Written evidence from the Forum of Insurance Lawyers (FOIL)

 

 

 

FOIL (The Forum of Insurance Lawyers) exists to provide a forum for communication and the exchange of information between lawyers acting predominantly or exclusively for insurance clients (except legal expenses insurers) within firms of solicitors, as barristers, or as in-house lawyers for insurers or self-insurers. FOIL is an active lobbying organisation on matters concerning insurance litigation.

 

FOIL represents over 8000 members. It is the only organisation which represents solicitors who act for defendants in civil proceedings.

 

 

Achieving the Government’s objectives

 

From the first announcement of reform of whiplash claims, the government made it clear that its prime aim was to reduce the cost of motor insurance premiums, with the expectation that changes to the regime will save motorists an average of £40. The views expressed in the Second Reading debate make it clear that the potential for the Bill to reduce motoring costs is important to those on all sides of the House.

 

FOIL has consistently supported measures aimed at reducing the cost of claims, and therefore, insurance costs. It must be noted that, whilst the provisions contained within the Bill will assist in reducing premiums, they are just part of a bigger picture, with other changes likely to negate the effect of whiplash reform and push premiums higher.

 

The Chancellor has already indicated that the change to the Discount Rate which came into effect on 20 March will cost the NHS £5.9bn over the next five years. Global advisors, Willis Towers Watson, estimate that the change will result in a one-off insurance reserve charge of £5.8bn and c£868m per annum going forward. The Lord Chancellor herself accepts that the system need reform. In addition, successive rises in Insurance Premium Tax in recent years have added £2.9m to the cost of insurance.

 

Whilst the Government is tackling levels of costs and damages in low value whiplash claims, a range of other issues also result in excessive costs, impacting on the ordinary motorist: the cost of replacement vehicles through credit hire; the provision of rehabilitation; and loopholes in the existing fixed costs regime all increase costs and therefore premiums.

 

If the government is serious about achieving a meaningful reduction in the cost of motor insurance, it is important that tackling low value whiplash claims is seen as the start of the process, with a need to make progress on other issues to create a joined-up package of reforms that can have real effect.

 

The Regulations

 

The Bill contains only a broad outline of many important provisions, with the detail to be included in regulations. FOIL believes that the regulations should be available to be considered in tandem with the Bill, to ensure that a cohesive, comprehensive regime is put into place.

 

Particular concerns arise around the handling of composite claims. More detail is needed on how ‘sets of injuries’ will be treated, including the position if a claim is made for two injuries, only one of which is a whiplash injury; how awards are to be calculated where there are multiple injuries; and how exacerbation of pre-existing injuries will fit into the new regime.

 

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

 

                 The definition of whiplash

  1. As the Ministry of Justice made clear in its consultation paper ‘Reforming the Soft Tissue Injury (whiplash) Claims Process’ in November 2016, “it is important to be clear which claims these reforms will affect.”

 

  1. The consultation goes on, “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 specially designed to identify the relevant low value RTA related soft tissue injury claims 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.

The definition has proved effective in identifying the relevant claims for the purposes of MedCo and the government proposes to also use it for these reforms. 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”.

 

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. Therefore the government proposes that it is used as the basis for these reforms.

 

  1. FOIL agreed with that proposal. The government is right to emphasise the importance of the definition and, in adopting a cross-industry agreed definition, was reducing the risk that the definition could fail to cover relevant claims or be circumvented, undermining the government’s aims. 

 

  1. It is unfortunate that the government now appears to have changed its mind and decided that a new definition of whiplash should be developed, which is intended “to reduce the scope for affected claims to be displaced into other categories of claim”. Whilst the definition in Paragraph 61 of the Bill is only a broad outline, it is not appropriate or adequate to address the government’s concerns at ‘whiplash claims’ and will not prevent the relabelling of claims to circumvent the new regime. Limiting the injuries to those of the neck, or the neck and upper torso is unduly restrictive – a whiplash injury can occur in just the upper torso, or the lower torso, or in the shoulders, without a specific neck injury. It is also noted that there is no reference to ‘soft tissue injury’ within the broad definition, which is a key element of the claims to be included within the reforms.

