Written evidence from NewLaw Solicitors

1. Inaccuracies of Consultation

Part 1 of the consultation sought to identify the issues that sit behind the consultation.  Paragraph 10 stated that ‘the volume of RTA related personal injury claims in the UK has remained static over the last three years and is over 50% higher than 10 years ago (460,000 claims registered in 2005/06 compared with 770,000 registered in 2015/16)’.

This data is inaccurate and misleading in that: -

1. It disregards the fact that the number of RTA related personal injury claims in the UK is lower now than it was five years ago.  In 2010-11 the number was 790,999[1].  It rose again in 2011-12 to 828,489, however following subsequent reforms the number has now fallen to 770,000 in 2015-16. 

2. The number quoted is the total number of RTA related personal injury claims before separating out claims specifically for ‘whiplash’.  This masks the true position in relation to whiplash claims.  Within the total number, actual whiplash claims fell from 566,998 in 2010-11 to 476,938 in 2012-131.  This represents a reduction of 16% in only two years.  This contradicts any suggestion that ‘whiplash’ claims, the title of this consultation, are a growing concern.

3. The number of whiplash claims as a percentage of RTA related personal injury claims fell from 76.3% in 2009-10 to 58.2% in 2012-131.

The true evidence is that both the total number of RTA related personal injury claims and also specifically the number and percentage of actual whiplash claims was falling as at 2012-13.  The 2013 figures are the most recent available in relation to specific whiplash claims following the work of the Transport Committee.

The total number of RTA related personal injury claims has fallen further since 2012-13 from 819,137 to 770,000 in 2015-16.

The perceived issue is not supported by the facts. 

The Transport Committee concluded in 2013 that,

“It is apparent from the information now provided by the Government that the number of whiplash claims has fallen since 2010-11 and is now lower than at any time since at least 2007-08.”

Volume of Accidents Reported to the Police

The consultation relied heavily on the logic that a large number of whiplash claims must be fraudulent because the number of RTA related injury claims has risen in the last decade, compared to a decrease in the number of accidents reported to the police.

This logic is seriously flawed because: -

• It ignores the more recent trend that in the last five years the volume of RTA related injury claims has actually fallen from 790,999 in 2010-11 to 770,000 in 2015-16.

• It ignores the underlying trend that whiplash specific injury claims fell from 566,998 in 2010-11 to 476,938 in 2012-13, the most recent set of available statistics.[2]

• It ignores the fact that the figures relied upon for the volume of accidents reported to the police do not represent the actual number of road traffic accidents.  To quote the Transport Committee report: -

“22. It is a legal requirement for road traffic accidents in which someone is injured to be reported to the police. However, there is considerable under-reporting of such accidents. For example, in 2011, the number of people who attended hospital following a road traffic accident was more than twice the number recorded by the police as having been injured in such an accident. This is a long-standing problem on which our predecessors commented in 2009 and which is now being investigated by the UK Statistics Authority.

23. The absence of comprehensive statistics about road traffic accidents means that it is impossible to relate the increasing number of personal injury claims in recent years to the number of accidents.”

The premise relied upon in paragraph 10 on page 9 of the consultation is therefore entirely false.

2. The Tariff Proposal

• The figures are arbitrary and have no relation to assessed awards and the recommended brackets within the Judicial College Guidelines 13th edition.

• The comparator figures quoted are out of date and are taken from the Judicial College Guidelines (12th edition) published in 2014. 

• By the likely implementation date of these proposals the comparator figures will be at least 4 years out of date.

• The figures are not based on any adequate research or engagement.  Key stakeholders to include the judiciary, relevant medical experts, the Bar Council, the Law Society or injured claimants have not been engaged.

• The only figures quoted for median compensation payments have been provided by the insurance industry and have not been validated.  The figures are not accepted as an accurate representation of actual median compensation payments.  The figures quoted inclusive of psychiatric damage look utterly incorrect and if they are to be relied upon at all should be the subject of forensic validation.

• Damages for pain suffering and loss of amenity cannot by their very nature be assessed by reference to a fixed amount as to do so ignores the impact on the individual claimant.  To quote Lord Donaldson, such damages ‘cannot be assessed by a process of calculation’.

• The figures ignore decades of case law established by the judiciary receiving expert evidence and lay witness testimony in respect of the impact that such injuries have on peoples’ lives.  As a result the figures quoted are desperately inadequate.
• The figures are devised to improve the bottom line profitability of the insurance industry rather than assessed by reference to what represents appropriate compensation for the injuries sustained.

