The industry talks back

Insurance companies and personal injury lawyers may have good reason to be wary of one another. But is it time to re-evaluate that relationship?

Ten years ago, after-the-event (ATE) insurance was a pretty straightforward affair. Legal aid had just been abolished for personal Injury cases, prompting more lawyers to offer “no win, no fee” arrangements.

ATE insurance meant there was no risk of being out of pocket for disbursements incurred in making a claim. Premiums were reasonable (£89 for a road traffic accident case, for instance) and could be recovered from the other side when the claim succeeded. In short, an arrangement that made perfect sense for both parties.

Ten years later, the cover is the same, but the premium costs have gone through the roof. There are understandable reasons for this. In the early days of no win, no fee, a small number of unscrupulous firms took to pursuing claims with little chance of success; insurers found themselves, in some cases, bearing the cost.

The problem is that ATE insurance is rapidly becoming an unaffordable luxury. This isn’t good for anyone – least of all insurance companies.

What’s happening is that lawyers with strong claims are increasingly unlikely to take out insurance at all. My firm used to insure 98% of the claims we handled – now it’s around 2%.

Why? Because spiralling premiums have made it more difficult to recover the full cost when you win. Lawyers are in a Catch-22 situation, where the premium is cheaper if you take out insurance early but, if you wait until you’re ready to issue proceedings (which is the logical and professional thing to do), the cost will be higher.

When you seek to recover the cost of the premium, there is a significant risk that, even if you have shopped around for the most competitive premium, at assessment, the court will not award the full amount.

In other words, if you want to do your job in a way that represents the best interests of your client (and, ironically, your insurer), you risk being penalised for it.

There’s a second problem. Many companies providing ATE insurance will withdraw cover if the client refuses to accept a settlement from the other side. Since undervalued offers are part of any personal injury negotiation, this makes it a lot harder for claimant lawyers to do their job properly – and means that a lot of clients are being forced to settle for less than they should.

So, what’s the answer?

Last year, I settled a case on behalf of a client who was severely disabled in a traffic accident six years earlier. As a passenger in one of the cars involved, he had a cast-iron claim. The only issues to resolve were who was liable, and how much for?

When we applied for ATE insurance, the premiums quoted were £4,000-£5,000. At that price, it made no sense to take the insurance as the claim was so strong that there was almost no risk of failing to recover the cost of disbursements, whereas the risk of the premium being ruled too high (and hence, not fully recoverable) was more significant.

Luckily, we had a premium offer from Allianz that was much more realistic. So we took the insurance and, as the case progressed, it proved to be an effective partnership.

“If the relationship [between ATE insurers and lawyers] works as well as it should, it is good for everyone.

Allison Hampshire

We had valued the claim at around £7m. Before the case came to trial, the defendants put forward a substantial offer. Although we were confident the claim was worth more, we had to check that Allianz would be happy to decline the offer, knowing that, if the judge awarded a lower figure, my client would be liable for the defendant’s legal costs and they would be left with a big bill.

I’ll be honest: I expected it to chicken out. After all, taking the offer would have been the risk-free option (and we all know how insurers feel about risk) – and we had already discussed the contingency of proceeding without insurance if it pulled out.

But, to its great credit, it didn’t. Instead it sent a risk assessor, Jayne, to discuss it.

Jayne’s background as a lawyer meant she was well equipped to look beyond the standard checklist that many assessors rely on, and recognise the real potential in the case.

She was well-prepared and able to absorb the information in the files quickly, because she knew what she wanted and where to look for it – which meant that, three hours later, we had the green light to continue, with our insurance in place.

The case went to trial and, in the course of the trial, the defendants increased their offer. We still believed it was worth more – and Jayne and Allianz backed us. We went on to win a settlement of £6.4m for the client.

Now, the point of this story is not (as Allianz’s PR team rather cheekily suggested in Insurance Times a few months ago) that this backing saved the day. We would have carried on with the claim regardless, so the outcome would have been exactly the same.

No: the point is that the relationship worked. We were able to carry on without the added burden of a costs risk, because our insurers had enough understanding to trust our judgment and back the claim.

Allianz didn’t have to do this – and most insurers wouldn’t have. As a result, I have complete confidence in Allianz as a partner for ATE insurance, which means it is likely to get a lot more business from my firm in future.

Unfortunately, its previous contribution to an article on the subject in this publication was less well managed (Legal Report, October 2007) . I was not consulted about the article and had no involvement in its production. The article included a number of manufactured and inaccurate quotes in my name, for which it has apologised.

All of which brings me back to the point where we started: relationship. I suspect (and I may be wrong) that a lot of insurance companies have a jaundiced view of personal injury solicitors. And I know, from my own experience, that a lot of personal injury solicitors have a jaundiced view of ATE insurance.

But what my experience of working with Jayne and Allianz taught me was that, if the relationship works as well as it should, it’s good for everyone. Because the best way of avoiding bogus claims is to insure claims managed only by lawyers you trust – and the only way they’ll want insurance from you is if you make it easier for them to do their job.

Allison Hampshire is a partner at Eric Robinson Solicitors in Southampton. She recently won record damages for a disabled client.