When the new coalition government took over, many feared all those best-laid plans regarding claims policy would slip right back to square one. So, from compensation culture to employers’ liability and flood prevention, what will the new government mean for claims?

At Westminster, it’s been anything but business as usual over the last couple of months. The 6 May general election delivered the UK’s first coalition government since the Second World War. Then chancellor of the Exchequer George Osborne used last week’s Budget to unveil the deepest public spending cuts since the Great Depression.

In these circumstances, it is scarcely surprising that technical matters like claims scarcely got a look in. “Nobody in the new government is giving much away yet,” says Forum of Insurance Lawyers (Foil) president Dan Cutts.

Ministers will have spent the last two months just getting up to speed with issues in their new departmental briefs. But while claims issues are unlikely to be the subject of partisan political debate, different ideological outlooks can have an impact on how even the most technical issues are handled. This can be seen from the government’s appointment of Thatcherite former minister Lord Young to undertake a review of the country’s ‘compensation culture’.

Here, Insurance Times looks at the difference that the new government’s outlook, policies and spending cuts are likely to have on the claims process.


How the government takes forward Lord Justice Jackson’s review of civil legal costs is probably the central claims issue. The review itself was commissioned by Jack Straw, but the ex-justice secretary made no moves to implement Jackson’s guidance following the review’s publication late last year.

The Lord Justice’s recommendations to crack down on referral fees will have made uncomfortable reading for Labour’s trade union backers. For the unions, suffering from declining membership subscriptions, referral fees have become an important source of income.

Managing director of claims at AXA Insurance, David Williams, believes that the coalition government is more likely than its predecessor to implement the review’s recommendations.

“It would never have happened if the Labour government had been in power, because the TUC would have said no,” he says.

Williams has much higher hopes of the new administration. “It would be great if referral fees were outlawed or banned,” he says.

The review’s cost-cutting recommendations also fit well with the new government’s broader belt-tightening agenda.

The ABI’s director of general insurance and health, Nick Starling, says: “We know that the government wants to reduce costs in the system.”

Foil’s Cutts, who is also director of insurance at solicitors Weightmans, argues that any look at the claims process must reflect wider pressures on the public purse.

“Costs and damages have to reflect the society that we are in, and we are in a society that is on its uppers,” he says.

Those costs include those incurred by the public sector itself. Personal injury solicitors Stephensons partner Andrew Welch notes that one of the drivers for the Jackson Review has been the NHS’s spiralling litigation expenses. “The Ministry of Justice is facing significant cuts,” he says. “It will be looking for opportunities for reforming claims process to cut expenditure.”

But Welch adds a note of caution: the Jackson package recommends additional spending on the courts service and on IT. And, as many commentators have argued, the review is an integrated package that will work best if implemented whole.

“Jackson is a radical reform, and in the short term it may cost,” Welch says. “If we are in an environment where the Ministry of Justice (MoJ) is under huge pressure to cut costs, it will hardly be likely to throw money at the courts process.”

Instead, the MoJ has already announced proposals to save £36m per annum via a court closure programme. These cuts include plans to shut county courts, where the bulk of claims cases are heard. In this context, a recruitment drive is hardly going to be on the agenda.

Stephenson says: “The risk is we could be facing a court that is under-funded and more demoralised than it is now.”


Labour had only just published its plans to set up a fund of last resort for employers’ liabilities when it called the general election. And consultation on the proposal to establish an employers’ liability insurance board (Elib) closed on the day before the general election was held.

There isn’t much disagreement over the former government’s plan to set up an employers’ liability tracing office (Elto). “Elto is going to go forward,” QBE head of strategic claims management Mike Noonan states.

But whether to set up an Elib, which under the former government’s plans would work in a similar way to the Motor Insurers’ Bureau (MIB), presents an altogether trickier set of issues for the new government.

Under Labour’s plans, the Elib would be funded by a levy on employers’ liability insurers. “It’s a very emotive area, and people have to fully understand the impact of it,” Cutts says.

Much of the pressure for setting up an Elib came from Labour MPs representing constituents with industrial disease who have been unable to secure compensation from insurers for their injuries. The ABI’s Starling believes that Elib won’t be as much of a “burning political issue” for the new government.

But, according to Biba, support among the Department for Work and Pensions’ officials for Elib means the project will still have momentum.

“Elib is going to happen. The question is how it’s going to be funded,” Biba’s head of technical services, Peter Staddon, says. But insurers can be expected to resist the levy plan tooth and nail.

AXA’s Williams is happy with the progress that the industry has made with the government on the tracing office, but is worried about the Elib. He is concerned that a levy will increase premiums and therefore discourage customers from taking out EL insurance. “We don’t want to encourage people to do without employers’ liability insurance,” he says.

