A guest posted by James Dalton, director of general insurance policy at the Association of British Insurers
The Association of British Insurers (ABI) has long argued that our broken personal injury compensation system needs reforming. We believe that the government’s Civil Liability Bill, which gets its second reading in the House of Commons on 4 September, can deliver a fairer system for insurance customers, claimants, compensators such as the NHS, and taxpayers.
The fact that, in the last decade, personal injury claims have risen by 40%, while vehicles have become safer and road accidents have fallen by 31%, tells us that the system is being exploited. This has to stop.
Not everyone agrees with us of course.
Some claimant lawyers argue that the reforms are all about saving money for insurers and eroding claimants’ access to justice.
Insurers, some assert, cannot be trusted to pass on any cost benefits to their customers, while they moan too much about fraud while not doing enough to tackle it.
Like much of the rhetoric on this issue, these assertions are misplaced, and I am happy to set the record straight.
Doing the right thing for claimants
First, let’s be clear: insurers remain committed to ensuring that claimants receive 100% compensation. Changes to the way the discount rate is set will reflect this, while taking into account the reality of how claimants invest their compensation. Regular reviews of the rate by an expert panel will ensure that it continues to reflect prevailing investment conditions.
Plans to increase the small claims track limit from £1,000 to £5,000 for motor-related personal injury are long overdue, to bring it in line with the limit for most other civil disputes.
No claimant will be left out of pocket by this. They will still be able claim, as they can now, for the costs such as medical treatment, rehabilitation and vehicle hire. The introduction of a tariff for pain and suffering reflects what other countries do, such as France and Italy, and will help ensure proportionate compensation for less serious injuries.
Raising the limit will reduce incentives for those in the claimant sector to drive up costs on small claims, ensuring access to justice is maintained at a more proportionate cost.
The industry and stakeholders, including claimant representatives, are working with government to develop an online portal for filing claims to ensure that access to justice is not impeded, and that the system will work simply and clearly for ordinary claimants.
The image pushed by some critics of a David v Goliath situation in the future simply does not stack up.
Benefits for insurance customers
Insurers have a proven track record of passing on costs savings to their customers. Following the initial LASPO reforms, between 2012 and 2014, the average motor premium fell by £50 a year, with savings worth over £1bn a year passed on to customers.
And so it will be this time if the Civil Liability Bill is passed in full as it stands: 93% of the motor insurance market underwritten by ABI members have publicly committed to pass on to customers cost benefits arising from these reforms.
Another accusation levelled against the industry is that it does not do enough to tackle fraud.
A key aim of the bill is to reduce the “unacceptably high” levels of insurance fraud, particularly within personal injury claims. Tackling insurance fraud is a key priority for the industry, with over £250m a year spent on initiatives to combat the problem.
Of course, the vast majority of customers are honest with legitimate claims and, as an industry, we need to help these people get their lives back on track. But some customers are trying to cheat the system and we make no apology for our ongoing efforts to weed out these claims and bring the insurance scammers to justice.
The insurance industry funds the Insurance Fraud Enforcement Department, a specialist police insurance fraud investigation unit. Since it was formed in 2012, it has secured over 400 criminal convictions for insurance fraud.
Latest ABI figures show that one application or claims fraud is detected every minute. These range from fake personal injuries to highly organised criminal gangs operating crash-for-cash staged motor crashes.
Calculating the quantum of insurance fraud is a challenge and there are those who say we make these figures up to suit ourselves. Rubbish. And in any event we are transparent about the methodology we use and we keep it under regular review.
With the Insurance Fraud Bureau investigating a rising number of suspected scams, there will be no let-up in the fight against fraud.
The public back change
There is public appetite for reform. Independent research commissioned by the ABI  highlights that two-thirds of people support a simpler personal injury system; 70% would be comfortable making a claim through a simple online process. The overwhelming majority – nearly nine in 10 – think that legal costs are too high.
The passage of this bill through Parliament will certainly be a challenging process. The ABI remains determined to push for its measures to be enacted in their entirety, and not watered down.
Only if this happens will we have in place a long-lasting system of personal injury compensation that delivers a fair deal for all insurance customers and claimants.
The brief for this blog was to address the issues raised by the claimant lobby and, as we felt some had been missed out in the above article, we asked some follow-ups. Here are the ABI’s answers:
CRU statistics indicate that the LASPO effect is now being seen and claim numbers are already on their way down. Is it too soon for more reform?
Far from it. The drop it CRU number appears to be a sign of the positive impact the Civil Liability Bill reforms may already be having. Claimant law firms have to plan three to five years ahead (like any business) and with the small claims track increase in place for 2020, they seem to already be moving out of the low-value injury area and diversifying into other areas such as consumer law.
There is no evidential basis for the tariff figures.
The figures have been set to help achieve the government policy intention of reducing the cost of low value whiplash claims to reduce the cost of motor insurance.
Other European countries also have a tariff approach for low-value claims but the proposed damages in the bill are lower than other countries as the government has the explicit intention of reducing the cost of car insurance. A tariff based on the existing levels of compensation would not achieve this.
Claims of up to £5,000 are substantial to many people and can represent significant injury – also it will catch injuries that are clearly not whiplash (it’s hard to fake a collapsed lung).
Whilst a few claims under the proposed small claim limit of £5,000 may be significant, they’re still straightforward and easy to settle, like low-value whiplash claims. As such, the government proposed new IT portal, being built with support of the industry and claimant lawyers, will also help these people make a claim.
The problem you highlighted last week  of a claims management company (CMC) impersonating the ABI shows the risk of raising the small claims limit and opening up that group of consumers to CMCs.
It is important to note that the Financial Conduct Authority is taking on the responsibility of regulating CMC from April 2019, a year ahead of the small claims increase coming into force. This will have a positive impact on the behaviours of CMCs. Furthermore, the Ministry of Justice is developing further safeguards for claimants that will be in place by April 2020.
The tariff could/should remove excess money from the system and therefore reduce the incentive for CMCs to get involved. In addition, the process under which claimants will claim their money in the small claims track will be straightforward, so there would be no need for CMCs to get involved.