Conditional fee arrangements, the Government's preferred successor to legal aid, will impact just as hard on the insurance industry as the Woolf reforms. And their impact may create major problems for insurers, particularly with reserving and increased overall costs.
Those are the views of solicitors at Rosling King, who spoke at a seminar hosted by Insurance Times last week entitled "Conditional fees – changing the litigation landscape".
Partner Georgina Squire said that insurers face potentially major additional costs in defending claims – up to an extra £150 million, according to an estimate by the Federation of Insurance Lawyers. If unsuccessful in litigation, they must meet not only the claimant's normal costs but also any "success fee" and insurance premium. She added: "Legal expenses insurers will have a very active part to play under the CFA regime that will take-off in spring next year as legal aid disappears."
For brokers, "CFAs don't look like moneyspinners," she said. "The public will go to their solicitor first, and he will try to sell them a legal expenses policy."
But she said that CFAs have the potential to introduce disputes between claimants and their solicitors, such as for example, when is the best time to settle the dispute – the solicitor may want to settle sooner than the client in order to get paid quicker. Said Squire: "Fear of resulting litigation may lead the solicitor to pass the claimant to a broker for specialist advice on the multiplicity of legal expenses products."
A further potential conflict of interest was raised by partner Annabel Crumley, who said: "If the insured is being represented by a solicitor who's on the insurer's panel, there may well be a conflict of interest."
In theory, CFAs will be popular with claimants, as a result of the minimal risk involved. But, said partner Ruth Neil, when the insurance market hardens, premiums may rise and make CFAs "unaffordable to Middle England – the very people which the Lord Chancellor wishes to give greater access to the legal system."
Senior partner Owen Rafferty said many of the major details of the new CFA regime have yet to be established. He urged everyone to respond to the Lord Chancellor's CFA consultation paper by the end of November.
It can be obtained from: Helen Williams, Lord Chancellor's Department, 3rd Floor, Selborne House, Victoria Street, London SW1 6QW.