unveiled by the ABI this week.

An independent study commissioned by the trade body found that in all but a fraction of lower value personal injury claims the presence of a claimant lawyer did not increase the amount of money received by a claimant. Instead, lawyers only served to drag out the claims process, delaying the claimants' settlement and bumping up costs.

In employers' liability claims, the research showed the presence of a lawyer actually prejudiced the claimant, reducing on average the amount of the settlement by over £600.

The research will be used by the ABI to bolster its arguments for reform of the compensation system. The trade body is proposing a system whereby claimants complete an "easy-to-use" form, with the industry setting up a free telephone helpline to assist claimants, taking the expense of lawyers out of the equation.

Each year the insurance industry spends £2bn on claimants' legal and other costs, according to the ABI.

Despite support from groups such as the Citizens Advice Bureau and the CBI, the proposals have come under fire from claimant lawyers and the trade unions who argue that they would deprive claimants of valuable independent legal advice.

The insurers, they say, cannot be trusted to put the interests of claimants over those of shareholders.

Justin Jacobs, head of liability at the ABI says the research shows the opposite, that insurers "can be trusted".

He says: "Claimants don't need lawyers to get full and fair compensation. In the vast majority of cases, claimants are getting full compensation without a lawyer. Where there is an issue, we will be working with our members to put it right."

Jacobs argues that it is in the interests of an insurer to deal fairly with a claimant who is not legally represented as otherwise the claimant may engage a lawyer whose costs the insurer will have to pay.

Study results
The research, conducted by Frontier Economics, looked at 100,000 personal injury claims of between £1,000 and £25,000 in value, handled by the top 20 general insurance companies. The purpose of the study was to "assess the impact of legal representation on the outcomes [of the claims]".

The majority of the claims (80,000) were road traffic accidents, the remainder being employers' liability and public liability claims.

It found that for nearly all the claims the presence of legal representation made no difference to the level of settlement. The only impact was on the time taken to settle; where the claimant hired a lawyer, the case took on average 95 days longer to settle.

When the different classes of claim were examined, however, the research revealed some significant differences.

While the motor-related claims showed legal representation had no impact on settlement levels, the presence of a lawyer did have an effect in employers' liability (EL) and public liability (PL) claims.

In the case of PL claims, a claimant lawyer secured on average £600 more for the client. In EL claims, however, the lawyer's presence actually prejudiced the outcome, losing the claimant on average £650.

How can this be explained? Jacobs suggests that in the case of EL claims the insurer often has a close relationship with the insured employer who will want the claimant - the employee - treated well by the insurer.

In contrast, in the case of PL claims, he argues that many claims are "frivolous" and the insurers' claims handlers will be looking to defend aggressively, thus pushing down awards for unrepresented claimants.

The research also looked at legal costs.

It found that for claims of between £1,000 and £5,000 the legal cost amounted to on average 91% of the settlement sum. For instance, if a claim settled for £5,000, the legal costs would be an additional £4,550 on average.

As the claim increased in size, the legal costs fell as a proportion of the award. For claims between £15,000 and £25,000, legal cost amounted to, on average 19% of the value of the award.

Across the range of claims (£1,000 to £25,000), legal costs were on average 85% of the settlement sum.

Jacobs said these findings broadly reflected the results of previous studies.

Small claims limit
The ABI also conducted research looking at the impact of maintaining the small claims limit at £1,000. The limit has remained at this level since 1991.

The study looked at how many claims currently fell within the small claims limit in comparison to the number in 1991, when the limit was first set.

It found that many claims that were covered by the limit in 1991, no longer fell within that range due to the impact of claims inflation. This, the ABI argues, demonstrates the need to increase the small claims limit to £5,000.

Legal costs are lower for claims within this limit as the claimant is not legally represented.

Of the 24 injury categories that fell within the limit in 1991, only ten did so now, according to the survey. For example, a fractured finger or tooth would have been within the small claims limit, but is no longer. Similarly, whiplash claims, which make up the majority of motor personal injury claims, are no longer counted as small claims because of rising damages awards.

Jacobs said the survey showed why the limit had to be increased. "There is a growing consensus of the need to raise the limit," he says. IT