Written evidence from First4Lawyers
This is a submission to the committee on Part 5 of the Prisons and Courts Bill on road traffic accident (RTA) related ‘whiplash’ claims, and on Government plans to raise the small claims limit for personal injury.
We argue that raising the small claims limit for RTA claims to £5,000 and introducing a tariff-based system for minor soft-tissue claims denies consumer’s access to justice and establishes a compensation system that does not reflect the pain suffering and inconvenience caused from their accident.
Introducing First4Lawyers
Established in 2008, First4Lawyers has grown to become the driving force behind many of the UK’s most successful personal injury and clinical negligence law firms.
It acts as a legal marketing collective to support personal injury and clinical negligence victims looking to seek justice, support and rehabilitation for their injury.
First4lawyers then vets all enquiries to eliminate potentially fraudulent claims and ensure claimants are matched to the most appropriate solicitor for their claim.
The organisation set new benchmarks for the industry by introducing this vetting stage and by choosing not to participate in marketing techniques recognised for giving the industry a bad name.
It has never participated in cold calling, text marketing or buying data referrals from other suppliers. Instead, First4Lawyers invests in high-impact marketing campaigns, including a hugely successful TV campaign.
This vigorous approach to vetting and customer services, delivered by expert legally qualified claims advisors, and a guiding principle to deliver a truly ethical and effective service for claimants seeking access to justice, ensures First4Lawyers is the most trusted brand in the claims market. This has been reinforced by winning the Personal Injury Awards’ Claims Management Company of the Year four times in five years.
The incidence of motor fraud
At First4Lawyers, we support any reasonable measures to stamp out and eliminate fraudulent claims. However, we are concerned about the lack of meaningful evidence that fraud is indeed widespread.
The Association of British Insurers’ (ABI) own ‘detected fraud’ report showed that between 2004 and 2014, fraud only accounted for 1% of all motor-related fraud by claims volume (across vehicle damage, theft and bodily injury claims).
In 2014, this meant 66,893 claims amongst a total of over 3.9m claims. That was also the first year that the ABI recorded the difference between proven and suspected fraud. In 2015, only 9,691 of cases of motor fraud were proven to be fraudulent, representing just 0.25% of all motor claims submitted.
The ABI’s report shows a breakdown of the number of claims they settled as follows:
The bodily related injury settlements is far lower than the Compensation Recovery Unit’s (CRU) data, which show that 751,437 motor-related claims were settled. However, the ABI report has the following footnotes on the numbers:
What it does show is that the number of bodily related claims settled fell by 9% between 2013/14 and 2014/15. Further, the CRU shows that the number of motor claims registered in 2015/16 (770,791) is at its lowest level since 2009/10.
The same ABI report also shows that the average cost of a bodily injury claim from motoring accidents fell by 13% to £10,664 in the year to 2014/15. This is the equivalent of £550m, or around half of what these proposals are designed to save. However the AA British Insurance Premium Index shows that the average price of insurance fell by only 1% or £5.58, when in theory they had the opportunity to pass on a saving of at least £20.
Indeed, the ABI’s own figures show that claims costs fell in 2015 – for the fifth consecutive year – and were more than 30% lower than in 2010. In effect, the insurers have had a £8.73bn windfall over the last five years. And yet premiums have continued to rise.
The Government’s impact assessment has two key statistics that we feel best articulate the real issue of fraud and exaggerated claims:
1) That if compulsory medicals were introduced, then 7,000 claims wouldn’t proceed that once did (or 1% of the total claims registered in 2014/15).
2) That if the changes proposed to the small claims limit were introduced, it would only reduce the number of claims made by 6%.
These assumptions not only support the ABI’s data that fraud is minimal, at about 1% of all claims, but that there are plenty of robust systems already in place to weed out the speculative and exaggerated claims. Making these changes will not reduce the number of people seeking to make a claim – they will simply hamper their access to justice and to a fair and proper settlement. In addition it will add substantial pressure on an already stretched court system, be it online or through litigants in person (LiPs).
Solicitors and ethical claims management companies add much value to the process of managing compensation claims, including identifying and preventing fraudulent and exaggerated claims from entering the system in the first place, to guiding their clients to make the most appropriate decision when offered compensation.
The myth of a compensation culture in the UK
The consultation continually refers to the opinion of Government that the number of claims arising from road traffic accidents (RTAs) is far too high.