• The figures are not commensurate with other fixed tariffs of compensation.  For example, a four-hour flight delay attracts a fixed amount of £540.

• The seven influencing factors set out within the Judicial College Guidelines that materially affect the size of an award have been disregarded which will inevitably lead to inequitable awards of compensation.

• The potential consequences of the proposed reform are far reaching and as such the proposals are deserving of significantly more time and attention.  As they stand currently, the proposed amounts are nothing more than a wild guess as to what might be fair and reasonable.

• This proposal represents the government usurping the role of the judiciary and over turning decades of good law in relation to tort and the award of damages.  Such matters should be left in the hands of an independent judiciary and should not be influenced by political and commercial pressure applied unilaterally by large self-interested corporate entities.  The rights of the ‘small man’ are put to one side by these proposals.

3. Raising the Small Claims Limit

In 2013 the Transport Committee performed an in depth analysis of the impact of ‘whiplash’ on the cost of motor insurance.  The committee was an independent cross-party committee with no political agenda and beyond the undue influence of the lobbying of corporate bodies with a vested commercial interest. 

As part of the analysis the Transport Committee heard evidence from a cross-section of leading industry experts.  As a result, the Committee produced by far the most detailed, independent and best informed report that has been produced on this subject to date.  The level of analysis, stakeholder and expert engagement and evidence gathering that supports this report is far superior to any ‘research’ that sits behind the current Consultation.

The Transport Committee report reached a series of conclusions.  Some of these are set out below: -

“Whiplash injuries can arise from motor accidents and can have debilitating consequences for those who suffer them. It is appropriate that people injured in motor accidents through no fault of their own should be able to claim compensation from the party which caused the injury.”

This conclusion remains appropriate today.  The proposal to increase the Small Claims Limit to £5,000 would prejudice the ability of most people to claim compensation from the party which caused the injury due to: -

• A lack of understanding of the personal injury claims process which is complex and daunting to the lay man.

• An imbalance of bargaining power that could be exploited by experienced insurance claims handlers raising spurious arguments of liability, contributory negligence, causation and arguments on special damage. 

• It is naïve to believe that claimants will face independent individuals representing the defendant who will seek to assist the claimant and optimise their damages.  The personal injury claims process in England and Wales has always been an adversarial one and insurers will not give up their vested interest or inherent persuasion to turn down a valid claim, simply because the claimant is unrepresented.  Indeed, this position is more likely to be exploited.  The government should understand that it is the fundamental role of every insurance claims handler to pay as little as possible in respect of every claim, it is not to ensure that the claimant is adequately and fairly compensated.

• A lack of understanding of how to interact with the RTA Claims Portal and the Medco Portal.

• A lack of understanding of how to interpret expert medical evidence that could lead to under settlement as a result of a failure to understand the prognosis or even the diagnosis of other injuries that might require further medical investigation. 

• The claims process being protracted and drawn out by insurance company claims handlers.

• The increase would open the door for claims management companies to re-enter the market offering cut price representation in the Small Claims process.  Such companies are significantly less regulated than solicitors and so this would create a genuine risk for vulnerable litigants.

If the Small Claims Track Limit is increased there will be a dramatic increase in the number of litigants in person using the court system.  Those litigants in person will often be vulnerable and will need additional protection to ensure that they are not prejudiced by an imbalance of bargaining positions.

Improvements would include: -

• Increase number of court administration staff to assist with greater volume of incorrect paperwork.

• Increase training and number of court desk staff to advise litigants in person in respect of correct process and assist in the completion of court forms.

• Increase in the number of local courts capable of hearing Small Claims Track hearings.

• Increase in the number of District Judges to cater for listing challenges that will be caused by the increase in adjourned, wasted and prolonged hearings.

• Amendments to the CPR to disallow insurers from retaining professional representation at Small Claims Track hearings, whether final or interlocutory, in order to maintain a level playing field.

• Amendments to the CPR to disallow insurers from retaining professional representation on the court record to deal with pleadings, applications, directions and disclosure in order to maintain a level playing field.

• Amendments to CPR to introduce ‘Approval Hearings’ so that District Judges approve all pre and post action settlement offers in personal injury cases to ensure;

• that unrepresented claimants have not accepted inappropriate offers of contributory negligence;
• that all special damages have been appropriately claimed and incorporated in the offer;
• that any relevant ‘uplift’ to general damages has been included in the offer; and,
• to ensure that the claimant has properly interpreted the medical evidence so that the prognosis and diagnosis of any other injuries have been understood and compensated.

