Posted 25 May 2016 by Donna Scully
"We don’t know yet whether the consultation [on the Government’s proposed whiplash measures] and accompanying impact assessment will come within days of the referendum or whether we will still have to wait several months. But whenever it does come, it will kick-off a process that will have major implications for the insurance and claims sector.
Judging from statements from the Ministry of Justice, it looks as if the consultation will be about rubber-stamping the proposals set out by the Chancellor in his Autumn Statement. About their structure and implementation, rather than looking at whether this is actually a good approach in the first place.
My view is that we need a genuine consultation, not one that is just going through the motions to tick some Whitehall procedural boxes. There is a genuine debate to be had about what sort of system we wish to end up with and we should not be attempting to rush headlong down a path that is littered with dangers and potential pitfalls.
We have already come a long way in reforming the motor insurance system in the last few years – the MoJ Portal & fixed costs, further reduced fixed costs through LASPO including a ban on referral fees, the end of recovery of ATE Premiums & success fees & QOCS, AskCUEPI, ‘fundamental dishonesty’, MedCo, and more recently the assorted recommendations of the Insurance Fraud Taskforce and Carol Brady’s CMC review.
I think it is very unfortunate that the Government has already chosen to proceed without properly assessing the success of these existing reforms, each designed to better tackle fraud, and some of which are still not yet fully implemented.
Fraud is rightly an important issue across the sector and we need tough action against those who abuse the system. I’ve always fought against fraud, having set up the MASS Fraud Forum when I was Chair in 2010 and I have actively participated in the Insurance Times’ Fraud Charter and I am as keen as anybody to run an efficient and cost-effective sector.
And let me be clear from the outset. In addition to the bad practices engaged by many, if not most, in the CMC sector, there are clearly bad individual lawyers and firms too. We absolutely need to stop these bad ‘enablers’.
We also need strong enforcement of the existing regulatory framework. I believe there has only been one enforcement case since the introduction of LASPO which is extremely disappointing, and the SRA must endeavour to vigorously pursue allegations of wrong-doing. The Fraud Task Force agreed with me on this.
But my starting point in this debate is not about considering whether the proposals would be good for our ‘market’. Whether they would save us time, resources and money.
No, my starting point is whether these reforms would be good for our insurance customers.
In this debate we are considering the future for our genuine customers, who have been forced – quite rightly – to take out compulsory motor insurance. How will many long-standing and loyal policyholders feel when only ‘after’ they pay their insurance premium, they find themselves needing to make a genuine claim for an injury or financial loss, but will be unable to do so.
Think of the outcry when the public realises what is being proposed and starts to experience the rejection of legitimate claims. The ensuing customer complaints. The complaints to regulators and politicians. The potential involvement of the CMA.
I do not believe that I am alone in finding Lord Faulks’ recent reference to claims – even genuine ones – as “unnecessary” deeply disturbing. Let me say it another way. We are proposing that we take premiums from customers, but then will not pay out when they have a genuine claim.
That does not sound like an ethical and responsible way of treating policy customers. But that is in effect what we will be saying. We all need to be very clear about what is being proposed and what the possible consequences will be.
Whatever your view of lawyers, and I fully appreciate that there will probably be the full spectrum of views amongst you, the fact is that good lawyers on the whole provide an essential service of professional advice and assistance. Claimant lawyers act as a filter to take out bad or poor claims at source, preventing them from proceeding before they even get off the ground or enter the Portal.
It will open up the prospect of many of our insurance customers either proceeding on their own, without expert advice, not seeking compensation for their injuries at all, or driving them into the hands of CMCs. Let me explore those options a bit further.
Whatever term you use, typical, standard or straight-forward cases, I continue to believe that they are too complex for Litigants in Person to handle on their own. We dealt with an accident recently where a young teacher was hurt by a foreign lorry driver. As “we” would all know, with a foreign driver, you have to contact the Motor Insurers Bureau to see if there is a UK handling agent. But would a Litigant in Person really know and be able to do that - or one of the other daily complexities? I seriously doubt it. This is just one of many hurdles that a Litigant in Person may have to overcome.
The second option – policyholders not claiming for injuries genuinely sustained – may have attractions for some, but personally I don’t think that it is something we should be wishing for. Quite simply that’s not why I work in this sector. I believe in fair and restorative justice and a system that refuses to pay-out for some types of legitimate claims, but not others, threatens the very principles of our insurance and justice system.
