Insurance Times together with our partner, law firm Hugh James, questioned a panel of experts on their views regarding the UK's perceived compensation culture and the way forward for the industry in dealing with claimants
Chair: Andrew Holt features editor, Insurance Times
Roy Hebburn divisional claims manager, Allianz Cornhill
Graham Gibson director of claims, Groupama
Alexander MacLachlan chief executive, Medico-Legal Reporting
Peter Smith technical director, First Assist
Robert Northmore technical claims director,
Rubicon Phil Dicken partner, Hugh James
Nick Patterson managing director, Corpore
Chair: Does the panel believe there is a compensation culture in the UK, and if so is it detrimental?
Nick Patterson: My view is that there is a compensation culture, certainly with the growth of providers of services to potential claimants. This is a worrying development, which the government seems to be willing to address through the compensation bill.
Phil Dicken: Whether or not there is compensation culture among the general populous I don't know. Perhaps the issue is more whether there's a compensation industry rather than a compensation culture. Certainly people now get stopped in the high street and asked whether they have had an accident in the last three years. It may be that those people previously may have had no inclination to pursue and make a claim or been aware of their right to do so.
I suspect the way claims are filled in and sold certainly does not help the environment that we work in and it certainly does not help to deter fraudulent claims.
Peter Smith: I agree with you both. There is a perception for compensation culture which has been filled by media coverage. I think in reality in terms of numbers of claims that actually proceed, compensation has not varied over a number of years. As a before-the-event provider we have seen no increase in claims frequency of injury claims, but there was obviously the rise and fall of certain well known claims management companies which clearly did cause a lot of problems for the defendant market. But I don't think this perception of a compensation culture has been reflected in actual cases, however irritating it has been in the short to medium term for the defendant market.
Robert Northmore: Yes, I agree there is a compensation industry and the reasons for this are three-fold. One is social awareness.
I think consumers are very different today than they were 10 years ago - they are a lot much more focused on their rights and there has to be someone to blame for whatever occurs. I think the media has said it. Insurers' conduct has to some extent fuelled it as well. Recently there have been various media exposures about the lack of warning in holiday brochures about the hurricanes in the US - common sense seems to have gone mad. Years ago I used to offer product liability insurance in the US and we all had jokes about various claims there. We're quickly following that in terms of product liability in particular.
Alexander MacLachlan: In terms of the compensation culture it would be quite useful to make a distinction between road traffic accidents (RTA) and non-RTA. For the RTA side, which makes up 50% of the market of PI claims as far as I can ascertain there does not seem to be any significant increase there. As a company we don't have a great deal to do with the non-RTA market, but my perception is that there was a harvest of farming over the past three years by the Claims Direct and the TAGs of this world. Some odd claims came out of that but again the better government task force didn't appear to endorse the idea that there was a claimant culture.
Graham Gibson: First, in terms of the frequencies of claims, I've seen data monitoring reports showing that the number of claims is fairly flat. Claims Direct introduced a significant number of claims in mainly the public liability area. So there was clearly an influx at that stage, but if you take those claims out of the equation then the numbers prove to be very static.
Second, how much are these claims costing us? The pressure on general damages and care costs is there and studies clearly show that for the last 13 years or so we've had a 10% per annum increase in claims costs. So there is definitely an increase in costs so if you look at that.
The third factor is what I classify as perception reality. I spoke to a claimant's solicitor last week, who is on the board of governors at a school. He told me there was no compensation culture and in fact his board of governors had an excellent track record for risk assessments.
He said that particular council employed 100 risk assessors. I asked him whether he thought the school needed 100 risk assessors as a result of the compensation culture and he couldn't see that that was the case - his view was that they were necessary. People are acting in a risk-adverse manner because they are worried about something happening. So overall yes, I think there is a compensation culture.
Roy Hebburn: I don't believe there is a significant compensation culture. We are just hearing more about the claims that are being made. It's quite right that people are very much more aware of their rights now, and will probably be encouraged to make a claim, but perhaps insurers had a period when they didn't receive as many claims as they ought to have done.
Our experience as a front-line insurer is that the incident of claims is actually dropping, but that the cost of those claims is going up. The make-up of the cost of those claims is a significant feature and part of what continues to fuel the media hype. Insurers of all parties involved in the compensation process need to become more open on what claimants actually receive for their injuries. I believe the way forward is a rather more collaborative approach than the adversarial situation that we have at the moment.