4. The Prevalence of Fraud and Impact of the Proposed Reforms

“There is no authoritative data publicly available about the prevalence of fraudulent or exaggerated claims for whiplash injuries and no consensus about what constitutes fraud.”[3]

There is still no authoritative data available.  The ‘research’ conducted in support of this consultation has not changed the finding of the Transport Committee in 2013.  There is no more authoritative data available now than there was then. 

“There are good arguments for and against switching whiplash claims of between £1,000 and £5,000 to the small claims track, but on balance we do not support this proposal at the present time. We believe that access to justice is likely to be impaired, particularly for people who do not feel confident to represent themselves in what will seem to some to be a complex and intimidating process. Insurers will use legal professionals to contest claims, which will add to this problem.”[4]

The conclusion reached by the Transport Committee in 2013 remains entirely relevant today.

“It would be financially difficult for many solicitors to assist litigants fighting personal injury claims using the small claims procedure, given the limited fees available. However, we are concerned that some claims management firms might find a way to enter the process, fuelling another boom in their activities.”[5]

Regulation of claims management companies has not improved since 2013.  The proposed reform would expose vulnerable litigants to increased risk and throw further fuel on the fire of nuisance cold calls and text messages.  It is such activity that is driving any fraudulent activity that might exist in the claims process, not the involvement of heavily regulated solicitors.

5. Impact on Legal Expenses Insurance

If the Small Claims Limit is raised this could have a significant impact on the Legal Expenses Insurance industry and in turn upon general insurers and brokers.  In order to understand this impact properly it is important to understand how this industry currently operates.

Before the Event (BTE) Legal Expenses Insurance (LEI) policies are provided by managing agents or specialist legal expense insurance direct underwriters.  These policies are purchased from those companies by general insurers and brokers and then sold on as ancillary products alongside core insurance products such as motor insurance policies. 

On occasions the LEI is not sold as an ancillary product but is bolted into the core product and the purchasing policyholder has no option other than to buy the core product inclusive of the LEI add on.

In both methods of distribution the general insurer or broker purchases the LEI policy from the originating BTE company for a very low unit price which is generally pennies and not pounds, fifty pence being a relatively typical unit price.

The general insurer or broker then adds a substantial margin to the unit price and sells the LEI policy on to their policyholder (either as an ancillary product or compulsory bolt to the core insurance product) for a substantial profit.  BTE LEI policies are sold on for a range of prices, however a typical price would be in the region of £28 to £35 (representing somewhere in the region of a 6000% uplift)

The insurer or broker therefore makes in the region of £30 profit per BTE LEI policy sold.

The unit pricing and therefore substantial profit in the hands of the insurer or broker would not be possible without the claimant legal industry’s support.  The originating BTE LEI insurer enters into a ‘Panel Agreement’ with a number of law firms.  The ‘Panel Agreement’ is a contract between the BTE LEI insurer and the law firm by virtue of which the BTE LEI insurer allows its panel solicitors to represent its policyholders provided that the solicitor contracts to make no charge to the BTE LEI insurer if the matter is a Small Claim. 

Without this contractual commitment from the law firm, the BTE LEI insurer would not allow the law firm to represent its policyholders in other cost bearing matters.  Under the law of England and Wales the BTE LEI insurer has the right to appoint a solicitor of choice for its policyholder until a claim reaches the issue of proceedings.

This arrangement means that the LEI policyholder receives legal advice and assistance in Small Claims matters at no cost to the BTE LEI insurer or to the distributing general insurer or broker.  This no cost approach to Small Claims cases enables the originating BTE LEI insurer to supply the policy at the very low unit prices that are typical in the market.  This in turn creates substantial bottom line profit in the hands of the distributing general insurer or broker.

If the Small Claims limit were to be raised to £5,000 claimant law firms would not be able to afford to represent claimants in Small Claims matters at no charge to the BTE LEI insurer.  This would simply not be commercially viable.

One of two things would happen: -

1. Claimants would be left with no legal representation, devaluing the LEI policy meaning that it would have to be sold by the distributing general insurer or broker for a substantially lower retail price.  It would be impossible to maintain current retail pricing because the policy would have no value in the majority of personal injury claims; or,

2. The originating BTE LEI insurer would pay legal costs to the claimant solicitor in Small Claims cases enabling the distributing general insurer or broker to maintain current retail prices, as the product would have the same value as it currently has.  However, this would lead to a significant increase in the unit price charged by the originating BTE LEI insurer to the distributing general insurer or broker in order to cover the substantially increased claims costs.  The market is currently suggesting that the unit price for such a policy would be in the region of £12.

