Written evidence from RSA

1. RSA is one of the world’s leading multinational insurance groups and has a proud heritage dating back over 300 years. We employ 13,500 people around the world and are a FTSE 100 listed company in the UK

Executive Summary

2. Spiraling and disproportionate costs associated with low value motor personal injury claims have long been a concern for RSA. We therefore fully welcome reform in this area and broadly support measures in the Prisons and Courts Bill which will help to reduce the number of whiplash and related soft tissue claims.                                                                                                                                           
3. The proposed definition in Clause 61 of the Bill however is too restrictive, and will not achieve the correct balance in serving access to justice between claimants with genuine injuries and premium paying motorists                                                                                                                                                         
4. The definition needs to be expanded to include lower back and shoulder injuries in order for premium savings in the order of £40 to be saved.                                                                                                 
5. Insurers are committed to passing on savings associated with these reforms – however to support a sustainable reduction in premiums, the Bill also needs to include a fair and effective framework for setting the Discount Rate.                                                                                                                              
6. RSA’s views are in line with that of the Association of British Insurers (ABI) and together with them, we look forward to working with the Government to examine how these reforms can best be implemented ahead of their introduction in October 2018

The definition of whiplash and the prevalence of RTA-related whiplash claims

Background of whiplash

7. In recent years, the whiplash epidemic has proliferated to include other elements of soft tissue injury such as upper back, lower back, shoulder (and also post traumatic psychiatric disorder (PTSD). An increasing proportion of claims also involve some form of rehabilitation. The combined effect of this proliferation into other injury types and other heads of damage has been to increase the level of success fee which can be charged against past losses for both general and special damages                                                                                                                                                         
8. Lobby groups on behalf of claimant lawyers, particularly Association of Personal Injury lawyers, have challenged the phenomenon of whiplash claims as evidence of the compensation culture, arguing that the volume of whiplash claims has diminished in recent years and accordingly insurers should reduce their premiums. This is a highly misleading and disingenuous assertion: since the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) came into effect in May 2013, the number of motor injury claims registered to the Compensation Recovery Unit (CRU) as whiplash fell by 30% (2012-13 to 2015-16). However, over the same period, the number of claims registered as neck, back and other increased by 29%

9. The following data available from the Compensation Recovery Unit profiles the volumes of whiplash only claims, and claims involving neck and back injuries over the last 5 years:

10. According to our own data, around 95% of our RTA bodily injury claims are whiplash or contain an element of whiplash.

The definition

11. In the government’s recent response to the consultation, they raised the question as to whether the Medco definition – namely that a “soft tissue injury claim means a claim brought by the occupant of a motor vehicle where the significant physical injury is a soft tissue one…” is fit for purpose for primary legislation. It is now 2 years since that definition was incorporated into the Civil Procedure rules – it is clearly understood by all the parties, it works well and it serves its essential purpose. We can see no reason why the definition for  Medco - a government-backed organisation whose Board comprises representatives of the medical profession, insurers and claimant lawyers - cannot be used to provide the framework for these reforms.                                                                                                                                 
12. The consultation response goes on to discuss whether “a neck and upper torso” approach might be more suitable on the basis that “whiplash” injuries are largely related to these areas. It continues by stating that a “soft tissue” definition could potentially include areas such as ligaments, tendons, skin lacerations. However these peripheral categories of injuries (which are demonstrable injuries  arguably not falling within a soft tissue injury anyway) are “red herrings”  which miss the essential point that reform is required to tackle soft tissue injuries as a whole. In substance, the vast majority of soft tissue injuries comprise of neck, shoulder, upper and lower back –either singly or in combination.

13. The problem with the proposed approach is that it will either eliminate a claim from the new process altogether because the scope of defined injuries is too narrow, or that it will at least exclude elements of injuries not included in the definition. The restrictive scope, as experienced from previous attempts of reform (and as the graph above clearly demonstrates) will incentivise behaviours to circumvent the process by presenting whiplash injuries in a different way. There are also practical considerations in relation to a medical assessment. If for example there is referred pain to the shoulder emanating from the whiplash injury, is this to be regarded as a separate and discrete source of pain as far as the reforms are concerned, and is the claim on that basis regarded as not being just a whiplash claim?  Interrogation of our own data from Colossus suggests that up to 70% of whiplash related soft tissue claims could include elements which go beyond the scope of the proposed definition which carries a material risk of undermining the original intention of the reforms such that the majority of the anticipated £40 saving in premium will not be delivered.                                                                                                                                                 
14. The starting point therefore should be a wide soft tissue definition for the purposes of primary legislation with supporting regulation which define those elements, such as ligaments, tendons and skin lacerations which are excluded (for the avoidance of doubt such exemptions should only apply to those elements excluded and not the claim as a whole if there are other injuries in scope of the primary definition). We call upon the committee to bring influence to bear upon the government to reconsider the Medco definition. There is a real risk that with such a large proportion of claims including at least an element of injury which is not in scope for a tariff that these claims will be targeted by Claims Management Companies (CMCs) – see our comments later under CMCs.                                                                                                                                                          
15. At the very least, the current definition of “upper torso” included in the Bill should be extended to include the lower back or shoulders, both of which feature commonly in soft tissue injury claims. Further, we strongly recommend the definition is amended to substitute “and” with “and/or”. This is necessary both to remove the effect that a neck injury is required in every case, and to ensure that as long as any element (or combination) of the definition is present, the claim will be within the scope of the reforms.

