Recoverability of after-the-event insurance premiums and government reforms leave the industry in a state of uncertainty, writes Colin Poole....
The Claims Direct Protect insurance policy was launched in August 1999 with the provisions of the Access to Justice Act in mind (the act was published in July last year). The principle of recoverability of after-the-event insurance premiums had been established by the government in the act, namely that such costs would potentially be recoverable from defendants. Thus the injured party should be able to recover their compensation in full and make the wrongdoer pay the cost of bringing the action. This principle should not need to involve a fight between the representatives of the claimant and the defendant.
During the consultation process surrounding the act during the autumn of 1999, Claims Direct lobbied in favour of retrospective recoverability (i.e. dating back to July 1999), while attempting to establish clearly what the interim rules were. The guidance it received at that time from the Lord Chancellor's Department (from officials and at industry meetings) was that the right of recoverability was still being debated.
During this period, Claims Direct panel solicitors continued to provide their clients with "best advice", namely that the principle of recoverability had been established, but could not be guaranteed, so they may only recover some of their premium. Indeed, Claims Direct panel solicitors successfully recovered premiums from defendant insurers in a number of cases settled between August 1999 and April 1, 2000.
When in February 2000, the committee guidelines were finally published, indicating that recoverability would only be enshrined in law post April 1, 2000, Claims Direct acted immediately by suspending the issue of its insurance policies ensuring that no clients would be disadvantaged.
Only in September 2000, when the rules of court were published, did the position regarding retrospective recoverability pre-April 2000 finally become certain. Thus, throughout the period between August 1999 and September 2000, there was no clarity regarding recoverability.
But even now the rules relating to recoverability are far from clear and it may well be left to the industry, and possibly the courts, to bring clarity to the situation, although in practice the vast majority of premiums are currently being paid in full. Thus, the government's reforms of the legal aid system have left the claimant and defendant organisations in a state of uncertainty.
The claims management industry can help the defendant insurance industry to make the claims and compensation process more efficient. In the past some 5,000 personal indemnity firms all presented their claims in different ways. The advent of companies like Claims Direct means that we can begin to dramatically influence these processes and introduce uniform IT claims systems and methodology that will substantially reduce the costs of managing claims. Claims Direct expects to invest £2m in these systems over the next 12 months.
Next year, we will be introducing an internet-based case management and workflow system which will not only allow solicitors and insurers to communicate electronically but will provide the insurer with online access to witness statements, medical records and reports, and even barristers' advice.
At an average cost of £100 per month per case, defendant insurers have much to save in terms of their running costs if our new claims processes reduce case run times, paperwork and assist prompt settlement.
Benefits for all
Claims Direct operates within the spirit of the Access to Justice Act. It keeps its panel solicitors and clients advised of any relevant developments, and has proactively protected its clients' interests, for example when it withdrew the policy between February and April 2000, and then when setting aside the sum of £5m for ex-gratia payments for customers affected by non-recoverability.
My message to the defendant insurance industry is "let's work together and make the system work for the benefit of all". To this end I will continue to participate in the debate and to meet with insurance industry colleagues to make Access to Justice work.