In either of these two scenarios the vast margins that are currently enjoyed by distributing general insurers or brokers would be significantly eroded.  Assuming a reduction of £12 per LEI policy sold, a general insurer with one million policyholders would lose £12,000,000 per annum bottom line profit from the sale of LEI policies.

These numbers have not been taken into account by the government in its rough estimate of the potential savings that might be passed back to motor insurance policyholders by way of reduced premiums.  Indeed, taking this reduced profit into account and adding to it the average £15 per policy that will be caused by the increase in IPT would entirely eradicate any savings in the hands of the consumer.

6. Impact on Other Revenues

The impact assessment ignores the substantial revenues currently earned by general insurers and brokers through the referral of claims into the current claims process.  Despite the referral fee ban provisions of LASPO there remain a number of lawful ways of claimant solicitors passing value back to insurers and brokers in respect of the referral of claims.

On average, many insurers and brokers receive in the region of £500 value for every personal injury claim passed into the current claims process.  If the Small Claims Limit were raised to £5000 this passing back of value to the insurance industry would cease.

Following the same example as above, an insurer with one million policyholders could stand to lose an additional £5,000,000 in revenue, or £5 per insurance policy sold.

Other revenue streams also exist, to include the payment of commissions by medical agencies to insurers.

Furthermore, it is likely that third party claims teams would need to increase in size in order to cater for the substantial inefficiencies that would be created in the claims process by having to deal with litigants in person as opposed to professionally represented claimants.

7. Impact on Premiums

This consultation is premised by the commitment that motor insurance policyholders will receive a reduction in premiums as a result of the suggested reforms. The very basic assumptions that support this commitment fail to take into account: -

• Reduction in insurer bottom line profit due to the impact on LEI sales.

• Reduction in insurer bottom line profit due to a significant reduction in the value passed back to insurers by claimant solicitors for introducing claims into the process.

• Increased inefficiencies and claims costs caused by a rise in litigants in person.

These factors, that are currently ignored by the government’s assumptions and impact assessment, could entirely eradicate any possibility of the insurance industry passing ‘savings’ back to consumers via lower premiums. 

Increased Motor Premium per Policy

Loss of LEI Revenue                                                                                                                £12

Loss of personal injury claims revenue                                                                      £  5

Loss of medical report commission                                                                                    £  3

Increase in IPT                                                                                                                £15

Total per Policy                                                                                                                £35

The £35 per policy increase fails to take into account the additional inefficiencies that will be experienced as a result of dealing with substantial numbers of litigants in person.  When the whole picture is taken into account, any benefit to the individual policyholder will be negligible.

The removal of access to justice and the additional unintended consequences to the Treasury of reform (set out below) would be unacceptable prices to pay when consumers ultimately fail to benefit from any reduction in motor insurance premiums.

8. Unintended Consequences

More sinister access to justice issues are at stake.

NewLaw employs one of the United Kingdom’s largest teams of specialist solicitors dealing with serious injury claims.  Our solicitors work alongside charities to enable the innocent victims of spinal, brain and amputation injuries to return their lives to some degree of normality.

Such cases are extremely complex and require conduct by extremely experienced solicitors in these areas.  Our team is broken down into specialist units that deal with spinal injury, brain injury and orthopaedic injury respectively.  Each unit brings with it its own depth of expertise and wealth of experience.

Without the advice and assistance that we bring to such people, injured through no fault of their own, their lives would be turned upside down.  Access to justice to the correct level of expertise for these claimants is essential.

The proposals contained within the consultation paper would have a significant detrimental effect on that access to justice.

These cases can take several years to settle, on average 3 ½ years and sometimes much longer.  The solicitors that run such cases are highly experienced and as a result are expensive to employ.  It can quite easily cost several hundred thousand pounds to fund a single solicitor to run a small caseload of serious injury claims to conclusion.  Such funding is provided by the turnover of lower value cases.

Cases up to £5,000 in value settle much more quickly.  The revenue that is derived from the rapid settlement of volume claims goes a long way towards funding the pursuit of high value cases.

If solicitors are no longer able to run lower value claims due to an increase in the Small Claims Limit, then this will inevitably prevent those solicitors from providing legal representation to catastrophically injured claimants.  This would be because the cash flow would not be available to fund the claims or simply because the claimant solicitors no longer exist to pursue them.

The impact would be disastrous with many claimants being prevented from pursuing the compensation that they desperately require.  This would have horrendous consequences for the welfare state and for the NHS.

22 March 2017