Gaining public support is a key part of the battle to turn around the compensation culture – and the industry could be doing more
Successive governments have used the insurance industry as a convenient source of revenue, and nowhere is this more evident than in the area of personal injury claims.
Insurers are expected to pay for services that the state provides in many other western countries, even including NHS costs, and to provide injured people with generous compensation.
All this would be acceptable were it not for the disproportionate level of legal costs associated with this compensation. This in turn is caused by a legal framework that allows claimants risk-free litigation, and where accident management companies and other ‘claims farmers’ hike up costs without any commensurate benefit to the injured person.
Few people would disagree with the principle of giving accident victims appropriate levels of compensation, but in practice the system is expensive and often unfair.
It is the main reason why motor premiums have risen by more than 40% in the past year, and it adds significantly to the insurance costs of employing people. It is, in effect, a stealth tax levied through higher premiums. The main beneficiaries are lawyers, not the injured people.
Potentially taking things even further, the government is under pressure to create a bureau, funded by the private sector, to compensate victims of work-related mesothelioma – a form of cancer caused by exposure to asbestos – who are unable to trace their former employer’s insurer.
ABI director of general insurance and health Nick Starling recently pointed out in a radio interview that this would force responsible employers to subsidise others’ reckless behaviour. Mesothelioma sufferers in these circumstances should receive generous support from the state, not through yet another charge on industry.
Fortunately, the tide may be turning as the costs and inefficiencies of the compensation culture hit home. The coalition government appears to have accepted that the pendulum has swung too far.
Last year’s review by Lord Young recommended a streamlining of the personal injury system to make it faster and cheaper, so that genuine claimants have a shorter wait and receive a higher percentage of their awards.
To this end, it proposes acceptance in full of the Jackson report, which would reduce the cost of personal injury litigation and make it more difficult for opportunists to push fraudulent or exaggerated claims.
At the time of writing, the consultation period for Lord Jackson’s report was coming to an end, and it will be interesting to see how the outcome plays out.
Our industry has been highly effective in making its case to legislators, but less so with the public. It needs to do more to get across the message that the role of insurance is to protect individuals (and companies) from the economic consequences of misfortune – not to act as an arm of the welfare state.
Furthermore, the costs associated with that compensation should be directed to the claimants – and not lost in disproportionate legal expenses that drive up premiums and slow down the compensation process. IT
John Hurrell is chief executive of Airmic