That industry has been accused of giving way to an increased level of claims. This is a merely a simplistic view of the problem, says Owen Gorman
There is little doubt that the cost to the industry of insurance claims is rising. However, to suggest - as the Vehicle Builders and Repairers Association did recently - that the industry is contributing to this by settling rather than defending injury claims, and passing on its own costs through increased premiums is simplistic.
Increased premiums are the result of a combination of factors, not least the legislative changes imposed by government. In March this year, the Lord Chancellor, under Section 1 of the Damages Act 1996, reduced the discount rate (by which future loss of earnings is calculated) from 3% to 2.5%. This change alone could cost the industry £218m.
A significant reduction in the availability of legal aid has also shifted the cost burden to the insurance industry, bringing with it a rise in conditional fee agreements (CFAs) and after-the-event (ATE) insurance cover.
As long as the no win-no fee culture thrives, the majority of the cost will be borne by the insurance industry.
If costs to industry are to be reduced, then a more co-operative approach to the management of risk between insured and insurer is required. Businesses must accept that if cases are to be defended they will see short to medium-term cost increases. They must also take responsibility for identifying those claims suitable to defend, and assist insurers by conducting early, comprehensive investigations, ensuring evidence is preserved and documented.
Likewise, meritorious claims should be isolated at an early stage for settlement on the best terms.
The industry, for its part, is taking a robust stance to counter an increasingly costly, litigious culture, and is working to change attitudes and influence legislation in order to protect against further cost increases for all concerned.
Investment in cases such as Callery v Gray, Sutherland v Hatton and Fairchild v Leeds City Council are testament to this.
Owen Gorman is regional manager of the liability division at Crawford & Co
