Suspicions of a ‘£400 club’ raised as 95% of some firms’ claims never reach final stage

Alarm bells have been raised with regulators that a so-called ‘£400 club’ of personal injury lawyers is abusing the new fast-track system for dealing with low-value road accident claims.

In its response to a Ministry of Justice consultation paper on extending the RTA portal, the ABI highlights problems with certain solicitors’ firms submitting claims to the portal, which then disappear without being progressed any further.

Under the new system, which applies to all road accident claims of less than £10,000, it is possible to pocket a £400 fee for completing the first stage of the process: merely notifying a defendant’s insurer about a claim.

Tim Wallis, chair of the RTA Portal Company, said that the portal’s behaviour committee had received a number of complaints about the practice. He said that suspicions had been sparked by evidence that up to 95% of some firms’ cases were failing to progress beyond stage one of the process.

Wallis added that the committee was raising its concerns about these ‘£400 club’ solicitors with regulators, including the Solicitors Regulation Authority, the FSA and the MoJ’s Claims Management Regulator. “We would expect the regulators to look at this carefully.”

The ABI has recommended to the MoJ that “further safeguards are implemented to ensure that stage one costs are not being paid out to unmeritorious or potentially fraudulent claims, furthering the problem of the ‘£400 club’ scenario”.

The Forum of Insurance Lawyers, in its response to the portal extension consultation, recommended that the problem could be tackled by ensuring that claimants’ lawyers only be paid at the conclusion of stage two of the process, when the parties have agreed to settle.

Wallis said that the committee also had concerns over insurers approaching claimants directly, rather than through their lawyers.

But, despite these concerns, the ABI said in its response that the new system is driving down the turn-around time for claims.

The ABI’s analysis of its members’ claims, which have been processed through the portal since its launch in April 2010, shows that the average lifecycle of a claim has more than halved from an average of 294 days to 132 days.

The response also contains ABI statistics showing that the percentage of claims settled within the calendar year 2010, during which the new system was introduced, was 18.57% – a jump on the 15.65% recorded in 2009 and the biggest single increase in the last decade (see chart).

The ABI said that while the speed of handling claims had already been improving year on year, around 2% of this “marked” improvement could be credited to the new system.

It said: “It would seem that this must, to some degree, be due to the launch of the RTA PI scheme in April 2010. Indeed, we could reasonably expect the difference to be more pronounced had the scheme launched at the beginning of 2010.”

On this basis, ABI said the system, which currently applies to all road traffic claims worth up to £10,000, should be extended. But it stops short of the government’s proposal that claims worth less than £50,000 should be dealt with under the system, recommending a cut-off point of £25,000. It says that raising the cap to £25,000 will capture all but 3% of claims and that such claims are no more complicated than those that the system currently deals with.  

It also backs the MoJ’s proposal that the system should be widened beyond motor claims to include all employer and public liability claims.

We say …

? The Ministry of Justice was warned, before it introduced its fast-track system for processing low-value motor claims, that it would be open to abuse and potential fraud. The alleged abuse of the system by the so-called ‘£400 club’ underlines that these warnings deserved to be heeded.

? If the MoJ presses ahead with its plan to extend the portal to a wider range of more valuable claims, it must make sure that any changes are planned properly rather than introduced on the hoof.