Cost of Motor Insurance

16. It is worthwhile recalling that the original purpose of the Autumn Statement 2015 reforms, was to tackle the cost of living in the form of motor insurance premiums. The most important dynamic driving overall cost of personal injury claims is the frequency of low value claims. Measures are required which will materially reduce the overall volume of low value personal injury claims whilst preserving access to justice for those with significant genuine injuries. This means that the scope of the reforms should be construed widely – not just “whiplash” but all forms of soft tissue injury.                                                                                                                                                          
17. Successive rises in Insurance Premium Tax together with the recent change in Discount Rate have both increased the cost of motor insurance substantially.                                                                      
18. The insurance industry will pass on any savings to consumers from these reforms given the highly competitive nature of the UK motor insurance market. By way of example, insurers passed on over £1.2bn in savings to their customers following LASPO.

Discount Rate

19. The Lord Chancellor’s decision to reduce the discount rate to minus 0.75% from 2.5% seriously undermines the underlying purpose of the whiplash related reforms to lower costs and support a reduction in premiums. We believe this decision to be misguided both in law and in timing and in technical basis. The ramifications of this decision go much wider than the interests of the parties involved in motor personal injury claims. Indeed the Chancellor of the Exchequer indicated in his recent budget that £5.9 billion would now be required for the NHSLA at a time when resources for front line services are already challenged.                                                                                                                 
20. All severely injured claimants should receive full and fair compensation. However a rate that continues to be set on the basis of Index-Linked Government Securities (ILGS), which at the current time has a negative yield as opposed to investment in a mixed portfolio of assets (used in practice by prudent claimants) would lead to overcompensation paid for by insurance policyholders across the UK. It cannot be right that one investment choice was set for all time as the proxy investment of the ordinary prudent claimant.                                                                                                  
21. Setting of the rate needs to be done in a way that balances the interests of the 36 million motor insurance policy holders in the UK who all have to buy insurance (as well as those who purchase other non- compulsory types of insurance) at the same time as the 2700 catastrophically injured individuals who are injured every year and whose life-long needs this type of compensation will meet.                                                                                                                                                                       
22. The 2012 or 2013 consultations into the setting of the legal framework around Discount Rate have not been completed nor has the MOJ published the report by an expert panel that looked into the issue. The economic climate has changed considerably such that the returns available on ILGS has deteriorated to a point where no reasonable financial adviser would recommend to a prudent claimant a strategy of investing their lump sum damages award in ILGS. Consideration should have been given to all these aspects before the rate was reviewed.                                                                                   
23. The Court of Protection position remains that a mixed portfolio including equities is considered prudent: such a low risk profile could have up to 35% of a portfolio invested in equities, with the rest held in a combination of cash and fixed interest, corporate (blue chip AA rated upwards) / government bonds and commercial property. The Equity Tracker Investment Fund shows returns of over 70% over a 10 year period, comfortably ahead of the old discount rate of 2.5% even allowing for inflation. The Lord Chancellor should take notice of the Court of Protection position.

Whether or not fraudulent whiplash claims represent a significant problem and, if so, whether the proposed reforms would tackle this effectively

24. Insurers face challenges of fraudulent claims both around fabrication of the claim itself and exaggeration of symptoms. Without objective medical evidence to verify the existence of a non-demonstrable soft tissue injury, there are always likely to be fraudulent claims in the system whilst incentives for cash exist, however small.                                                                                                                
25. The valid question for society as a whole to respond to is whether the costs of the current system  is sustainable, and in this context we note how successfully other jurisdictions such as France and Italy have responded with policy changes to tackle this problem

The provisions in Part 5 of the Bill introducing a tariff to regulate damages for RTA-related whiplash claims, with an uplift in exceptional circumstances; and banning the settlement of claims without medical evidence.