Chair: What does the panel think of that? Is there a consensus that we should be collaborative as an industry? And is the so-called compensation culture purely down to the media and the media hype?'
Gibson: When they are reported in the media all these cases have major headlines but there's never a follow-through.
Hebburn: In most cases they probably won't get funding anyway and that's why I believe we're seeing a significant reduction in the number of claims being made.
Gibson:A big factor is the increase in damages and costs. That's why collaboration is probably going to be the way forward.
Chair: What form of collaboration?
Hebburn: I don't want to get into mediation just yet but there is no mystery generally as regards a person's entitlement to damages. There is a tendency to withdraw and hold - despite the Woolf reforms there is still this fundamental distrust between opposing sides and we've got to cut our way through that in some way.
Allianz Cornhill would certainly want to get nearer to the claim firms and have dialogue on a sensible basis rather than constantly taking issue on various points. We would rather settle sooner than later.We want to ensure that the proper level of compensation gets to the claimant at the earliest possible time. Liability is an issue and that is always thrown up.
Dicken: It is inevitable there is going to be a degree of adversarial aspect about the system while we have fault accidents. I don't see why there can't be an accord list nationwide whereby the claimant can then go off and pick an expert from that list at no objection from the defendant because we know that it's the right expert. The expert will prepare a report within a reasonable period of time and we know that we'll have some sensible evidence to base the quantum aspect and that hopefully there will be a fixed cost of production of that report.
Smith: Do you think defendant lawyers are quick enough at recognising liability? In the last 15 years predominately on the claim there is a feeling that the resources of defendants are concentrated on cases coming up to trial and the triage system at the front end to say, is this one we can dispose of because we got no chance of successfully defending it?
Hebburn: The reality is that the majority of claims don't come up to trial or even get into litigation and it's in the insurers' financial and commercial interests to agree liability and damages before they get to that point in time but this is where the adversarial part kicks in. As far as costs and so on are concerned, lawyers should be paid for what they do. It's just that these things take too long and costs rack up at a tremendous rate.
Smith: Yes, the reason the costs are at the level they are is because no agreement has been reached.
Dicken: The difficulty the insurer may have as well is a question mark over whether or not the limitation period is too long because if you get to a point where you have genuine rebuttal of liability within the protocol period there's nothing really the insurer can do to force a claim to do anything for a period of three years. The question therefore ought to be: should there be a greater sanction on the players getting on with the claimants' liability.
Chair: What steps might be taken to provide better proper access to justice for genuine claimants while discouraging the compensation culture?
Gibson: People need to be made aware of their rights. We should also look at how we utilise rehabilitation.
Smith: I wonder whether there is enough promotion. One of the Civil Justice Council's recommendations was increasing the availability of before-the-event (BTE) insurance.
Hebburn: That's a very good point, particularly for personal insurance and house insurance to make people aware that they have this relatively cheap extension. But I don't think insurers can avoid their liabilities - it's about reducing some of the barriers.
Dicken: One thing that still concerns me is when hear adverts asking whether you have a claim to make. But what I don't hear is that you can buy this product to protect you should you have an accident.
Northmore: The way to bring benefits with BTE is with early engagement and early notification with claims. We've struggled with that as an industry to start dealing with early notification. The motor market has led the way but certainly with EL and PL there is a lot to learn from the motor insurers.
Chair: Do referral fees add any benefit to the genuinely injured claimant, and if so should they ultimately bear the cost?
Northmore: Per se it doesn't add benefit - it adds a layer of cost. There are people who are receiving referral fees who are reducing their loss ratios and reducing their cost base and making themselves more competitive because they've taken full advantage of a genuine commercial opportunity.
Chair: Is there a risk of the genuine claimant being denied access to justice inherent in restricting the recoverable legal and associated costs of a personal injury claim?
Dicken: The CJC has got this exactly right. Increasing the recoverable costs level to £5,000 from £1,000 wouldn't be at all acceptable.
Hebburn: There's no rocket science in claims up to either £4,000 or £5,000 and if there became a doubt about that then it should be an onus on the insurer to refer them to a lawyer in that event at their own expense.
Gibson: BTE is the answer. The vast majority of road traffic accidents are very straightforward and low value. We need to build a scheme that can make that type of claim be dealt with as quickly and as efficiently as possible, along with a mechanism to identify the claims that have complications.
