Claims service shouldn't be driven by fear of penalties, says Lord Hunt

I cannot remember a time when there were greater challenges facing the general insurance industry, but every challenge is an opportunity. There are so many reviews, initiatives and projects, but they all combine to give the industry a real prospect of becoming the champion of the consumer.

This will require real leadership if the industry is to succeed. There are already signs that the key players are adopting this more strategic view of what needs to be done.

Interest is beginning to centre on the long-standing debate between the handling of first party and third party claims. The FSA has pulled back from the regulation of third party claims, saying that it "no longer requires insurers to treat third party claimants as if they were customers, because on further consideration we think this would not align well with the current legal position and could give rise to conflict of interest".

In the short term that must be the right decision: regulation of direct services to policyholders will itself occupy enough time and energy, with new internal systems required to monitor compliance.

The third party claims arena has seen its share of changes over the last five years. Some would say that it is still adjusting to the Woolf reforms, which themselves brought a kind of regulation to third party claims handling, establishing for the first time a uniform code of best practice in the pre action protocol for personal injury claims.

The continuing calls by claimant solicitors for sanctions to enforce compliance with the protocol show the inherent difficulty in bringing regulatory pressures into a process that remains adversarial - there is always a danger that regulation simply becomes another weapon for one side or the other.

Sanctions are not the answer and, indeed, these calls look more like the first skirmish in a campaign to circumvent fixed costs, not just in road traffic cases, but in employers' and public liability cases where they are overdue. Behaviour should be driven by a desire to achieve the best outcome for the client, not by the threat of penalties.

A number of factors have actually focused more attention on insurers' systems for handling third party claims in any event. The battles over costs and conditional fee agreements have greatly increased judicial awareness of how routine personal injury claims are handled; the Department of Work and Pensions' (DWP) review of employers' liability insurance has questioned the whole system and the use of lawyers in the process; and now the better regulation task force is examining the evidence of a compensation culture. The glare of the spotlight is a welcome reminder that this is an important area and one where insurers' reputations should be jealously guarded.

What we must ensure is that third party claims do not become the "poor relation". We have a great opportunity, via the work of the DWP, to improve the way such claims are handled, concentrating more resources on the claimant's prompt return to health and examining where in the process lawyers are actually needed, breaking down adversarial barriers.

We must resist the temptation to divert resources away from third party claims to address regulation of first party claims from policyholders: because of course third party claims are claims from policyholders too.

Lord Hunt is senior partner of national law firm Beachcroft Wansbroughs

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