Written evidenced from Allianz Insurance Plc

 

Allianz Insurance Plc

 

Allianz Insurance Plc (Allianz) is one of the largest general insurers operating in England and Wales. It receives approximately 300,000 claims a year which includes approximately 35,000 injury claims made by or on behalf of injured parties.

The Allianz group also includes Allianz Legal Protection (ALP) however this is an entirely separately entity to the general insurance operation. The views expressed in this response are not known to reflect any of those held by ALP, which may decide to make its own submission. 

Allianz welcomes the opportunity to contribute to this call for evidence.

Executive Summary

 

 

  1. Discount Rate

The decision on 27 February by the Lord Chancellor to change the personal injury discount rate (from 2.5% to a negative rate of -0.75%) applied to personal injury compensation for future loss claims has had a profound impact on the costs of insurance and the public purse.

 

Willis Towers Watson estimates the impact of the change on insurers as a material one-off reserve charge at approximately £5.8bn and approximately £868 million per annum increase in the cost of providing motor insurance thereafter.

 

The Spring Budget announcement confirmed that the change to the rate will have a £6 billion impact on the NHS over the next 5 years – an extraordinary bill for taxpayers and higher than any other bill in the budget.

 

The insurance industry supports full and fair compensation to seriously injured claimants but left as it is, the significant change in the Discount Rate and the enormity of the increase in claims costs will inevitably have a seriously negative impact on consumers, businesses and the public purse.  Whilst the personal injury reforms will still have a positive impact on reducing insurance premiums after their introduction at the end of 2018, the reductions, as things stand, are likely to come from a much higher starting point given the significant costs impact of the Discount Rate reduction. We believe Government communications should be transparent about this. 

 

 

  1. Definition of whiplash

In the consultation (“Reforming the Soft Tissue Injury (“whiplash”) Claims Process) the Ministry of Justice said:

 

“22. In 2014, the government worked closely with a group of expert stakeholders from across the personal injury sector to develop a definition for inclusion in the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents (RTA PAP). The definition was specifically designed to identify the relevant low value RTA related soft tissue injury claims [our emphasis] to be used in the MedCo IT Portal for sourcing initial medical reports. The vast majority of RTA related soft tissue injury claims are whiplash claims which are the claims the government is particularly keen to address through these new reforms.

 

23.  The definition has proved effective [our emphasis] in identifying the relevant claims for the purposes of MedCo and the government proposes to also use it for these reforms [our emphasis]. It is:

 

‘RTA PAP 16(A) soft tissue injury claim’ means a claim brought by an occupant of a motor vehicle where the significant physical injury caused is a soft tissue injury and includes claims where there is a minor psychological injury secondary in significance to the physical injury’.

 

24. It is our view that, subject to the point below regarding psychological injury, using the existing definition is a sensible and pragmatic approach, and that developing a new definition would only cause unnecessary confusion [our emphasis]. Therefore the government proposes that it is used as the basis for these reforms.”

 

Adopting a definition that had been specifically designed to capture the very claims the government plans to reform, and that has proved effective is clearly eminently sensible and was endorsed by Allianz and the Insurance industry.

 

Further the Ministry of Justice advised in the consultation that the existing definition had been used to produce data, and analysis of that data, which formed the basis of the Impact Assessment.  

 

Despite the logic, intention, and analysis set out in the consultation the Prisons and Courts Bill (Clause 16) contains a very different definition:

 

“whiplash injury” means an injury, or set of injuries, of the neck or the neck and upper torso that is of a description specified in regulations made by the Lord Chancellor.”

 

It is essential any definition is robust enough to avoid circumvention by those with a strong financial incentive to do so. We do not believe that the definition, as currently drafted, will prove effective in tackling low value whiplash claims. It is far too specific. It would exclude soft tissue injuries to the shoulders or lower back. It also requires an injury to the neck before it is triggered. This will simply result in soft tissue injury claims being presented as low back and/or shoulder injuries. In our view the displacement that Government was rightly very concerned about would become endemic and totally undermine the reforms.  

 

Government’s own data from the CRU until shows that claimant lawyers have been re-labelling whiplash injuries as back and neck injuries in recent years (see Fig.1) and under the current definition, there will a massive incentive to re-label claims even more. 

 

Fig.1

 

If the definition currently in the Bill is retained two things will happen:

 

We cannot understand why there has been a shift in position from the well-considered consultation. The Committee should note that MedCo is a government backed organisation, the Board of which comprises representatives of the medical profession, insurers and claimant lawyers. The definition was agreed between all parties.

 

We must ensure that the whiplash definition is robust enough to tackle the problem that it is attempting to tackle. The existing MedCo definition achieves that. We urge the Committee to treat this definition issue as a priority; we believe it will undermine the reforms and undo the good intentions of Government. The definition, as currently drafted, will not capture the requisite number of claims to enable motor insurers to reduce their costs and for these reduced costs to filter through to a premium reduction.