And, as Williams points out, the big difference with the MIB is that existing policyholders have no chance of benefiting in the short term because EL claims are long-tail in nature.

Cutts argues the Elib creates the scope for possible conflicts between insurers with old and new books of business. The plan could even undermine the competitiveness of UK insurers, he warns. But Staddon dismisses such concerns. “The insurance industry has had the money since 1974. These people need to be looked after.”


Less than two months before the general election, former justice secretary Jack Straw awarded a one-off payment of £5,000 to people suffering from pleural plaques. Following the election, justice minister Jonathan Djangoly confirmed to MPs that the new government would make a payment to all sufferers of the asbestos-related condition who had lodged but not resolved claims before the October 2007 Law Lords ruling that they were not legally entitled to compensation.

In the new cost-cutting environment, however, Williams believes there are better ways of using the resources that will be used to fund the compensation scheme. “The money would be better spent on getting hospital services right than a payment to somebody with no symptoms,” he says.


The government’s clampdown on public spending has inevitably triggered fears that it will renege on promises to boost investment on flood protection. And the clock is ticking on the ‘statement of principles’ agreement between the insurance industry and the government. Under this deal, the industry agreed to supply cover for flood-prone areas until 2013 in return for a long-term government strategy to tackle the issue.

Environment secretary Caroline Spelman has pledged that this year’s planned increase in flood defence will be maintained. And in last week’s Budget, chancellor Osborne said the government will not make any further cuts in capital spending beyond the admittedly big reductions announced by Labour before the election.

But Osborne has equally made it plain that capital spending commitments will be closely scrutinised. The ABI’s Starling draws comfort from the fact that many of the new government’s MPs represent flood-hit constituencies. But Williams harbours concerns that the government will stick by its commitments on flood defence. “They are going to be looking for cuts,” he says.

The government is clearly keen to find ways to get the private sector to pay for things currently provided by the public sector. Starling says: “Anything that enables people to take more responsibility for themselves, or that can get non-public money into flood defences, is going to interest [the government].”

But he warns that this should not include flood protection. “It’s not for insurers to pay for flood defences. Insurers are there to help people manage risks, not pay for risk reduction. We need a long-term plan on flood defence.”

Fighting compensation culture

Prime minister David Cameron has commissioned Lord Young, a former member of Margaret Thatcher’s cabinet, to review the spiralling costs of meeting health and safety legislation for businesses.

Lord Young’s remit to tackling our so-called ‘compensation culture’ will embrace the growth of the ‘no win, no fee’ approach to claims management.

President of the Forum of Insurance Lawyers, Dan Cutts, says that while nobody wanted to cut back on workplace safety, a more common sense approach was needed to health and safety.

“In very many instances, the intention of the law is ‘risk management’ but these laws are interpreted as ‘risk elimination’. That overzealous interpretation probably comes from a fear of being sued. This is where the compensation culture comes in.”

“The existence of a compensation culture is evidenced by claims frequency, increasing damages and costs inflation. Lord Young needs to break the vicious circle.”

But divisional director of health and safety at loss adjusters Garwyn, Mike Williamson, comments that much of the UK’s health and safety legislation has been written to satisfy EU directives.

“What is certain is that deregulation is going to be challenging, although anything that simplifies existing law without compromising safety is to be welcomed.”

The ministers you need to know


Before the election, Chris Grayling had one of the most senior jobs on the Conservative front bench as shadow home secretary. But following two gaffes over the course of the past year, the 47-year-old was offered the relatively humble post of minister of state in Iain Duncan-Smith’s work and pensions team. Here he will oversee any moves to set up a fund of last report for employers’ liability claims. Before becoming an MP in 2001, Grayling was a journalist, TV producer and director of a communications agency.


Jonathan Djangoly, who is now minister of state for justice under Lord Chancellor Ken Clark, is a lawyer by trade. The 45-year-old rose through the ranks to become a partner at commercial law firm SJ Berwin, where he advised on corporate finance, before replacing former prime minister John Major as MP for Huntingdonshire in 2001. He was shadow solicitor-general for the Conservatives from May 2004 and provided legal advice for the party’s business team.


Richard Benyon is flooding minister in Caroline Spelman’s environment team, and is a scion of the Cecil family. After being educated at an agricultural college in Cirencester, the 49-year-old father of three served as an officer in the Royal Green Jackets regiment before leaving the army to become a chartered surveyor and then manage his family’s farm.

After three attempts, Benyon won the Newbury constituency for the Conservatives at the 2005 general election. He revealed in an interview in 2005 that his idea of a good night is having a curry, and that his favourite track is ‘Dark Side of the Moon’ by Pink Floyd. IT