Posted 08 June 2018 by Donna Scully
On 24th May 2018 Carpenters team attended Insurance Post's Motor Insurance World conference. Our director, Donna Scully, gave a speech discussing the theme of the conference, navigating the risks and capitalising on opportunities.
As some of you know, I have long had serious concerns about where the reforms are heading and the implications for the claims sector, insurers, and consumers.
I know that most of you - although perhaps not all - think that the Government’s programme is the best thing since sliced bread, you sometimes need to be careful about what you wish for.
Very few supposed solutions to a problem are ever perfect, but involve a compromise – you take the good with the bad. There are certainly good elements to the reform programme, but they also come at a cost. I believe that the price we will pay is simply too high.
As the debate has developed, as more information has come to light, as working groups, task forces, forum, and conferences have looked more closely at the implications of the reforms, I believe that the negatives have only increased. To the point that the negatives far outweigh the positives. Will we all think that it was worth it in 2, 3 or 4 years’ time? I suspect not, but only time will tell.
Before I come onto some of the details, most of you will be very well aware of where we are with the Government’s reforms, but here’s a short outline of where we up to.
First, the Civil Liability Bill which establishes a fixed tariff system and introduces a ban on pre-medical offers. The Report Stage on the Bill is taking place on Tuesday 12th June.
This is undoubtedly the key stage when votes on some of the central elements of the Bill are likely: should the definition of whiplash be set by politicians and officials or medical experts, should the judiciary play any role in setting the rates of the tariff; and what should be the duration of a whiplash injury. There has been a considerable amount of agreement in the Lords on the Discount Rate provisions, but there may still be at least one vote.
That the Bill will reach the statute books is certainly not in doubt. Whether it will emerge from the Lords unamended remains to be seen. Certainly, the Government has been under some pressure to concede ground ever since the publication of a critical report from the Lords’ Committee – the snappily entitled Delegated Powers and Regulatory Reforms Committee – but so far, Lord Keen has shown no signs of giving ground.
With the Bill finishing in the Lords by mid-June, there must be some chance that the Bill will begin its passage in the Commons before the summer recess, so we might well have the Second Reading debate with MPs in early July.
As you’ll know, the second key element of the Government’s programme is raising the Small Claims Track Limit to £5,000. This hit a significant bump in the road last week when the Justice Select Committee expressed a number of fundamental concerns about the Government’s plans. It criticised the evidence, the justification and the logic of the proposed increase and recommended that it should not be raised above the inflationary figure of £1500. Of course, the Government has ignored the Justice Committee before and may do so again, but it does add some considerable pressure upon the Government, particularly with such a slender majority, as the focus of the debate shifts to the Commons.
Looking to the future, it is my firm view that the combined effect of these reforms will act as a sledgehammer to the fair treatment of all premium paying customers.
The reforms are unfair and misplaced dealing with an issue that is already being addressed.
Both the number of injury claims and the cost of the average claim are reducing.
What the insurance sector would gain in reduced claimant legal costs, it is likely to lose in having to sort out premium paying customers being left baffled and demanding assistance by what to do following an accident.
Customers who buy motor insurance in good faith may feel seriously aggrieved when they discover that they have no professional help to bring good claims.
If a combination of the lower damage rates of the tariff and a dramatic increase in the small claims limit effectively cut out lawyers, the new Portal will open up the sector to a new set of problems and challenges.
Let’s be clear – if you’re designing something specifically for LIPs – and I know that many of you privately know that LIPs are not going to use the new system - you are also designing it for CMCs and others – a Portal that will be publicly accessible to all.
It is very doubtful if LIPs will even be able to find it online in between all the adverts for CMCs. CMCs already dominate search engines - 48 out the top 50 entries for RTAs are CMCs. And who really goes down to page 5 on Google anyway!
It will be nothing short than a gateway for CMCs - and some derivative of a McKenzie friend.
PPI claims were far easier to process than PI cases, but yet, despite the efforts of the financial institutions and the Government to encourage consumers to apply for themselves, huge numbers of consumers chose to willingly part with a high percentage of their money owed to use a CMC to process the claim.
Do you really think that this will not happen again for CMCs?
With a lower cost base and fewer regulatory burdens, they will be able to make the numbers work and will likely flourish in the new claims market. The less reputable ones will drive income by inflating claims and exploiting claimants. They will fill the hole left by solicitors as they exit the market.
With the new LIP Portal effectively being opened to CMCs, there is the potential for considerably more, not less fraud.
Litigants in Person will effectively be forced into a vulnerable situation where they can be preyed upon by predatory claims farmers.
It will be even more likely that it will adversely impact vulnerable groups – lower incomes, the disabled, young and those with poor or no digital access.
Minister’s apparent support for “professionalising the CMC sector” and the “reputational benefits” it will receive from the new regulatory structure is worrying.
Even though one Government assessment recently stated: “there continues to be widespread malpractice among CMCs”.
You may find it challenging to deal with claimant lawyers, but wait until the system is flooded with CMCs.
Some things can be done to slightly mitigate the damage. The Government has resisted fee capping provisions for PI claims on the basis that CMCs don’t currently directly represent clients in claims. That will change with the new MIB Portal and the Government needs to think again.
Technically, the new Portal is a tough gig for MIB. Particularly in the timescale currently set out for the Government.
Pulling together the current Portal, the MIB database, MedCo, askCUE and molding it with a front-end that is clear and simple enough for LIPs to use is a huge job and not to be rushed. I don’t envy MIB.
