The Civil Liability Bill overcame its final parliamentary hurdle yesterday as a leading insurer admitted that the anticipated £35 reduction in motor premiums might be swallowed up by other costs caused by the reforms.
The House of Lords approved the amendments to the bill made in the House of Commons without a vote, meaning that it will now head for Royal Assent.
Though a handful of opposition peers continued to complain about aspects of the bill, Lord Keen, the Ministry of Justice’s spokesman in the House of Lords, brooked no further compromise
He assured the House that the new provision requiring insurers to report on whether they have passed on savings to customers would ensure that the Financial Conduct Authority (FCA) held them to account.
“The FCA will actively consider appropriate action if firms do not meet the new requirements. In addition, the FCA will, as always, take seriously any breaches that could give rise to consumer detriment and will seek to take action if they suspect serious misconduct,” he said.
He dismissed once more the suggestion that the new damages tariff should be on the face of the bill rather than in secondary legislation – despite a House of Lords report yesterday criticising the over-use of such legislation – saying the tariff “should be amenable to review and flexibility. Setting it in stone would not allow for that”.
Asked whether the courts could cope with the likely increase in litigants in person, he added: “We are introducing a digital portal for these whiplash-type injuries, which will be designed to be accessible for those without legal representation.
“It will lead them into the prospect of alternative dispute resolution of their claim in respect of the merits and quantum. That system is being developed by the MIB and will be stress tested… we would expect it to be available for operation by April 2020.”
Meanwhile, the Association of British Insurers yesterday held its annual motor conference, and speaking at a session on the bill, Andy Watson, chief executive of Ageas UK, expressed confidence that insurers would pass on any savings generated.
He gave four reasons: the competitive nature of the market, the public commitment given by most insurer CEOs to do so – “Not living up to it would be a career-damaging thing to do,” he said – the report that would come out from the FCA, and insurers’ “track record” of passing on savings. Mr Watson said more than £1bn was passed on following LASPO in 2013.
But he then cast doubt on whether the expected £35 reduction in premiums would happen. He said it was “sensible” as a figure calculated from a “snapshot” of the market at that time.
“The problem is that the market is not a snapshot that just stops and moves on in a planned way. The market’s incredibly dynamic, so there will be two things that mean the £35 won’t actually happen in practice,” Mr Watson explained.
“It may well be true that, without the Civil Liability Bill, premiums would have been £35 higher than they would otherwise be, but you will have claims inflation in other heads of damages… and people, including claims management companies (CMCs), will adapt their behaviours to the new reality.”
He was reflecting comments made by other panellists about new ways in which some might look to exploit the new system.
Claimant solicitor Donna Scully, a director of the Carpenters Group, said she worried that the “frictionless system” that the new portal aimed to provide for litigants in person would also make it easy for fraudsters.
She added: “What we’re going to have in the new set-up – which is not straightforward, no matter how simple you try and say it’s going to be – is a sore elbow or something else on your body that’s injured that will not be [subject to the tariff].
“So someone’s going to have manage a tariff claim and a non-tariff claim at the same time.”
Ms Scully continued that the absence of lawyers in the system, due to the lack of recoverable costs, would mean claimants turning to the likes of CMCs and McKenzie Friends.
“They’ll just look at the claim and see what ways they can make money to represent you, maybe through credit hire or credit repair. So I don’t see the deterrent here for claims not being taken.”
She said this was because the Ministry of Justice had yet to respond to the second part of the 2016 consultation paper behind the bill, which dealt with issues such as credit hire and rehabilitation.
“When we hand this market over to claims farmers, that’ll be worse than what we have now,” Ms Scully warned.
Also on the panel, David Parkin, deputy director for civil justice and law at the Ministry of Justice, predicted that there would finally be progress on the second part of the consultation in 2019.
He added: “Is there likely to be a shift in claims behaviour as a result of the whiplash tariff? Possibly, but that doesn’t undermine the purpose and benefits of what we’re doing. It’s a matter of monitoring that behaviour and responding accordingly.”
Mr Parkin expressed confidence as well that the portal would be ready for April 2020.
Fellow panellist Andrew Parker, head of strategic litigation at top defendant law firm DAC Beachcroft, rejected Ms Scully’s argument that the reforms were “rolling out the red carpet for CMCs”.
The transfer of CMC regulation to the FCA next April “will be a nasty surprise for some of those operators because it will focus much more on the integrity of the people behind the business”, he said.
“They won’t be able to create a shell company, act badly, ditch that company and create another one.”
He also questioned whether there would in fact be an increase in claims for other elements – insurers would challenge services that the claimant did not need or were overpriced.
Some of the concerns were echoed in a separate session on insurance fraud, with Catherine Burt, national head of counter fraud at DAC Beachcroft, highlighting the lack of fraud checks being built into the portal, and the likelihood that claimants will claim for additional non-whiplash injuries.
Clare Lunn, director of fraud at LV=, said she was seeing “pop-up” claimant law firms buying illicit data of possible claimants in a bid to make the best of the current regime.
She explained to Legal Futures that she was talking about claimant lawyers who were known to insurers for bringing questionable claims starting up new firms to do so, which would then take some time for insurers’ systems to pick up.