Reform of the injury compensation system dominated 2006, but no clear results have emerged. Katy Dowell looks back over the year

In 2006 the personal injury compensation system rocketed up the insurance industry's and politicians' agendas.

From the regulation of claims management companies to payments to mesothelioma sufferers, and the small claims limit, the debate has been wide-ranging and heated.

But progress in achieving the much-needed reform of the system has been slow.

By January 2007, the government's eagerly-awaited proposals for change are expected.

Whether they will contain what the insurance industry is hoping for remains to be seen.

The year began with the ABI putting forward its care and compensation proposals. Right on cue the Association of Personal Injury Lawyers (Apil) blasted the ABI's plans to remove lawyers from the process.

Apil chief executive Denise Kitchener kicked off the slanging match: "No matter how these proposals are presented it would be naïve to think that they are anything but an attempt to cut costs and increase the insurance industry's profits."

The ABI's head of motor, liability and pricing, Justin Jacobs, retorted with: "No matter how it wishes to present its concern, it [the legal profession] is defending a system which creates £2bn per annum for claimant lawyers." (News, 26 January).

At the same time a more pressing issue was making its way to the courts. With the Court of Appeal deciding whether insurers should pay compensation to victims of pleural plaques.

Pleural plaques attach themselves to the lungs and are believed to be caused by exposure to asbestos. They are symptomless, have no adverse effect on any bodily function and, being internal, have no effect on appearance. Fortunately for the insurance industry, the Court of Appeal ruled that pleural plaques was not a compensatable injury.

Lawyers have vowed to take the fight to the House of Lords; a decision is expected in January (News, 2 February).

Insurers also came under fire in another asbestos case, Barker, in which the House of Lords was asked to rule on how liability should be apportioned between negligent employers and their insurers. Claimant lawyers accused insurers of penny pinching and eroding claimants' right (News, 9 March), although it was the shipping industry not insurers that had brought the case.

The subsequent decision was a cautious win for insurers and meant that mesothelioma victims had to claim compensation from each employer that wrongfully exposed them to asbestos.

The ruling provoked a political storm. Secretary of State for Work and Pensions John Hutton promised to do something to allow victims to get compensation more speedily. Even Tony Blair took a personal interest in the case.

By June, legal sources were warning that the Compensation Act would be "hijacked" in a bid to reverse the Barker ruling (News, 8 June).

By the end of the political year, Lord Falconer, Lord Chancellor had tabled an amendment to the Bill ahead of its royal assent.

Insurers feared the wording was too loose and would leave them exposed to all sorts of claims which would potentially plunge the compensation system into disarray.

Compensation for pleural plaques was also back on the table. MPs attempted to slip in an amendment which would force insurers to pay up where a chemical or substance had become lodged in the body as a result of negligence, whether or not the substance had caused symptoms at the time legal action is commenced.

The third reading of the Bill saw the clause thrown out by MPs, while the clause to reverse Barker was added in.

Hutton also introduced a series of measures aimed at cutting the amount of time it takes for mesothelioma compensation to be paid. He promised to introduce further measures in the autumn. Insurers were unimpressed by the proposals.

David Williams, AXA's claims director, said:

"I am pleased that these are interim measures, because at the moment I am split on whether they will or will not help claimants." (News, 27 July)

Meanwhile, the arguing continued over the ABI's compensation reforms plans. The focus shifted to its proposals to raise the small claims limit from £1,000 to £5,000 thus removing legal representation from the majority of claims.

Colin Ettinger, past president of Apil, told Insurance Times: "The ABI proposal is just a cost cutting exercise and we don't think it's the way forward." He added: "The proposal to raise the small claims limit is a cynical way of trying to save money." (News Analysis, 20 April).

In May, news first emerged that the government would extend the provision that enabled the NHS to claw back costs from personal injury insurers.

On top of paying the NHS costs of road traffic accident victims, insurers would also have to pay for employers' liability (EL) and public liability claims. It would, said claims managers, undoubtedly impact EL rates.

The changes were meant to take effect in October, but the government delayed the move until January 2007. (News, 18 May)

The regulation of claims management companies was also a hot topic in 2006. There were worries that insurers would soon face dual regulation in the area. The Department for Constitutional Affairs (DCA) was rumoured to be formulating rules which would crack down heavily on how firms make money out of selling and buying personal injury claims.

The ABI wrote to the DCA urging it not to regulate insurers as claims management companies (CMCs), arguing that the FSA already regulated the area and further rules would just add unnecessary red tape and be damaging to claimants. Fortunately, the DCA agreed and the plans were duly scrapped.

Some said it was a hollow victory, because just a few weeks later the FSA was understood to have formed a committee to re-examine its rules. It is understood that the FSA will report its findings next year.

But while insurers escaped CMC regulation, brokers found themselves tangled in the net. Biba was frustrated at the move, but the DCA decided that brokers which procure more than 25 claims a quarter would have to register with the CMC regulator. What impact these new rules will have remains to be seen. The rules will not be fully introduced until April next year.

Also under Lord Falconer's microscope was the referral fee system which sees insurers paying sometimes up to £700 for each personal injury case referred to them.

Lord Falconer gave his strongest signal to date that the practice would be abolished. He told journalists: "I want to get rid of referral fees."

Norwich Union said it would welcome any such move, but warned that an alternative system would need to be set up if it were to adapt to a new age.

Unfortunately, Lord Falconer has remained tight lipped about what he intends to do. It may well take another two years for an alternative system to be sourced. Meanwhile insurers continue to buy and sell claims (News, 19 October). IT