MacLachlan: We push very strongly for getting hold of medical evidence of the lowest proportionate level as early as possible. It allows for rehabilitation but also allows us to capture exceptional cases at that stage.
Chair: What about Phil's point that there's no case for the personal injury claims being raised to £5,000 as proposed by the better regulations?
Hebburn: I don't think there's any major risk of the claimant not receiving their proper entitlement to damages. I just think it's something that insurers would be obliged to work with.
Northmore: Rehabilitation has a role to play because we certainly have found cases where there has been a very low level diagnosis and when you actually start working with the claimant you realise that the diagnosis is much more serious.
Chair: Is there hard evidence that rehabilitation works? Do some insurers still need to be convinced of its worth and should compulsion be introduced?
Smith: It undoubtedly works in high value cases. The vast majority of cases are low value and it may work. But there is not yet sufficient evidence around the market to demonstrate the financial benefit to defend it.
MacLachlan: Our evidence suggests that the average invoice value is £170, that's seven treatments, and 10 are recommended. It's around the average weekly wage so you have to ask is that person going to get back to work one week earlier than they would have done otherwise.
One point I would make though is that even where it is offered by insurers the take-up is quite small. If you boil it down, it's how quickly do you get a claim on a desk? Rehabilitation holds that up for low value claims. It takes longer. If you have to sort out seven lots of treatment it can take months.
Hebburn: Our company has been heavily involved in rehabilitation for 10 years in various guises and we've tried various schemes. I can tell you on individual cases where we've had tremendous success.
I can also point you to cases where we've invested a great deal and it has cost us more money at the end of the day. We've had a scheme running on minor whiplash injuries - a direct offer of appropriate treatment and that's been successful. Why has it been successful? Because we've paid less in costs. Not that the cost of the claim has been any cheaper, it hasn't, but we've reduced solicitor's costs as a consequence.
Gibson: I agree. At the upper end there are cases where clearly there are savings made and there certainly are experiences that the more serious injuries that we have is a good thing. At the lower end the jury's out. But if I come back to what we actually do with the money today. In road accident cases we give 60% for the claimant, and 40% to the solicitors. Would I be happy if that was remodelled so that we gave 60% to the claimant, 25% to the solicitors and 15% to rehab so we can take a little out of that? I don't know. But what I'm saying is if we can look at the costs and remodel them to finance rehab that's not a bad thing.
Northmore: I'm running two projects for two different insurers with different rehab suppliers. Immediately a claim is notified we take the particulars, we find out the fault thing, so the intervention department or whatever, pick it up and it goes straight through to the rehab suppliers. The rehab suppliers within an hour of that report are on the phone to the injured person. What we're finding at the lower end is that we find out very quickly. And the life cycle of a lot of claims is coming down rapidly, because you know very quickly that there is going to be no claim or a very modest claim. That changes your reserving practice.
Hebburn: With respect, if there is to be a modest claim then that person should be told that there is a modest claim and you should offer them compensation of course.
Northmore: I haven't said we're denying them anything. There's no evidence to suggest these people would have brought a claim without it either is there? That's the problem. There's no proof is there?
MacLachlan: Well there is. I think you are going to get a claim. The idea that a claim isn't going to happen is wrong. Somebody is going to chat with them any time within the next three years.
Smith: I wonder whether defendants think they're doing enough for their own customers who may of course have caused the accident. Of course this is why you're engaged as a defendant insurer in helping the person who's been injured by your own policyholder. But your own policyholder may also be injured in some event. If we're talking about road accidents, do you think you're doing enough to actually look after your own policyholders?
Chair: Graham made a point there about the NHS and do you believe the NHS is likely to claw back money from insurers used to treat injury victims and is this a worry?
Hebburn: The man in the street is paying for it twice because he comes round forks out something. I would just like to see that money that goes back into the NHS through recruitment used more effectively to rehabilitation, rather than to fund a PCT somewhere or to meet the target.
Northmore: As of April next year there's going to be a new GP certification system introduced whereby GPs will be required to complete a much longer medical certificate than they have in the past. There's also talk about health professionals being involved in the medical certification system.
So GPs and treating physicians will have much more responsibility to act not only as gatekeepers but also controllers of the system. Now whether going back to the NHS claw back, means they're actually going to put that money in beefing up that system I don't know.