Tariffs

26. We welcome the introduction of tariff damages particularly for soft tissues injuries, which taken as a whole are relatively homogenous It provides certainty and transparency and facilitates efficient settlement of claims removing an unnecessary layer of cost associated with reaching negotiated settlement.                                                                                                                                                                                      
27. Our main concern though is that they are set too high and increase too quickly which will fuel the propensity of claimant representatives to game the system and move up into higher tariffs. Given the subjective and self-reported nature of whiplash, it is easy to see how this could happen. The tariff needs to start off lower and the steps need to be flatter. The tariff amounts should not be set with reference to current guidelines – in a new world where government is trying to reduce the frequency and severity of these claims, this makes no sense.                                                                                                                                                          
28. Lower and more gradual increases in tariffs should help to reduce speculative claims and reduce frequency. This in turn will assist in the government achieving its objective to reduce motor insurance premiums.

Uplift in exceptional circumstances

29. We do not support the exceptionality provision of a 20% uplift given the need for simplicity and certainty especially as many claimants for these minor, low value injuries will be litigants in person.

Ban on settlement of claims without medical evidence

30. The only way to address concerns with fraud around the use of pre-medical offers is to enforce a ban on pre-medical offers on all parties in all circumstances.                                                                                    
31. We would however qualify our answer in terms of the definition of a “pre-medical offer” in the context of a small number of certain types of non RTA claims: relatively minor self-limiting injuries such as sprains, lacerations or contusions, and minor scarring. For these types of claims, other forms of medical evidence such as hospital or other medical notes or records, rehabilitation reports or photographs are more appropriate and proportionate forms of medical evidence than a formal medical examination - the facility to continue these should be retained. 

The impact of raising the small claims limit to £5,000 for RTA-related whiplash claims, and of raising the small claims limit to £2,000 for personal injury claims more generally, taking account of the planned move towards online court procedures

32. We support the decision to increase the small clams track limit to £5000 for RTA related claims provided it is accompanied both by reform in the regulation of CMCs (see later) and by a framework of tariffs covering all soft tissue injury claims – in other words 95% of low value RTA PI claims, and not just the restrictive category of claims included with the proposed definition which we estimate to be around 30% of claims. The decision to increase the Small Claims Track (SCT) limit is long overdue as part of a modern fit for purpose legal process with supporting proportionate cost structure for dealing with low value personal injury claims.                                                       
33. It should continue to relate to the pain suffering and loss of amenity element (PSLA) element. In the last three to four years, various increases in general damages have  taken effect through the Simmons v Castle uplift and updated editions of the latest Judicial College Guidelines – particularly the latest edition where the guidelines for minor whiplash claims with a prognosis up to three months was increased 20%. We recommend therefore that a mechanism is put in place for periodic regular ongoing review which links the SCT limit to increases in Judicial College Guidelines to avoid inflationary erosion - this is crucial to maintaining the success of the government’s proposal to increase the SCT.                                                                                                                                                                       
34. We do not support the increase in the SCT to £2000 for personal injury claims generally -this is  illogical and counterproductive.                                                                                                                                           
35. We recognise that considerations of access to justice differ for personal injury claims which do not arise as a result of an RTA. There are arguments advanced that broader legal advice is required to address issues which may include establishing legal liability, causation and valuation of the PSLA which is often more diverse than relatively homogeneous whiplash/soft tissue injury claims. It cannot be inferred that these issues are less so if a claim is valued between £1000 and £2000 rather than above that range.                                                                                                                                
36. There is a material risk that increasing the SCT limit for EL and PL personal injury claims to £2000 would simply result in “damages creep” to avoid a claim going into the SCT.  The unintended consequence could be therefore that relatively few claims settle in the range £1000 to £2000 and the resultant inflation in damages offsets the savings in legal costs achieved on the claims that remain in the SCT.                                                                                                                                           
37. In an environment where the claimant will often be unrepresented, the additional work which would be required to support a fit for purpose Portal will simply be disproportionate to the very few additional casualty claims settling  within a SCT of £2000. Further work is required to simplify these processes before the SCT is increased.

The role of claims management companies in respect of these matters.

38. We understand that the timetable for introducing reforms to CMC regulation has been delayed, and, as the FCA require an 18 month implementation period from the point at which primary legislation is introduced, the legislation will now not come into effect until 2019 at the earliest (the Government had previously announced that it would come into effect in 2018).                                                                      
39. In an environment where regulation of CMCs has not been addressed and the fees for PI claims have not been capped, CMCs will develop various business models involving Damages Based Agreements and ancillary income through Medical Reporting Organisations and rehabilitation providers. Remuneration is based on a percentage (up to 40%) of the damages and CMCs will target claims within a newly raised SCT environment. In particular personal injury claims where damages are not controlled by tariffs ( ie RTA PI which are not subject to tariff , together with EL and PL claims under £2k) will in particular be pursued with resultant inflationary pressures on the overall level of damages (not just general damages) because this will maximise the overall fee payable to the CMC. We urge the government to bring forward the timetable for reforming the CMC sector and to ensure that the categories of claims subject to tariff control are maximised as much as possible.   

30 March 2017