Before-the-event insurance could tackle the problems of the 'claims culture' says John Mullin
With the debate over the 'compensation culture' still raging and moving higher up the political agenda, now is the time to look at legal expenses insurance.
After-the-event (ATE) insurance has been demonised by some sections as the driving force behind the compensation culture.
I don't subscribe to this argument, as ATE insurance is a vital tool to provide access to justice for all. But it is understandable that defendant insurers view the significant costs as one of the less attractive features of ATE.
In my opinion, the wider use of before-the-event (BTE) insurance should be considered as a way to reduce insurers' claims costs. BTE insurance is less costly than ATE insurance because it insures only the cost of proceedings that may happen. ATE, in contrast, insures the cost of proceedings that are definite.
Ideally, there should be a dialogue between our industry and government examining some form of compulsory low-cost BTE insurance to provide cover for costs in personal injury cases.
It would need to be all-embracing injury cover providing maintenance for motor and non-motor events. It would also need to provide cover for the most extreme of injuries, such as those sustained through industrial disease or clinical negligence.
Government would be concerned at accusations of yet another 'tax', but when the insignificant costs of such an initiative are examined it will become clear such fears are of no consequence. I would be surprised if a state-sponsored, private-sector administered scheme, without the problem of selection, would cost more than 1% of an average third-party motor premium with full no-claims bonus covering a mature driver.
Costs could be cut even further if BTE cover were taken out only for the other side's costs.
Compare this approach to the proper, but highly expensive, alternative of sorting out the problem with an ATE policy.
It would be essential that independent providers of legal expenses insurance administered the state-sponsored schemes.
In this way there would be a high degree of transparency, ensuring that there would be no conflicts of interest. Indeed, European Directives entwined in our Insurance Companies Acts protect such potential abuses.
Now is the time for insurers on all sides of the 'compensation culture' debate to tackle the problem of utilising unique British expertise in legal expenses insurance to help to significantly reduce unnecessary claims costs.