Reform proposals fail to address the needs and rights of claimant, says trade bodys
The needs and rights of claimants to have access to justice and fair levels of compensation must be the key principles to be met in any further reform of the personal injury compensation system in the UK.
The Legal Expenses Insurance Group (LEIG) considers that proposals from the Ministry of Justice (MoJ) fail these principles and need to be amended.
Tony Baker, director of the LEIG, said: “The issues are too important to risk ill-prepared proposals and changes based on theory and principles as opposed to what will happen in practice.
"The Ministry of Justice needs to think again and take notice of the views of those involved on a day to day basis in assisting claimants.”
The MoJ published a consultation paper “Case track limits and the claims process for personal injury claims” on 20 April and sought views on major reforms to the system and process for delivering personal injury compensation.
The LEIG has four major concerns:
1. It is suggested that there should be no after-the-event (ATE) insurance policy issued to protect claimants until defendants/third party insurers (TP insurers) decline the claims. Not only does this ignore the remaining risks to claimants even when liability is admitted but it removes all the better risks from the existing market. It will leave a much more risky book of business that will be more difficult and costly to insure.
This will result in considerable uncertainty and instability in the ATE market. There is likely to be a very significant reduction of insurance capacity, resulting in detriment to consumers and very serious damage to the government’s access to justice objectives. Premiums for claims where liability is denied will need to be increased by several hundred percent leading, unless the government provides assurances, to challenges on their recoverability.
2. There is a lack of detail as to how some of the proposals might work in practice that could significantly reduce the ability of claimants to receive fair and timely compensation.
Of key importance are those relating to the activities of TP insurers. Many insurers do not process claims within the present protocol guidelines and they are responsible for increasing claim costs. If TP insurers simply adhered to the existing guidelines and protocol, this would improve the process considerably.
The MoJ proposes stricter timescales but if the TP insurer does not respond within the set time limits, no sanction is proposed. TP insurers will, no doubt, be pressing for flexible and not absolute limits, so as to give them the controlling hand. There must be a realistic sanction that can be placed on defendants/TP insurers to encourage compliance with the timescales. This should be an automatic and significant uplift in fixed costs if TP insurers fail to respond on liability issues within the timetables. In the case of claims not supported by before-the-event (BTE) insurance, the claim must fall outside this process, allowing an ATE policy (with agreed premium recoverability ) to be issued and normal hourly fees charged.
3. LEIG is in principle supportive of the reduction of costs and referral fees if access to justice is not impaired. However, the MoJ does not suggest what the proposed reduced fixed costs are likely to be but states that fixed costs will be calculated to reflect the work needed and will not include the cost of referral fees.
The question must be asked as to why not? Virtually every business has a cost in acquiring customers. An insurance company may pay commissions to insurance brokers. A retailer buys advertising. Mortgage lenders pay commissions to mortgage brokers. It is a remarkable and very fortunate business that has no marketing or advertising costs.
If referral fees are significantly reduced or abolished genuine claimants will be adversely affected as many claims emerge from businesses set up or operating so as to capture claims. There would be no incentive for them to continue to operate and thus a danger of many potential claims being uncompensated.
Much of the expected savings will also not be achieved as TP insurers are the largest recipient of referral commissions which LEIG estimates to be in the region of £100M a year from referring third party claims. They will, no doubt welcome the opportunity to handle these claims direct, with reduced payments to claimants helping to offset reduced referral income.
4. Given the major implications of the issues being discussed, it is important that there is ample time allowed for an orderly implementation of any changes. This is particularly important for the ATE market. An immediate implementation of the proposals would lead to a number of meritorious claimants not being able to find ATE insurance as the ATE insurers change their processes and rating models to enable them to offer terms on the cases and take account of the solvency implications. If a long enough lead time is provided, a number of ATE insurers would be able to cope with the transition. Some insurers would exit the market.
The LEIG has made some recommendations which the group believes will strengthen and support the MoJ proposals and the Government’s desire to control costs and have efficient claim processes. LEIG has also recommended a pilot to test any new processes and evaluate the actual outcome.
A pilot should be of assistance and welcomed by all parties involved in handling personal injury claims including defendants/TP insurers, claimants, solicitor firms and claim management companies. If they wish to be fair to claimants, TP insurers will support the need to demonstrate that they can meet any new processes and can deliver to the new timescales.