 

The current definition of whiplash contained at Clause 61 of the Bill is simply not fit for purpose. In order to achieve Government’s stated objective this should be amended to replicate the MedCo definition as set out above and as originally intended.

 

If the definition is not amended the data, analysis of that data, and the Impact Assessment should be re-run using the definition adopted in the bill and recognising the severe risk of displacement. 

 

 

  1. Raising the small claims limit

Allianz welcomes the Government’s decision to increase the RTA small claims track (SCT) limit to £5000. This is a balanced outcome that will reduce costs whilst enabling claimants in person to bring their own claims in a simplified process without having to pass 25% of their damages to their lawyer.

 

Whilst it is pleasing to note that the Government has taken the opportunity to also increase the SCT limit for all non-RTA Personal Injury claims to £2,000, we would encourage the Government to follow through on their commitment to keep this level under review.

 

Damages inflation below £2,000 on non-RTA injury claims will undoubtedly be a significant unintended consequence as claims will be inflated to breach the new limit. Currently, many EL / PL claims are settled in a bracket between £1000 and £2000. Those claims post October 2018 will be in the SCT meaning claimant lawyers will not recover costs from the defendant. In our opinion claims current settled at £1600 to £2000 will be pushed above £2000 by October 2018 purely for costs purposes. The absence of any form of predictable damages in EL / PL will help facilitate this.

 

We do not simply want to see the claims frequency and cost shifted from RTA into EL and PL. We would ask the Committee to consider this risk and if our concerns are borne out we propose that a form of predictable damages is introduced for EL and PL as well. That might take the form of a central calibrated damages assessment tool (i.e. Claims Outcome Advisor or Colossus) or something akin to the Judicial College Guidelines.

 

 

  1. 20% uplift in “exceptional circumstances”

The discretionary uplift available in undefined “exceptional circumstances” will encourage litigation in claims where the maximum uplift is disproportionate to the cost, time and court resource required to address the issue. The benefits of the fixed tariff are in its simplicity and certainty, there being no requirement for argument by lawyers in court over quantum.  The introduction of a discretionary uplift removes this benefit. 

 

The recovery period, as provided by a MedCo accredited expert, is the recovery period. The tariff will apply. There should be no exceptions in terms of valuing pain and suffering compensation.

 

Any value in the uplift provision is, in our view, far out-weighed by the behaviours it will enable and the displacement it will drive we therefore propose that it be removed from the Bill. Alternatively “exceptional circumstances” should be carefully and tightly defined in statute.   

 

 

  1. Does fraud represent a significant problem in whiplash claims?

Whiplash is an invisible injury. Symptoms are self-reported. There are no tests to prove that a person’s neck is not aching after a hit in rear accident, nor how long it ached for.

 

The extent of the fraud issue in whiplash is, in our opinion, something of a red-herring. Government’s stated aim at the outset was

 

“to crack down on minor, exaggerated and fraudulent soft tissue injury (‘whiplash’) claims stemming from road traffic accidents (RTAs)”

 

and by doing that achieve a saving of £1bn on claims paid by motor insurers that would be passed onto consumers through premium rates.

 

The focus was not solely fraud. It sought to address the wider whiplash epidemic that is peculiar to the UK. In our view the true question was how much are we prepared to pay, as a society, to fund whiplash compensation? Subject to the issues highlighted in this response we believe the tariff damages and SCT limit increase delivers a proportionate and balanced answer to that question. 

 

 

  1. The role of Claims Management Companies (CMCs) in these matters

There is no doubt that the behaviours of some CMCs fuel the whiplash culture. There is a compensation industry that exists purely because of whiplash type claims. The more whiplash claims businesses in that industry can generate the more profit they make. Some of the tactics deployed through cold-calling and encouraging false claims have been documented and are in the public domain. Going into the detail is outside of the scope of this response.

 

There is also a risk that CMCs will move into the EL and PL market to fill any void left by claimant lawyers who will no longer be able to recover costs on claims where the compensation for pain and suffering is between £1000 to £2000. That could result in further bad behaviours including aggressive claims farming.

 

We believe that stronger regulation of CMCs is critical to containing the whiplash epidemic and containing the scope for them to move into EL and PL. We understand that transfer of regulatory control to the FCA has been delayed. In our view this needs to happen as soon as possible. 

 

  1. Online Court

Allianz welcomes a move towards online court procedures. We believe that claims proceeding to Stage 3 of the MoJ Process would be ideal procedure for an online Court process. For whatever reason use of the Stage 3 process is increasing and we understand that is creating pressure, delay, and cost within the court system. We encourage the MoJ to explore an online solution further.

 

 

27 March 2017