 

  1. As the government indicated in its consultation, “The vast majority of RTA related soft tissue injury claims are whiplash claims”. Whilst the MedCo definition will bring within the reforms a small number of soft tissue injury claims not caused by whiplash, any attempt to be more precise, as seen by the definition in the Bill, risks excluding a very significant number of problematic claims from the reforms. For this reason FOIL believes that the MedCo definition should be adopted. If this cannot be achieved, it is vital that the definition in the Bill is extended to at least include lower back injuries.

 

The prevalence of RTA-related whiplash claims

  1. Research and development over recent years have significantly improved vehicle safety: cars are safer than they have ever been. The latest report from the Institute of Faculty of Actuaries on third party motor claims shows a reduction in vehicle damage claims from road accidents of 27% between 2009 and 2013.

 

  1. Evidence put forward by the Association of Personal Injury Lawyers (APIL) to the Justice Select Committee in February this year, referred to by Richard Burdon in the Second Reading debate, seeks to demonstrate that the number of whiplash claims is reducing. The statement relies upon statistics from the Compensation Recovery Unit (CRU), which must be read carefully and in context.  Whilst APIL claims that the number of ‘whiplash’ and ‘neck and back injuries’ registered with CRU has “fallen 11% since 2011/2012”, the reduction from 829,661, to 771,272 reported claims is a reduction of only 7%,  around two-thirds of the claimed reduction.

 

  1. It must be remembered that in choosing to compare current claims levels with 2011/12, APIL has selected the year with the highest level of claims in the past 16 years, a peak created partly by the Jackson reforms which encouraged claimants to bring forward claims before the costs regime changed in April 2013 (2012/13 also saw very high claims volumes for the same reason). In 2011 the Institute and Faculty of Actuaries reported an 18% increase in the proportion of third party accidents resulting in a personal injury claim in 2011, the biggest increase it had seen since it began compiling statistics. The Institute notes that this rise alone increased the cost to insurers by £400m “and as a result it is likely that motor insurance premiums will rise”.

 

  1. When the statistics are looked at over a longer period, with the ‘Jackson blip’ averaged out, the evidence shows, as the Lord Chancellor indicated during the Second Reading debate, that RTA claims rose by more than 50% between 2005/6 and 2015/16.

 

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

 

  1. Whilst FOIL does not collect data on fraudulent claims, it has a very active Fraud Sector Focus Team comprising senior members of Fraud teams in member firms. The scale of the measures taken to tackle fraud, and the resources devoted to it, indicate the significant problem and challenge which fraud presents.

 

  1. Whiplash claims are particularly vulnerable to fraud as there is no objective medical test which can establish whether or not an injury has occurred. Claims can be brought almost on the basis of ‘self-certification’, with defendants having little more evidence than the claimant’s own account of the injury even where a medical report has been obtained from a reputable source. Whilst it was argued in the Second Reading debate on the Bill that the remedy for fraud is not a change in the rules but a more robust defence of claims by insurers, in practice that is very difficult, with the courts requiring a high standard of proof, and the evidence often simply not available to fight claims where there are genuine concerns around veracity.

 

  1. The current claims regime is driving the continuation of a ‘compensation culture’, encouraging people to make a claim who have no genuine reason to do so, creating an environment in which exaggeration and fabrication are too readily adopted to access the financial benefits available. FOIL believes that the reforms will reduce the incidence of fraud by removing some of the financial incentive for dishonesty. However, whilst opportunistic claimants may be deterred, it is unlikely that people intent upon making fraudulent claims, for example through crash-for-cash, will give up:  they are likely to look to exploit the new system and explore other areas in which to commit fraud.

 

 

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.

 

The tariff

  1. As indicated in its response to the MOJ’s consultation on soft tissue injury claims, FOIL supports the introduction of a tariff for damages in RTA-related whiplash claims. Although the MOJ indicated in its consultation that it proposed to allow a further small sum to be awarded to compensate for minor psychological injury, FOIL would propose that the fixed damages should cover any psychological injury without a further specific payment, to discourage the pursuance of such claims, which tend to bring with them significant claims for CBT therapy which may not always be justified.

