Over the last few years, the UK government has attacked the culture of personal injury claims with “whiplash” now designated as code for fraud in some circles. When Liz Truss, the Justice Secretary, recently announced a consultation about further reforming the sector there were initial cries of joy from the insurance sector and howls of concern from the legal profession.
In what many see as an attack on the legal profession there is no doubt that the government, both current and previous, has been looking to attack the claims culture. However, there are growing concerns that recent changes could be counter-productive and may actually make the situation worse.
Increase In Small Claims Court Limit
Historically the Small Claims Court limit was £1,000 with regard to personal injury claims although this could soon be increased to £5,000. The idea is that increasing the small claims limit would take away the necessity for legal representation in the higher courts. It is not clear whether the UK government expects claimants to “manage their own case” in the Small Claims Court without any form of legal representation – although that does seem to be the interpretation. Is this feasible?
Let’s not forget that when pursuing damages in the Small Claims Court the other side will likely have legal advice to hand. Is the idea that the general public will be able to pursue their claims against for example local authorities who would have as much legal advice as required on hand? In theory, it is an interesting idea but in practice is this not setting the general public up for a fall?
Legal Advisers Seen As Gatekeepers
One interesting take on the proposed changes to the personal injury sector revolves around the use of legal advisers as “gatekeepers”. There is a growing consensus that many potentially fraudulent and frivolous claims do not even make the Small Claims Court due to legal advice. So, if the lawyer “gatekeepers” were taken out of the equation surely there would be more potential for frivolous and potentially fraudulent claims to make it through the non-existent vetting system?
This is an interesting discussion because let’s not forget that any frivolous or potentially fraudulent personal injury claims not only waste the time of the courts but also legal advisers. It is believed that 80% of personal injury claims could be impacted by increasing the limit to £5,000 for the Small Claims Court. Among other issues, surely there is the potential for this to create a significant backlog in the Small Claims Court? Where limited or no legal advice is available these cases could drag on for some time.
Passing On Savings
If you look into the proposed changes to the personal injury claims system you will note various assumptions regarding potential insurance company savings. An estimated £2 billion in savings, equating to a £50 discount on car insurance premiums, has been dangled as a major carrot to the general public. Indeed the UK government has mentioned this on numerous occasions giving the impression that any savings by the insurance companies as a result of these changes will be passed on immediately. However, is this really the case?
We only need to look back at the recent Autumn Statement by Philip Hammond to see further changes with regard to the insurance industry. The fairly recent introduction of the insurance premium tax was mind-boggling to many people and was simply a means of milking the insurance industry, and the general public, of yet more cash.
Philip Hammond confirmed that the insurance premium tax will increase to 10%, so on one hand the UK government is “giving back” £2 billion to the insurance industry while increasing the insurance tax premium. It will be interesting to see what level of additional income this increase creates for the Treasury but there is no doubt it will have a significant impact. If you were an insurance company would you even contemplate returning the expected £2 billion in savings to the general public at a time when industry costs are under attack?
Those who think it is given that the £2 billion forecast savings will immediately be returned to customers will be sadly disappointed.
Why Should Everybody Suffer Because Of A Minority?
Time and time again the insurance industry highlights the “fact” that fraudulent claims activity increases insurance premiums for everyone. The idea that reducing the overall cost for insurance companies dealing in personal injury claims will result in lower premiums was always assumed to be a “given”. However, the UK government is now dangling the potential £2 billion windfall for the insurance industry but will this ever filter down to consumers?
A number of articles have also highlighted the term “whiplash” which has been used in association with potential fraudulent personal injury claims in years gone by. Let’s not forget that the vast majority of whiplash claims are valid and reasonable, often settled out of court. To give the impression that the majority of whiplash claims were in some way fraudulent or frivolous is plainly wrong. So, the authorities have already tainted the term “whiplash” and now seem set to make everybody suffer as they pursue the minority lodging fraudulent claims. Are valid claimants now simply cannon fodder?
Conclusion
The bottom line is that courts in the UK are there to find an answer to cases which make it into the courtroom. Is it really the fault of the general public if insurance companies arrange out-of-court settlements sometimes without any medical advice? The insurance industry is by definition a simple numbers game therefore reducing any long-term cost by making early settlements, whether borderline valid or not, is good from a business point of view but does it give the right impression?
In theory, the proposed changes by the UK government could, and probably should, benefit claimants and the general public but what will happen in practice? The authorities need to find a balance between combating fraudulent claims, which have been falling over the last few years, and giving legitimate claimants access to legal assistance. Indeed, a potential £2 billion windfall for insurance companies/customers due to claim and cost reductions will effectively get eaten up by the government’s increase in the insurance premium tax.
Deregulating the personal injury market at the turn of the century was a good move in theory but in practice overnight it turned into the Wild West with claims management companies working with doctors and insurance companies. Attempting to reduce additional costs associated with personal injury claims by increasing the Small Claims Court limit has probably gone too far the other way. Will we see the UK government water down proposed changes? Will they find a balance between supporting consumers, claims companies and the insurance sector? If the overall aim is to reduce fraudulent and frivolous claims then why not use the legal levers already available today?
