Compensation: what's the best fix?

Each major insurer has its own issues with the compensation process.

There are common complaints: too much money is spent on legal bills, it takes years to settle claims which sends costs soaring, and there is little attention paid to rehabilitation.

The government's Compensation Bill gave insurers some input into the reformation of the system.

But the lawyer fraternity is angry with insurers, who, they claim, are trying to shut them out.

Increasing the small claims limit, says the Association of Personal Injury Lawyers (Apil), will better serve the insurance companies' shareholders and leave claimants isolated.

Is it really the intention of major insurers to cut claims by removing lawyers from the system? Or is there an ulterior motive?

What do insurers want from the compensation system and how do they propose to get it?

We ask leading claims managers for their views on how they would fix the system, and whether it is time for the lawyer to leave the room.

Zurich technical claims manager, Steve Thomas; Allianz Cornhill divisional claims manager (technical) Roy Hebburn; Steve Maddock, Royal & SunAlliance (R&SA) technical claims director; and Dave Williams, Axa insurance claims director, respond.

Q. Has the government done enough to address problems with rogue claims management companies in the Compensation Bill? Will Clause One of the Bill (which redefines the legal definition of negligence) lead to further satellite litigation?

Steve Thomas (Zurich): I am very happy with Clause One. It is a denial clause, there for the defendant to use.

There is probably some confusion around it. If there is any satellite litigation it will only be driven by us (the insurers).

Roy Hebburn (Allianz Cornhill): The government's announcement was not as comprehensive as we would have liked, but it is a good start.

The key is appointing an effective regulator who has the teeth and capability to make this claims capture channel respectable.

The extension of part one on the restatement of the Law of Negligence to include 'breach of statutory duty' is welcome because virtually all injury claims outside of traffic accidents rely on a breach of duty as well. But the restatement is not likely to open the floodgates to satellite litigation.

Steve Maddock (R&SA): We welcome the efforts that it (the government) is making with the Compensation Bill to address the issues.

However, I think there is more that can be done by both industry and government to provide practical solutions that help to put rehabilitation at the centre of the personal injury system.

We think opening up the legal services market to new forms of providers may help to reduce costs and the length of time it takes for a claim to be handled, providing that proper safeguards are put in place. We hope that further progress will be made with this in a future Legal Services Bill.

However, we do remain concerned that Clause One of the Bill will undoubtedly lead to satellite litigation to clarify what is meant by 'a desirable activity'.

I cannot see how you can begin to erode statutory liability through the Compensation Bill without precedents being established. While we all know this clause is intended to apply to events such as school trips, this is not clear in the Bill.

David Williams (AXA): The government clearly hasn't done enough yet, though there are positive signs and the structure is there to make a meaningful change.

The only organisation that was remotely in a position to step in (as clams management company regulator) sooner rather than later was the Claims Standards Council (CSC).

They have now been told they will not be assuming that role, and while the reasoning is perfectly justified, what is the alternative? As long as claims management companies remain unregulated unnecessary costs on motor and liability claims will continue to escalate.

With regard to Clause One, if it does continue then yes I believe there undoubtedly will be satellite litigation, which is why I think maybe the case for its removal is winning ground.

Q. Should the small claims limit be raised? Will cutting lawyers from small end claims be detrimental to the claimant, as suggested by Apil?

ST: Zurich is in favour of the limit being raised. We (lawyers and insurers) will never agree on it.

The industry position is that the limit should be raised to £5,000. The Apil argument is that the system is too complex for the man on the street.

Yes it is complex, let's simplify it. Let's have a publicly stated lay down of tariffs.

RH: Yes. We believe it should go to £5,000. On the basis of inflation alone, since the level of £1,000 was set, the current value would equate to nearly £3,500.

SM: The limits have not been revised since 1990, so it is definitely time they were looked at.

If they are raised we need to look carefully at the behavioural consequences that may ensue. Any increase in the limits may result in short-term benefits only.

However, it should help individuals involved in these small claims to get involved in a simplified process to gain the redress and rehabilitation that they need.

DW: Why do we need expensive lawyers to advise on small injury claims, many of which are more straightforward than many of the claims that occur every day on insurance policy contracts?

I see an increase in the small claims limit as being good for everyone other than maybe personal injury lawyers.

Is it right that on small claims currently legal fees actually outweigh compensation?

My only concern about the increase in the limit is that some unscrupulous people may simply look for ways to pad claims out so they exceed the new limit.

