The UK government has recently announced an array of changes to the way in which personal injury claims will be dealt with going forward. Many in the industry are now up in arms claiming that the changes will dramatically increase their costs which will ultimately be passed on to customers.
While many in the personal injury claims market were readying themselves for significant changes, who could have forecast how far the UK government was willing to go?
So, how has Liz Truss, the Lord Chancellor, upset so many people?
Reduction In The Ogden Discount Rate
The Ogden rate is an area of the personal injury claims market which is not often discussed in great detail because it tends to remain static. This is the discount rate used to ensure that inflation does not eat away at the future value of a payout in the event of a successful prosecution.
The rate at the moment is 2.5% and while the UK government had been expected to reduce it by anything up to one percentage point it has gone a whole lot further. As of 20 March 2017, the rate will be reduced to -0.75% which will have a monumental long-term impact on successful payouts.
British Insurance Companies
Huw Evans, director-general of the Association of British Insurers, has been extremely vocal in his response. He describes the cut in the Ogden rate as “reckless in the extreme” suggesting that
“this could lead to very significant price increases, with younger drivers in particular likely to find it much harder to get affordable insurance.”
There are also fears that the move could increase NHS payouts by anything up to £1 billion at a time when the healthcare sector requires much-needed income as opposed to an increase in payouts.
The long-term repercussions of this change in the Ogden discount rate are still being calculated but Admiral and Direct Line, two of the U.K.’s biggest stock market quoted insurers, saw their shares fall by 9% and 7.5% respectively.
Admiral believes that the change could reduce profits by up to £100 million while Direct Line issued a statement to the stock market suggesting the impact could be “between £215 million and £230 million”. We can only wait and see the actual impact of the discount rate change which must also be considered in light of the changes to the way in which certain personal injury claims can be pursued and the maximum payout.
Changes To Minor Road Traffic Accident Claims
The UK government has been very proactive in its pursuit of what it describes as “minor road traffic accident claims” many of which are settled out of court (often with no medical evidence) to avoid excessive legal costs.
To give you an example of the changes which will be introduced in 2018, a road traffic accident payout for an injury with a duration of up to 3 months would be set at £225 as opposed to an average £1750 in 2015 and Judicial College Guidelines from September 2015 of £2050. There is a sliding scale right up to 19 to 24 months where the payout will be capped at £3725 as opposed to between £3630 and £6600 from the Judicial College Guidelines published in September 2015.
The idea is that minor road traffic accidents should not require much in the way of legal advice and therefore capping the relative payouts will reduce the level of interest for many personal injury claims lawyers.
It is worth noting that these changes cover minor road traffic accidents including whiplash but will not cover more serious injuries brought on by an accident such as depression, post-traumatic stress disorder and any other illnesses which can be defined by international standards. While the industry is up in arms about these changes they have been forced on the government in many ways because of the rising number of fraudulent claims.
Indeed the Ministry of Justice refutes suggestions that whiplash claims are falling instead pointing to the fact that many have been relabelled as “neck” and “back” injuries. Ministry of Justice figures suggest a phenomenal 680,000 such claims have been made over the last three years which make up about 90% of all road traffic accident claims.
Impact On Legal Aid
The government has announced plans to increase the small claims limit for road traffic accident-related claims to £5000, and £2000 for non-road traffic accident personal injury claims. This may seem like a minimal change but it will preclude the use of legal aid in these particular instances although claimants will still be allowed to appoint legal representatives. The only difference is that they will need to pay for their legal representatives out of their own money which puts a greater risk emphasis on those pursuing claims.
The authorities acknowledge these changes may confuse some people but there will be government-appointed representatives available to advise those with any questions. This then begs the question, why make the situation so difficult and confusing for the general public in the first place?
This will have a monumental impact on many law firms up and down the country which sees relatively small personal injury claims as their bread-and-butter. The increase in the small claims limit will increase the risk/cost factor associated with representing claimants, especially where relatively small compensation claims are being pursued. Whether the UK government has gone too far the “other way” is debatable but it could be argued that the legal profession has in some circumstances had it too much its own way in years gone by.
The Overall Impact Of Proposed Changes To Personal Injury Claims
Time will tell but the UK government is adamant that changes in the compensation available for relatively minor road traffic accidents will effectively be offset by changes in the Ogden discount rate. There is no doubt that a significant amount of costs are incurred by insurance companies forced to foot the bill for legal costs when prosecuted over an array of personal injury situations. In theory, this cost should be removed from premiums although the impact of the Ogden discount rate move could negate any benefits.
Unfortunately, the personal injury claims market has been overrun by fraudulent claims in years gone by which has forced the authorities to act. The change in the Ogden discount rate is a totally different matter, and one which needed to be addressed, but it is the cost of fraudulent claims which has seriously impacted premiums. The headlines would suggest that minor road traffic accident claims have been capped but the government has left open the opportunity to raise these maximum payouts and other serious consequential injuries can still be pursued over and beyond the set figures.
After months of speculation the cat is most certainly out of the bag and it will be interesting to see whether the UK government, under pressure from the insurance industry to cap costs, is forced to give way on any new proposals. Many people believe that the authorities are in the pocket of the insurance industry but if this really was the case why would the government slash the Ogden discount rate to the detriment of the insurance sector?
These are the most significant changes in the personal injury claims market for many years although, while some of these changes were overdue, has the government gone too far in some areas?