There are clearly many difficult questions ahead that as of yet remain unanswered. What happens during a liability dispute or when LIPs can’t settle in the Portal?
With a procurement process lasting 3-5 months not yet begun, and much of the scoping work still being carried out, delivery by April 2019 is simply not going to happen.
And nor should it. The lessons of past mistakes from MedCo must be learned before there is a rush to implementation. A more realistic timetable needs to be in place to ensure that it is fully functioning and fit-for-purpose. It should be comprehensively tried and tested before going fully live.
A rushed and flawed system would only compound the errors already being made by the reforms.
There is an alternative approach.
I’m not opposed to reform, but think that the goal of reducing fraud should be balanced against protecting the rights of the majority. The reforms should be proportionate to the scale of the problem and evidence-based. This could be done if there was a willingness to work together. There are forums where it has shown that this can be done.
It is essential that the sector breaks down traditional barriers and works together. Some genuine and practical solutions could be agreed with the right commitment. All sides have worked together successfully before. We can work together again.
The Government could introduce all the structures and mechanisms that it is proposing – and which are supported by the insurance sector - without doing real and lasting damage.
It could introduce a tariff and raise the small claims limit but set the rates and limit at more reasonable and justifiable levels. It could, and should, still ban pre-medical offers.
It could develop a new enhanced Portal that more effectively interacts with MedCo and other systems. It could still be open to Litigants in Person, allowing them the option of whether they wish to retain external support or not.
It could all be done without effectively wrecking the market, producing one that is less regulated.
What else could be done?
There is too little focus from Government on forging ahead and building upon many of the sensible recommendations from the Fraud Taskforce. The Government needs to create a credible and fully resourced legacy vehicle to drive on the fight against fraud and its constantly changing face.
Fraud can continue to be tackled by closer collaboration, sharing data and intelligence, for instance, by extending AskCUE. We need to continue working on strengthening ID checks and verifying legitimate claims. We need to ensure that any issues around retaining personal data for fraud-busting are overcome.
The new regulatory regime for CMCs after the transfer to the FCA needs to be robust. The process of reauthorisation for CMCs and the significantly higher costs of regulation – estimated at nearly £16m for CMCs - may drive many CMCs underground and so the new registration fees need to be reasonable and consulted upon. There is currently a considerable risk of a high proportion of CMCs going rogue.
MedCo needs to develop further as an enhanced part of the new claims environment. It is currently acting as a quasi-regulator of MROs without having the authority and power. It needs to be given some teeth to act, rather than simply exclusion.
Part 2 of the reforms is currently sitting on the desks of officials in the Ministry of Justice awaiting clearance from Ministers. It needs to be published soon so that work can be done on tackling the other dysfunctional parts of the market that are only going to get worse under the proposed reforms.
MoJ has yet to address extortionate credit hire claims, the increasing issues we have seen in relation to repair and total loss, the abuse of MedCo, or the growing problems with rehabilitation. We enter the dubious world of administration fees, commissions, and inflated subrogated recoveries.
Non-fault claims, whether or not there is an injury, have been turned into a commodity where they are traded between organisations for profit.
Many organisations, including insurers, make huge sums from non-fault hire and repair claims, in addition to medical reports and rehab.
The only effective way of dealing with the problems this causes is to remove the profit from the trading of the commodity.
For example, hire companies should not be permitted to pay referral fees to insurers to provide hire services, and the at-fault insurer should not have to pay inflated hire costs demanded by the hire company to fund the referral fee it pays to the non-fault insurer. This cycle needs to be broken.
Identifying the source of the referral on the Claims Notification Form (CNF) will enable insurers to more accurately target fraud, meaning that the vast majority of claimants who are genuine, will not have their claim blighted by association with known suspect ‘introducers’. It will also assist with the spotting of trends and new areas of concern that insurers and claimants could work together to investigate and eradicate.
The Government should consider reducing the limitation period in motor claims to stop the practice of data mining, where valuable personal data is quietly bought and sold by marketing and survey companies, garages, car hire firms, price comparison sites and even insurers.
We need to provide a unified front to challenge the cultural perception that fraud is a victimless crime.
The continued roll-out of telematics, potential night-time curfews, the potential of a graduated licensing scheme and other technologically-driven developments will help reduce the number of accidents. Reducing the number of cars being driven without insurance.
We need to put further pressure on the SRA to get tougher with the minority of errant solicitors.
There is so much more positive that could be done collaboratively if we really want to improve the industry.
But that should include claimant lawyers. They can be a positive influence on the market, intercepting the worst claims, providing vital independent representation and stopping inequality of arms.
The claims landscape will change fundamentally. The distinction between lawyers and CMCs will become blurred. Why be regulated by SRA if you don't need to. With insurers and brokers effectively advising LIPs in the new world, you’ll start looking more like CMCs in the future. Insurers and CMOs will likely partner with MROs – that has already started.
If the short-term financial benefits are all that is important to you, then the reforms are definitely for you.
We all need clarity about the future. Uncertainty is damaging, making it impossible to plan. But these reforms will create an uncertain marketplace.
There will be no going back if the full reforms are implemented – we cannot see all of the consequences but they will be permanent.
The consequences of the proposed reforms simply outweigh any potential benefits – even for the insurance sector. The point of no return is approaching but it’s still not too late for us all to stop and think again.
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