When the premium becomes the problem

It was back in December 2006 that Insurance Times revealed the Civil Justice Council's (CJC) involvement in resolving issues surrounding the after-the-event (ATE) insurance market. Since then many factors have come into play which have stalled the progress, at least publicly.

Behind the scenes there have been 'big tent' events where industry stakeholders were asked to submit opinions on the CJC's report Improved Access to Justice and Proportionate Costs.

The report called on legal expenses insurance providers to further expand and promote the before-the-event (BTE) insurance sector.

All very well in theory, but calling on commercial businesses to work together to find a practical industry-wide approach is a time consuming process. Throw into the mix events happening in parliament, plus a few court cases which are threatening the very existence of the market, and it is clear to see why the industry could be waiting until 2007 for a deal to be announced.

CJC chief executive Bob Musgrove refuses to be drawn on a timescale: "We are still pursuing a deal on ATE." However, he acknowledges that there are a number of issues arising which need to be considered.

He says: "There is still the potential impact of raising the small claims limits and the DAS case, which is expected to be heard in July, among other things."

The landmark case against DAS Legal Expenses will be settled in July. The challenge comes from Merthyr Tydfil Council and examines how the insurer structures its premiums. If the ruling goes against DAS, it could force premiums to be dramatically slashed, and push some ATE providers out of the market.

Currently premiums are structured through the three phases of the judicial process: pre-issue, post-issue, and trial. There are other business models on the market, but with the case being brought against the UK's largest legal expenses insurance provider there could be dire consequences for the entire industry.

In fact, the case has legal expenses providers so worried that they have formed an industry association to act as a mouthpiece for the sector. The Legal Expenses Insurance Group (LEIG) is offering support to DAS by raising awareness of the sector in the judiciary. It is also challenging the ABI over its proposals to raise the small claims limit to £5,000.

Massive legal bills
"Judges have an inability to understand how and why legal expense premiums have been set," says Tony Baker, director of LEIG. He says legal expenses providers give essential access to justice. Without its existence claimants could be left with massive legal bills.

"There is a risk involved in ATE premiums, legal costs could be as high as £15,000, so you need to have high premiums to cover that," he says. "If you can't recover those legal costs it will be the end for access to justice."

The DAS case, predicted Baker, could be challenged in the House of Lords. For the CJC, the outcome is pivotal in moving forward the debate raging around the LEI market.

As Musgrove says: "It is about looking around every corner to anticipate what is coming."

This one case, although complicated, is simple in comparison with the issues surrounding medical reporting fees. Over a year ago Insurance Times reported that the CJC was attempting to broker a deal between insurers and the Association of Medical Reporting Agencies (Amro) on fees for reports.

Under the CJC's proposals, lawyers would be responsible for obtaining medical reports at fixed fees. But Norwich Union (NU), AXA, Royal & SunAlliance (R&SA) and Zurich are understood to have boycotted the deal in favour of their own models.

John Hall, a technical consultant for R&SA, explains: "We have developed our own scheme with a smaller number of medical reporting agencies. We have four agencies on our own panel. We work with a few medical agencies and champion their cause. We are not anti-Amro."

Hall admits that it is "disappointing" that the CJC has not been able to bring a deal to the table, but he added: "It is not as straight-forward as it seems. Many insurers have schemes resolving the issues with their own commercial agreements. It might not be as necessary as originally thought to put a deal together on medical fees."

Established custom
As the law stands, medical agencies are able to charge fees for the disbursement of the report as long as it is "proportionate." In a recent ruling Senior Costs Judge Hurst said: "It is entirely proper, and in accordance with general and established custom, that the payment should be treated as a disbursement made on behalf of the client and thus be recoverable on her behalf."

This case, Woollard v Fowler, was another factor holding up the CJC talks. Now it has been settled Musgrove is attempting to get the "stragglers" to back the Amro agreement. Whether composite insurers like NU or R&SA can be called "stragglers" is questionable.

One source says: "What really needs to be looked at is whether there is any need for an agreement at all. There should just be some guidelines to say what proportionate costs are."

With the number of sectors declaring a vested interest in the industry increasing steadily it is clear that the CJC has some work to do.

But is there a danger that the CJC could become a talking shop? There is a fine line between rushing into agreements and collating all the evidence just to talk.

If the CJC fails to act soon it will lose the essential participation of the insurance industry altogether. IT