But there is definitely a need for treating physicians and GPs to identify the need for rehabilitation and try to source that in the NHS. But where it is not available and it's not a bottomless pit, to go into the private sector.
Dicken: Are you suggesting GPs should become more objective about the patient? If you talk to GPs they say their duty is to their patients, so if an insurer wants some information they will err on the side of how does this best help my patient and all the rest of it. Will that change?
MacLachlan: They have duties as expert witnesses. They have very clearly defined duties under the CPR.
Dicken: GPs having objectivity may not necessarily be the issue here. They need to be a little bit more accountable in the medical certificates that they're issuing. And they need to ask themselves: am I really doing my patient any good by issuing these sickness certificates? GPs are beginning to realise that they have tremendous responsibility but huge time pressures.
Gibson: I have no doubt that recruitment will increase. The point about the government looking at this on a much wider level is correct and we're really looking at what they can do around incapacity benefit. In the NHS there are small pockets of rehab, but I don't think there's joined-up thinking. In the private sector it's pretty much the same. There's lots of things going on but I'm not sure they're moving in the same direction. If you look at the amount of rehab that is used versus the amount of accidents where rehab would be appropriate, there's a huge gap.
MacLachlan: I called some stats off our system before we came up because we track every recommendation for treatment out of 60,000 reports we produced last year, and 17% recommended some form of treatment - overwhelmingly physiotherapy. And the take up was just about 6% .
We are overwhelmingly instructed by claimants, but obviously we'll always pay the insurer. But the government will recoup it and I think it's important the government gives enough time so the insurers can adjust their premiums.
Unlike ATE you don't get hit by it because that's well out of order. There should be some warning about it.
Chair: Okay shall we move on to Tesco Law.
Is it going to mean more personal injury claims?
Dicken: I don't see why it should. There's going to be a proliferation of personal injury claims, it just means that they're going to be dealt with in a different way. I don't understand why it should impact.
From the numbers this comes back to access to justice doesn't it? And it's the suggestion that this is going to improve access to justice.
But I don't see how and why that ought to be the case. The more people actually gaining access to the system could mean more claims as a result.
Hebburn: We're going to see increased competition for the available claims that there are. I read recently that the AA is looking to set up an arm following the review. That will drive a bit of a price war I suspect, but I doubt if it will result in any more claims.
Gibson: No I don't believe it will result in more claims. Defendant solicitors have worked in insurers for many years, they've now got their head round this thing, but with claimants solicitors I see two very clear distinctions. I see very specialist, high volume solicitors who are very, very good at what they do. They concentrate on the catastrophic end. What I think the introduction of Tesco Law will do is it will put under threat what I call the marriage solicitors which is kind of the high street solicitor that does a little bit of everything. And I think that they will start to lose their personal injury work. If an injured person has the choice between going to Joe Bloggs & Sons, 123 High Street, Cleethorpes versus walking into their local Tesco, I think they will walk into their local Tesco because firms like Tesco their branding is so good. What they've done historically in anything that they have touched has been excellent and people will just have a belief in that brand.
Patterson: If I were a lawyer I'd be slightly concerned about the quality and professional standards, but other than that I think it's good news. It needs greater competition in the market, its good news for the consumer.
Smith: I don't see how it will increase the number of claimants, the number of accidents isn't going to change because somebody's changed the legal structure. It does provide opportunities to law firms to find another way of attracting the claims to their firms which must increase competition between the firms and frankly if some of the dabblers dabble a bit less, and some of the specialists get a few more cases, I don't think anybody would regard that as a bad thing.
Gibson: Yes, I agree entirely. The other interesting thing is what are insurers going to do. Are they going to buy huge claims and ... within the office, because that's another view of it.
MacLachlan: You'll see a greater concentration of large firms dominating the industry which is to everybody's benefit.You'll see better business practices coming in, more capitalisation, because most solicitors are desperately under-capitalised and frankly an awful lot of them don't run their businesses particularly well in business terms. I mean they're competing with insurers of course.
I do think that more capitalisation, more exposure to different business models from other investors coming in there will be a benefit all the way round.
And the high street practice should end up almost like a GP referring to specialists. They'll get a referral fee for doing that, their client walks in and they will get the referral fee for sending it off to a specialist practice. Makes a lot more sense.
Gibson: It's a sound report and will have benefits all round. The business case for insurers investing in legal firms is quite tenuous.
Dicken: What people perhaps tend to ignore is that a lot of legal partnerships these days are small to medium corporations. And there will be a lot of vultures hovering above them.
