The debate on conditional fee arrangements (CFAs) continues to rage within the industry. I am fuelled by a report from an “industry analyst” in a recent edition of the Financial Times. His commentary included the opinion that insurers were not selling enough legal expenses insurance to protect claimants against the liabilities of losing a claim. He didn't seem to realise that this product has been widely available for more than 15 years (obviously, knowing anything about the industry you analyse is not a requirement in the City).
It seems to me that the industry is damned if it does, damned if it doesn't. By introducing before the event (BTE) legal expenses insurance, insurers aim to keep premiums to a minimum by spreading the risk. This achieves one aim of the Woolf reforms by widening access to legal services to pursue claims. Claimants no longer face the risk of a huge legal bill should they lose their case. Motor insurers have never liked legal expense insurers, partly because there have historically been too many cowboys who have linked legal expenses to inflated credit hire tariffs.
However, over the past five years, the industry has shaken itself down. There are now plenty of reputable legal expense insurers that motor insurers could collaborate with and simply make the addition of a BTE policy mandatory on each motor policy that they sell. The EU directive on insurance requires that a separate claims handling team deals with these claims so that there is no conflict of interest between insurer and policyholder.
If motor insurers followed this line they would, at a stroke, curb the new breed of ambulance chasers who charge exorbitant after the event (ATE) premiums. It would also reduce the number of claims that fell into their hands in the first place.
ATE legal expenses insurance can be used as a motivator for claimants to pursue legal actions for incidents that otherwise may be resolved quickly and simply without lawyers. Meanwhile, Road Traffic Act solicitors are very busy, happily processing the piles of court cases sitting on their desks.
As the reality of CFAs hits them in the long term, and defendant insurers face increased costs per claim, it is the consumer who will pay yet again.
My fear is that these factors have driven the change in our society where claiming is now the acceptable norm. Careful consideration by the claimant is no longer a necessity before pursuing a claim, as the personal risks are now removed. Rights become more important than responsibilities. As the procedures rollercoaster, the introduction of CFAs will most certainly see an increase in the number of claims going through the system. Hopefully motor insurers will see the light and head these off at the pass by providing policyholders with BTE expenses.