According to the ABI statistics from their Motor Insurance Claims data, there were 28.5m motor insurance policy holders by the end of 2014 and during this time there were 3.9m claim notifications across all types of claim (bodily injury, Property damage, theft e.t.c). They do not give a breakdown of claim type but based on the 2.9m claims settled in the same year 1.1m involved accident damage (38%) and 346,000 involved bodily injury. If we were to assume that these 1.1m accident damaged vehicles were due to RTAs then this means that fewer than 1 in 3 accidents leads to a claim for compensation for a bodily related injury; in turn, bodily injury claims only accounted for 12% of all motor-related claims.
Another way of looking at this is that fewer than 2.8% of the 28.5m motor insurance policy holders in the UK made an RTA claim during 2014/15.
During the various debates around the proposals of these reforms, Government and insurers continually tell us that the number of claims have doubled over the last decade. The Association of Personal Injury Lawyers made a freedom of information request to the CRU which revealed that the number of specific whiplash claims has fallen each year since 2010/11. The number of whiplash claims registered in 2015/16 was 41% lower than in 2010/11.
During this time the number of cars (excluding light and heavy commercial vehicles) on the road in the UK has risen dramatically. A report published by the BBC (http://www.bbc.co.uk/news/uk-england-35312562) shows that since 2011, the number has increased by about 1.6 million in England, 142,000 in Scotland and 69,000 in Wales to 25.8m cars on England’s roads and 31 million across all of Britain.
As such there was on average one claim for compensation in 2014/15 for every 40 cars on the road in the UK. This doesn’t take into consideration where multiple victims were involved in a single accident.
Despite this increase in vehicles between 2011/12 and 2014/15, the number of claims for ALL motor related injuries and accidents fell by nearly 8%.
These figures go further showing that, since 1995, there has been a 50% increase in the number of cars on Britain’s roads. Despite this increase in traffic volume on some of the most congested roads in Europe the number of claims continues to fall.
If you again look at the information available from the ABI it shows that in 1996 the total amount of claims notified to insurers (for all claim types including theft, vehicle damage and bodily injury) stood at 4.1m compared to 3.8m in 2014 with the number of claims peaking in 2006 at 5.6m. However the number of claims notified in 1996 accounted for 20.4% of the 20.3m insurance policies whereas this was 13.6% of the 28.5m insurance policies in 2014. Therefore this is not only a real term fall in the number of claims but a massive reduction in claims compared to the number of vehicles on Britain’s increasingly congested roads.
This is clear evidence that the UK is not in the grip of a compensation culture. As report after report has shown, from the Better Regulation Task Force to Lord Young, this is a perception that does not reflect reality.
On one hand the government is chastising those injured in an accident as propagating a compensation culture but on the other hand it is introducing new schemes that encourage consumers to seek compensation for delays to trains and flights or poor broadband service. How can one be seen as meaningful but the other not?
The source of RTA claims
As one of the three largest claims management organisations in the UK, we have a very clear picture of what the claims market looks like. At First4Lawyers, RTA claims (whiplash and more serious injury) accounted for 23% of the claims that we have accepted since 1st April 2013. We have calculated that they accounted for fewer than 0.5% of the total RTA claims submitted to the CRU in 2015/16.
From published information and other submissions, we estimate that, between ourselves, National Accident Helpline and InjuryLawyers4U, we probably account for around 2% of all RTA claims submitted to the CRU each year. Therefore questions have to be raised about the provenance of the remaining 98% of claims.
Aviva’s own ‘Road to Reform’ report in 2014 indicated that 55% of drivers who made a personal injury claim went through their insurers, up from 47% the previous year. Only 9% went through a claims management company, down from 11%.
Therefore in the region of 425,000 claims per year are actually generated by the insurers themselves.
A survey of drivers for the same report found that 23% of drivers were encouraged to make a claim by their insurer, whereas only 8% cited that a CMC had encouraged them.
This same report would have us believe that those involved in RTAs are not genuine claimants and do not deserve compensation for the pain, suffering and consequential losses they have suffered. It appears that the Government and insurers care more about bent metal and damaged vehicles than the suffering caused to humans.
The myths surrounding the cold calling culture of CMCs
We firmly support the introduction of a ban on all cold-calling in relation to personal injury claims. Sadly we believe it might be impossible to implement.
Firstly, many cold calls are not actually cold calls – they are instead propagated by the insurance sector. They are often the only organisations that know about an individual’s road traffic accident and are legally able to pass details of their clients to third-party partners to cross sell and market other products and services because the client hasn’t opted out of receiving these calls.
Secondly many of the organisations that run purely speculative cold-calling strategies do so from outside the UK and European Union. They hide behind numbers that cannot be traced and use automated calling systems that pump out hundreds and thousands of calls that cannot be traced or eliminated.