Q. Will the ABI be forced to admit that lawyers have a fundamental role to play in the compensation process?

ST: We are fully supportive of the ABI's Care and Compensation project.

It sits very comfortably with what the environment might look like in the future.

One struggle I have with Apil is that they say I cannot treat customers fairly. I operate in an FSA-regulated world where I am told to treat customers fairly. Unrepresented clients probably get a better deal.

RH: It would be foolish to say that lawyers have no place in a modern compensation process, but there must be a fundamental rethink of a process where the costs of lawyers regularly amount to 75% of the total cost of a claim.

Insurers have no problem with paying lawyers for work they are required to do and at a fair rate. Our argument is that the process has become a cash-generating exercise for a range of interests and many of which do not add value.

That must change because the cost is unsustainable.

SM: This is not about cutting the lawyers out of the process, it is about putting rehabilitation, rather than compensation, at the centre of the personal injury compensation system. Neither R&SA, nor the ABI has an agenda for reducing levels of awards to claimants. We both want a more efficient process that ensures the claimant is properly cared for and reduces the time they have to wait for payment of compensation.

DW: Why on earth should the ABI be singled out for this criticism, it's not just the ABI that thinks that there is too much use of legal services in the process: consumer groups, some government offices, and - I am sure if he knew the impact on premiums - the man in the street.

No one is saying there is never a need for independent legal advice, but the current industry that surrounds compensation is damaging and unnecessary.

If an appropriate system is built, with a clear complaints process, maybe even with penalties for insurers who don't act efficiently and fairly, with independent legal advice only when it really is needed, then I we will have a much better system and dramatically reduced costs.

Q. What is your firm doing to address the growing costs associated with personal injury claims?

ST: We contact the claimant where we can. We are talking to the DCA on a regular basis, we are also on the ABI panel and are speaking to the minister.

RH: Being fair; acting in a consistent way; making early decisions and being pro-active in our handling; communicating clearly. Offering early rehabilitation facilities and dealing direct with the claimant where the opportunity arises; training our people to understand the drivers behind costs inflation and how to avoid the levers that add cost but not solution.

SM: We have recently begun a pilot called R&SA Care, looking at the way we deal with bodily injury claims. We are able to identify and contact injured victims shortly after they have been injured and significantly reduce the involvement, and therefore cost of, the claimant lawyers.

We are able to use that money more appropriately by providing rehabilitation and better care for injured people, with compensation at the end of the process. Therefore offsetting premium inflation that is driven by an escalation of unnecessary legal costs.

DW: We are looking at completely re-engineering our processes to try to get more rehabilitation and a less adversarial approach which will be better for everyone.

As well as supporting increases in the small claims limit and market initiatives to take unnecessary legal expenses out of the process, we are speaking to personal injury firms who don't want to continue delaying claims progress to agree on protocols and other ways to work better together.

We see rehabilitation as a key part of the process, showing that insurers are not out to deny an injured parties anything they are entitled to.

Q. In your view what can the insurance industry do to speed up the payment of claims? Can insurers act alone on this?

ST: Claims need to be settled more quickly and rehabilitation better provided. One of the problems we have is late notification from the claimant lawyers. A lawyer would frontload and build costs and the opportunity for rehabilitation is gone.

The claimant solicitor should notify insurers at the beginning. This should become part of the Civil Procedure Rules (CPR), which needs to be driven by the Department of Constitutional Affairs.

RH: Payment speed is not an issue. Insurers have a driving imperative to efficiently 'weigh and pay' their liabilities. It will take a joined-up approach which has the claimant central to the process and where adversarial practice is minimal even if it cannot be eliminated.

Insurers cannot do this alone, but it is essential they improve their processes and raise professional standards.

SM: It is in the hands of each insurer to modernise its claims response process, and that is what we are trying to achieve with R&SA Care.

These are early days, not only for our own rehabilitation pilot, but also in the wider debate about compensation, rehabilitation and reform of the legal system.

DW: The involvement of claimant lawyers and claims farmers means we can not act alone on this.

We can speed things up on unrepresented claims and those where we have claimant lawyers whose primary focus is not on their earnings but the genuine well-being of their client.

Direct capture of injured parties will help greatly, and some companies are making good progress there.

The simplest way, at this time, to improve things is to agree protocols which focus on speed and efficiency with claimant firms, they aren't all just interested in earnings and some come up with some really positive ideas.

We need to make sure we remain open minded.