How might the whiplash reforms affect credit hire?


Posted by Michael Lewis, CEO of Legal Futures Associate Claim Technology

Lewis: MoJ looking at how to control credit hire costs

Many questions are still up in the air about the progress of the Civil Liability Bill and how it will affect the insurance sector.

If all goes to plan, the small claims limit on RTA will be raised to £5,000, with other PI claims being raised to £2,000. Both law firms and claims management companies will be looking for more ways to keep claims profitable, and one obvious choice may be to offer a one-stop shop for repair, hire and personal injury.

The potential value of credit hire and credit repair

Providing your client with support for their hire car has two potential benefits for you as a law firm or a claims management company (CMC) in the new climate.

Firstly, it increases the amount of damages a client is receiving, which in turn increases the cap placed on your fees. Secondly, it may enable you to receive a referral or commission for your trouble to set off against your costs.

Let’s look at a practical example. Client A has a four-to-six-month injury, for which the average compensation figure under the reforms is currently £2,150. Under the proposed tariff, this could be reduced to as little as £450. This change alone could reduce the maximum solicitor’s costs (inc VAT) from £537.50 to £112.50 under the current regulations governing damages-based agreements.

By comparison, if that same client’s claim included an amount for the average cost of repairs at £1,770, and the cost of a hire vehicle for two weeks at £55 per day, this makes their damages £2,990 – allowing the firm to charge £747.50.

This may well be the difference between exiting the low-value market altogether, or enabling the solicitor to run at profit.

This financial incentive is good for law firms and CMCs, as well as the credit hire companies themselves, but what about the clients? Will they want to be legally on the hook for a credit hire fee, or attend a complex hearing where they are potentially caught in the middle of a fight between an insurer and a hire company?

This may seem like a workable solution for businesses, but the individual is being left out of the equation. It is the customer who faces the most risk signing a contract for a credit hire or credit repair, and they who have the least to gain.

First4Lawyers has launched a campaign called #repairtherightbody, which highlights how the proposed reforms are focusing on reducing fraudulent whiplash claims, while ignoring the fact that there is no ban on referral fees and no checks being placed on credit repair and credit hire.

Director Andy Kay says: “Ministers have their priorities shamefully wrong, to the extent that damaged cars will be much better off than damaged people. This is fundamentally wrong.”

Without this area being addressed, there could be trouble ahead. While the government predicts that the reforms will lower the number of fraudulent claims, we may be opening the door for them to rise with more opportunities available for CMCs.

Currently, they are not operating in the personal injury space, because they can’t claim legal costs. Once CMCs can integrate with the MoJ’s litigant in person portal to support claimants without legal representation, many will feel that they can make money by charging under a damages-based agreement, forcing the amount of claims back up.

The only way to truly reduce the indemnity claims costs for insurers and be able to pass these benefits back onto the customers, is to take the referral fees out of credit hire and credit repair altogether.

What’s the alternative?

These cries aren’t falling altogether on deaf ears, and the Ministry of Justice has taken proactive steps to learn more about controlling costs in the credit hire market before the bill finishes its journey through Parliament.

It is looking to gain feedback on options such as a ‘first party’ model of provision, where a driver’s own insurer will provide the replacement vehicle, or a regulatory model – which could cap costs or ban referral fees altogether. If these go through, law firms and CMCs will need to think of other avenues to remain profitable.

One option is to embrace automation to streamline the claims process, and take ‘busy work’ off the hands of lawyers and claims experts.

With a self-service app, claimants can be taken through the process of claiming for a RTA step by step, allowing them all the support they need in real-time, with experts on hand for any specific or unusual challenges.

This could reduce operational costs for law firms by as much as 80%, giving them a real ability to continue to take on claims without running at a loss.

In the wake of the reforms, we are likely to see a number of companies focus on maximising a client’s claim, pushing for them to incur more damages and effectively benefiting from their difficult situation.

With many individuals already feeling like a low priority in the insurance industry, this cannot fail to have an effect on customer loyalty and trust.

With technology, the emphasis can shift. Rather than look to claim more on behalf of the client so that you can charge more yourselves, you can reduce your own costs exponentially by streamlining operations.

It also has the added benefit of making the claims process simpler, faster and more effective, and showing claimants they are far from alone.

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