I find the third option truly terrifying - the prospect of the advice gap being filled by CMCs and others. I strongly suspect that accident victims will continue to seek representation at the time that they need it most and will be prepared to pay for it out of their damages. It might not happen overnight, but this would set us down the road of US-style contingency fees. Vulnerable people who won’t otherwise be able to afford legal representation, being forced down the contingency path.
Be under no illusion. After every regulatory change in the market, CMCs and others have recalibrated their business model. To be compliant amongst the better ones. To find loopholes and work-arounds for the rest. They adapt and survive to the changed regulatory landscape driven by greed and money not customer service.
We can be quite sure that they are already thinking about how they might exploit the system being proposed. They will direct clients to use the Portal or use it 'as them' on their behalf.
They are already preparing for a rise in the small claims limit by employing, or even worse having self-employed, ‘McKenzie friends’ to look after and represent accident victims following accidents, taking a huge cut of their damages for the privilege. There is nothing particularly ‘friendly’ about people with no experience, no professional indemnity insurance and, perhaps in some cases, few morals, representing you after an accident.
Claims are not just going to disappear. If anything, they could increase in value to mitigate contingency arrangements. Perversely the number of claims might actually increase, together with the levels of fraud. And do any of us really want the prospect of more cold calling and more dubious marketing practices? Surely that is the last thing intended by the Ministry of Justice, but that is probably going to be the result.
I think that there is a debate to be had about what level the small claims limit should be set at. Whether it should be calculated on the basis of RPI or CPI? Whether the proposed increase is proportionate to the growth in damages since it was introduced? Whether other associated costs need to be taken into account? Better determining what are the levels of actual or suspected fraud?
What is a low value case? It might sound like a nice round number in a policy document, but I can tell you that a £5,000, £3,000 or £2,000 claim is not ‘low value’ for most of our motor policyholders throughout the country. There can also be difficult issues relating to liability, causation and medical evidence.
We are faced with the demise of LEI. The current legal expenses model works because, in most cases, the insured legal costs are paid by the at-fault insurer. This means that an insurer can sell the policy and receive the premium, but only has to make a payment under that policy in extremely rare circumstances. So they can keep the premiums at an affordable level.
If the small claims limit is increased, then the legal costs will no longer be payable by the at-fault insurer. They will instead fall to be paid by the legal expenses provider. The consequence will either be that it will become uneconomic for insurers to offer an LEI policy, or the policy will become prohibitively expensive. I’m not sure that we want either option.
Thousands of claims are made by policyholders which do not involve claims for any injury. They simply want to be reimbursed for their financial loss. Presently these are covered by LEI. At Carpenters we estimate that this accounts for over 30% of claims. Policy excess, loss of earnings, travel expenses, car seats, motorcycle helmets, repair costs or bent metal value. Disbursements such as DVLA, MID, CUEPI fees – all for non-injury claims. If under £5,000, as such claims will probably be, all would no longer be able to access advice from reputable, regulated insurer panel law firms. Is this really the service we want to provide to our customers?
We do not yet know whether it is to be proposed that general damages are scrapped for minor soft tissue injuries or more specifically whiplash injuries. Whatever is proposed in the consultation, abolishing the right to damages for injuries caused by somebody’s negligence feels to me fundamentally unfair.
We must be sure of what we might wish for. A potentially hazardous legal landscape awaits us all. Such decisions must not be taken lightly without thorough and comprehensive analysis. All available data must be scrutinised and we must fully assess the unintended consequences of these actions.
The government opted not to increase the SCL in 2013, having been warned by the Transport Select Committee that safeguards needed to be in place to protect genuine claims. I cannot see that such adequate safeguards are in place now. If anything we are opening up our customers to the risk of more abuse. I fear that the reforms will hit some of the most vulnerable people in our society hardest and that real injustices will occur.
We will be failing our customers if such an important debate is reduced to political point-scoring between two sides that have at times found it, shall we say, problematic to reach agreement. But it can be done. Neither insurers nor lawyers benefit from fraud and anything that can be done proportionally and effectively to prevent insurance fraud, must be done.
AskCUE PI should only be the start of claimants & insurers working together to combat fraud. There is so much more that can be achieved by an open dialogue and collaboration to find real solutions to tackle fraudulent behaviour.
I strongly urge you all not to stand aside and leave this debate to a handful of organisations or high profile individuals. I know that the insurance sector holds a range of views on the proposed measures. In the next few months it is vital that you each assess your own data evidence and the implications for your business and your customers. This debate is too important and the implications too great to sit out on the side-lines."
NOT TO BE REPRINTED WITHOUT PERMISSION