Market reacts to government’s compensation reform proposals

After-the-event (ATE) insurers have played down suggestions that the market could be under serious threat if government proposals to reform the personal injury system are imposed.

Soon after the Department for Constitutional Affair’s (DCA) announcement of its long-awaited reform of the compensation system, there was speculation that the market could be cut in half, threatening tens of millions in premiums.

But one month on an increasing number of industry figures have dismissed fears of a market collapse.

David Vine, of Allianz Legal Protection, told Insurance Times: “It’s been a bit of a knee jerk reaction talking about the end of the ATE market.

“It’s easy to think of headlines that come out within a couple of hours of the paper’s publication, but we have to consider very carefully what the potential fall out will be.

“Until the DCA has gone to the 25 or 30 groups that it has identified in the paper and talked to them it is unfair to say that this is how we see the landscape going forward.”

David Haynes, Arag Legal Expenses underwriting manager, insisted it was not the end of the ATE market, but that it would mean fewer low cost claims and higher premiums.

“The basket of cases will be smaller,” he added. “There will be less certainty over cases, but there will still be a need.”

Paul Asplin, chief executive of DAS, which provides ATE insurance through its 80e operations, said he expected the status quo to continue for some time.

“Although the consultation period is due to end in the summer, realistically once the government receives all responses from the various parties it is going to have an awful lot of material to digest.

“That will probably then be followed by further discussions. So if there are going to be changes there is still a long way to go,” Asplin added.

However, with a decline in the fast track market and fewer players in the ATE market, he predicted that it would not take much to destabilise the market.

Vine added: “One of the issues in the ATE market is the lack of capacity. People got severely burned and are reluctant to go back.

“The question now is how attractive will the market be, whatever the DCA decides, for new capacity to come back in?”

While the general consensus is that change is inevitable in some form, the extent of that change is as yet unclear.

David Williams, claims director at AXA, said the need for ATE would disappear.

“It will lose a huge chunk,” he said. “But it won’t cause permanent damage. Reform could actually bring benefits.

“ATE insurers will be forced to think more carefully about risks, including better record keeping and detailed assessments. Premiums are too high at present.”