The introduction of a new tariff system will only further support the proliferation of these organisations that are reliant on volume over quality of service. The ABI seems to believe that the removal of money from the system will discourage firms from operating in it. We suggest it will in fact spawn a new breed of organisations that will cut corners to make a quick buck.
More needs to be done to review the activities of the insurers to ensure this epidemic that is blighting our industry is truly understood.
The role of Claims Management Companies
As a company registered with the Claims Management Regulator we naturally have a concern about much of the rhetoric that lays the blame of the perceived problem at the door of our industry. However, we firmly believe there is a role for ethical and well managed CMCs in the claims management process.
We invest millions each year in ethical marketing activities, customer service and robust checking processes to ensure we are on hand to support genuine victims of accidents that may feel intimidated by insurers but unsure of how to approach a solicitor.
All of our clients approach us to support them and we never embark on any cold-calling or data-mining activity. We have a place in the industry because we act as an empathetic first line of contact for accident victims and also bring efficiencies and support to law firms within the claims process.
As an organization, we are proud of the fact that none of our claims have ever been found to be fraudulent nor have we had any complaints upheld by the Legal Ombudsman.
Previous regulation changes have seen the number of registered CMCs dealing with personal injury more than halve since 2013. The claims management regulator has also continued to make better progress in banning and eliminating rogue CMCs. Rather than tarring all CMCs with the same brush, more needs to be done to weed out the rogue minority and look at what value the leading firms offer.
Ignoring previous consultations and reviews
We are concerned that the previous activity designed to reduce the cost of compensation referenced in the consultation has yet not had the time to bed in.
There are a number of reviews that have previously taken place by bodies such as the Transport Select Committee and the Competition and Markets Authority, which made a number of recommendations that have not been acted on.
Government needs to explain why this is. There is no logic to how the reform process is operating.
First4Lawyers Summary of Reforms Questions and Objections
Premise of reforms
- No clear evidence has been presented to support the theory that fraud is commonplace within the claims industry; indeed, the Association of British Insurers’ own statistics show that it is not.
- The original proposals of the reforms was to reduce fraud. Since then the focus has been that there are simply too many minor injury claims but Government have not indicated why it feels this and what would be deemed an appropriate number.
- There are not enough assurances that any cost savings will be passed on to consumers and the insurance industry has a record of failing to do this.
- None of the proposals introduce anything that will eliminate fraud; instead they focus on preventing ‘innocent’ accident victims from their legal right to make an appropriate claim for compensation.
Defining RTA-related soft-tissue injuries
- Judging the severity of an injury by the length of suffering is wrong and will lead to a huge number of under settlements.
Reducing the number and cost of minor RTA-related soft-tissue injury claims
- Just removing people’s right to be able to claim compensation is a disproportionate way to tackle the perceived problem and can be viewed as unlawful.
- Government needs to look in more detail at insurers’ activities, including credit hire, vehicle repair charges and pre-medical offers to review what constitutes the real cost of insurance.
- More needs to be done to tackle the cold-calling culture within the industry, including a ban on mining insurance data for potential claims.
- The proposed £25 payment for psychological damages is an insult to accident victims who could receive more for the inconvenience of a train journey being delayed by 15 minutes.
Introduction of a fixed tariff system for other RTA-related soft-tissue injury claims
- There is no clear methodology or rationale as to how the tariff was determined and it will lead to massive under-settlements for accident victims.
- It is wrong that someone who has suffered six months of soft-tissue related pain and suffering from a road traffic accident receives less compensation than someone who suffered a four-hour flight delay to New York.
Raising the small claims track limit for personal injury claims
- Raising the small claims limit to £5,000 will deter genuine claimants from pursuing a case because they will see the process as daunting; however, it will do nothing to stop fraudsters ‘having a go’.
- It will clog up the court systems with hundreds of thousands of extra cases per year as there is no suitable online alternative.
- It will see a rise in speculative cold calls and poorer standards as the PPI model that plagues the financial sector is unleashed on the personal injury sector.
Introducing a prohibition on pre-medical offers to settle RTA related soft tissue injury claims
- Pre-medical offers foster the opinion of easy money and are the likely cause of fraudulent claims. There should be a total ban on them.
- The ban should be monitored closely by a regulator with financial penalties for those that do not comply.
Implementing the recommendations of the Insurance Fraud Task Force
- More time needs to be given to the recommendations of the IFT before any new legislation is implemented.
- The Claim Notification Form should clearly state the source of the claim and the appropriate regulators should be given the appropriate powers to penalise those to be found flouting the rules.
- Government need to listen to previous reviews that contradict many of the proposals in place in this consultation.