DAS – one of the leading players in the legal expenses insurance market – charts the 10 key factors that are shaping the sector, from the ever-changing nature of government regulations to the increasingly litigious public. Compiled by Andrew Wragg.
1. The Legal Services Act, which has yet to come into force, will allow non-lawyers to participate with lawyers in the provision of legal services, creating an opportunity for a flood of new entrants to the market. “This will mean more offerings, including services such as one-stop shops,” says DAS.
The insurer, however, warns that brokers will have to keep pace with changes in the market in order to best advise clients – a growing market with increased competition might offer the prospect of cheaper legal services but quality may be affected.
2. The difference in regulation in the insurance and legal markets can give rise to difficulties when the two sectors interact. Insurers are overseen by the FSA, while solicitors are watched by the Solicitors Regulation Authority (SRA). As such, solicitors are generally exempt from FSA regulations when selling insurance to clients but do have to notify the Law Society if they want to engage in the sale of insurance products. The differences in regulation can lead to inconsistencies and solicitors could also use insurers set up offshore – which are not bound by UK regulation at all.
3. A personal injury case concerning whether success fees are discretionary under the fixed recoverable costs regime
The Court of Appeal recently held that fixed success fees payable in cases to which CPR Part 45 Section II applies remain payable even where the claimant may have had before-the-event (BTE) insurance cover for the claim. Up to 97,000 claims per year could be affected by this judgement. DAS says that the verdict is likely to make Conditional Fee Agreements (CFAs) – or no win, no fees – more prevalent in these cases. A government review suggested 59% of the population is in possession of a BTE policy.
4. by the Ministry of Justice to the personal injury claims process
A report by the MoJ last year suggested that an after-the-event (ATE) policy should not be issued at the outset of a case but when there is a dispute over liability or quantum, or when a claim is expected to exceed £2,500. The DAS says this could remove many claims from the pool of risk, resulting in an increase in ATE premiums as only the most expensive and risky cases would be insured.
5. Research suggests that fewer than one in four consumers have heard of either BTE or ATE legal expenses insurance. A study by FWD Marketing highlighted that awareness among lower socio-economic groups is particularly low, even though they were more likely to need a BTE product. Despite this, however, overall market penetration of the product increased to 59% in 2007 – equal to around 28 million adults, most of whom acquired it as an add-on to another insurance policy.
6. Employment tribunal numbers rose by over 15% in 2006-2007 (132,580 from 115,040 in 2005-2006) while the number of jurisdictions – where the tribunal found grounds for complaint – reached a record 238,546. Sex discrimination claims were up 97%.
7. Lawyers who are confident they will win a case sometimes choose to represent their client on a “no-win, no-fee” basis without the protection of an ATE policy. This practice distorts the mix of cases that the ATE underwriting book is based on. This may serve to increase future premiums and could put the client at some risk – if they lose the case the client is liable for the other side’s costs, which the ATE insurance would cover. Speccing is not a new phenomenon but the practice is damaging both the ATE market and providers of ATE insurance while putting the public at a greater and unnecessary risk, says DAS.
8. Some lawyers argue that Legal Expenses Insurance policyholders should have complete freedom to choose a lawyer to act for them under their policy. EU law says that freedom of choice only exists from the point that proceedings are issued in a case. Insurers, however, maintain that their solicitor panels consist of experts in their fields who are regularly audited for quality of service and performance and who understand the terms and limitations of the policy. The significant increase in claims costs implicit in free choice of solicitor would be damaging to both liability and legal expenses insurers and could make widespread LEI coverage unaffordable.
9. The maximum compensatory award that an employment tribunal can make in a normal unfair dismissal case is up by nearly 4% to £63,000, following changes made by the statutory instrument on 1 February. Added to the new basic award, the maximum total award available to the tribunal is now almost £73,000. The Employment Rights (Increase of Limits) Order 2007, which was published at the end of last year, is the most recent statutory instrument through which unfair dismissal awards and statutory redundancy payments are increased annually. And:
• The maximum statutory redundancy payment and the maximum basic award for unfair dismissal are both up from £9,300 to £9,900;
• The statutory maximum limit on one week’s pay, used in calculating redundancy payments and basic unfair dismissal awards, is up from £310 to £330.
10. Legal expenses insurance is a very complex market with only a few providers. It poses a constant challenge for insurers to adapt to changes introduced by the government and case law amendments that affect the dynamics of the market. According to DAS, there is also increasing public awareness of legal rights and a new willingness to take legal action against companies. IT