' But it's not going to pick up the claims capability or the claims industry because that's been outsourced to us now. We do that and, as a firm, we have been developing our volume claims capability for a long period of time and we've invested heavily in IT and processes.
Hebburn: If Norwich Union were to buy, for argument's sake, a national law firm that does a fair amount of business with us, that would give rise to some issues that you would have to address. But as a legal expenses insurer we insure other insurers, we do business with other insurers, we're in a business community it's got to be a commercially sound decision at the end of the day.
Dicken: This goes back to the Tesco point doesn't it? Competition from a cost perspective. But why would it do that? Because the only difference in terms of a personal injury claim is concerned is the insurer's premium, that's all they're worried out. An insurer's premium isn't underwritten by Tesco is it?
Chair: Does there need to be a bigger role for mediation within personal injury claims?
Hebburn: Yes, there's a requirement now by the rules to actively consider mediation in disputed cases. And why don't we? We have actually targeted our branches, we've required them to push disputed cases to mediation.
There is something like an 18% take-up by claimant lawyers on these cases where it may be a dispute on liability or a dispute on quantum.
But the benefits are there for all to see. There's not a 'we will force you settle at a lower figure'. Quite often the settlements are at a higher figure, but it brings the settlement sooner. There's a fixed fee for mediation, it's an independent mediation, we run it with Cedar, Centre for Dispute Resolution.
Dicken: There definitely has to be a role for it but I question whether it's something that we're not doing anyway - it's just we don't perform total mediation on it at the moment. We've got huge experience of, particularly for larger value claims, organising a round table, sitting down with the other side and more frequently than not it actually resolves the claim. So if we can do it ourselves in that informal process, then with a formal mediator trained in the skills of persuading people to accept the appropriate outcome it will perhaps be successful. It comes down to cost at the end of the day.
Hebburn: We've had quite good success as between insurers where you've got lawyers arguing, you say let's actually sit round the table, bring someone to the table who has the authority to settle this.
Dicken: What I would call informal mediation - that we do anyway. In terms of formal mediation I think that's got to come down to cost and the claimant's attitude towards the claim in general. In my experience, mediators are now really well trained and know exactly what they're trying to achieve.
And what happens, and it's not a criticism of lawyers or counsel, lawyers are very good at is pointing out your strengths, and counsel are very good at being advocates or mediators are very good at are pointing out your weaknesses. That for me is the fundamental difference and they will actually concentrate on the things which you are struggling on.
Hebburn: Engagement with the claimant helps tremendously.
Chair: Is there anything driving it within the insurance market?
Hebburn: I don't think anyone's driving it. Allianz Cornhill is fighting a lone battle at the moment.
Those cases that we mediated on we got what we considered to be better settlements but as against our reserves, as against the outcome that we were hoping before a judge or whatever, we got closure.
We've settled some very difficult cases which had they gone on they might have gone one way or another but you've got closure
I take your point entirely there Phil - for the 82% where they've not been accepted sometimes you end up with a part 36 offer that leads to settlement or you have your CMC and you get a settlement there. It's mediation by another route - discussion. It does help.
I want to get away from the adversarial side of talking - there's common ground, there's always common ground.
Dicken: The other thing is we've all been in the situation where we've been standing outside the court and then you find out who the judge is and you almost feel like saying to your opposition 'Do you want heads or tails because that's how effective today's going to be' and I think mediation gets away from some of that.
MacLachlan: I think that certainly it's right that it's part of the procedure. Our own experience is that we've seen some spectacular successes using mediation where there is goodwill all round. We've seen it in areas outside personal injury where for example you get a litigant in person, where what you actually need to do is to get that person into a room and talk and in some cases actually persuade them they need to take independent advice on their position.
And we've seen cases which have been used very much of the flushing out of issues, the tactical bit, just to see how strong a witness might be or how credible the case is when a bit of pressure is applied.
But I agree that it should be a fundamental assumption that it is part of the process and that we would use it wherever that is appropriate.
Hebburn: It gets more towards achieving this bit of balance between costs and compensation vis-à-vis the claimant. I'm not saying that lawyers shouldn't be paid for the work that they do, but it shortens the time span of these cases and it produces cost bills all round, for both our lawyers and claimant lawyers. There's a big ramp up when you get to trial. And that's something I would like to avoid. IT