 

  1. On the detail of the tariff, FOIL would propose a de minimis period for compensation, requiring an injury to last at least 7 days before compensation is payable, to prevent claims being brought for very trivial injuries.

 

An uplift in the tariff sum in exceptional circumstances

  1.                                                                                                                                                                                                                                                                       In a regime where more claimants are likely to be unrepresented it is important that individuals are able to ascertain with some certainty what their claims are worth, to enable claims to be settled with some confidence and, wherever possible, without court proceedings. The difficulty with any provision allowing increased damages in “exceptional circumstances” is that that certainty will be undermined.

 

  1.                                                                                                                                                                                                                                                                       The government itself recognises the importance of certainty, indicating in paragraph 59 of its consultation that it believes a single figure rather than a band in the damages table “provides greater clarity to claimants and protection against potential under-settlement or over-settlement”. It indicated in its response to the consultation that most respondents did not support the proposal for a discretionary uplift, noted that the arguments are finely balanced, but ultimately opted to include some judicial discretion. This approach increases the uncertainty as there will be no rules on “exceptional circumstances”, which will have to be developed through case-law.

 

  1.                                                                                                                                                                                                                                                                       Whilst recognising the desire to fine-tune the compensation system, FOIL believes that a discretionary element will encourage claimants to pursue litigation rather than settle their claims, in the hope that their circumstances will be judged exceptional, undermining the aims of the reforms. FOIL would urge that the discretional element be removed from the regime.

 

Banning the settlement of claims without medical evidence

  1.                                                                                                                                                                                                                                                                       The practice of pre-med offers has developed as a reaction to the poor quality of medical evidence available to defendants in whiplash claims, often only obtained once the claimant is symptom free, and not infrequently based on inadequate medical examination and pro forma reporting.

 

  1.                                                                                                                                                                                                                                                                       As the Insurance Fraud Taskforce noted in its final report, “the establishment of MedCo… has made the medical evidence process much more robust.” In the context of the improvement in medical reporting which MedCo’s work has delivered, and its plans for further improvements, FOIL does not believe there will be a need in future for pre-med offers in RTA-related whiplash claims.

 

  1.                                                                                                                                                                                                                                                                       The Bill provisions in this area need amendment. The reference in Paragraph 67 to the Law Society as the regulator for persons undertaking a reserved legal activity should refer to the SRA.

 

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 on-line court procedures.

 

  1. Upon the basis that the accompanying safeguards are introduced, FOIL supports the raising of the small claims track limit to £5,000 for RTA-related whiplash claims, and believes that it is appropriate for Employers’ Liability and Public Liability claims to be treated differently, with a small claims track limit of £2,000.

 

  1. FOIL does not believe that to divert low value RTA, EL and PL claims currently handled under the Low Value Claims Pre-Action Protocol/Portal process into the court process would be satisfactory for claimants or for defendants. It would place enormous strain on court resources.

 

  1. In its response to the government consultation, FOIL outlined its reasons for believing that the current small claims process would not provide a solution, together with proposals for an adapted portal process to handle claims of ‘small claims track value’. It is not just a matter of ensuring that claimants acting in person have access to a process to handle their claim: issues such as the current pre-issue steps to deter fraud; the obtaining of medical evidence; and the valuation of claims also need to be considered. FOIL’s response to the MOJ, setting out proposals for a portal-type process is available on the FOIL website: www.foil.org.uk

 

  1. FOIL supports the development of the On-line Court and welcomes the proposals in the Bill to create a rule-making body. However, Lord Justice Briggs himself recognised that the establishment of the court represented a significant challenge and it is not possible currently to say with certainty that the On-line Court will be introduced and whether it can provide an effective solution for handling low value personal injury claims.   FOIL has particular concerns at the government’s decision announced in its response to the ‘Transforming our Justice System’ consultation, to allow paper-based claims to continue alongside the On-line process. Lord Justice Briggs indicated in his final report that allowing a joint system was “ not a realistic answer” to ensuring access to justice, on the grounds of excessive cost. 

 

  1. In due course the On-line Court may provide a regime to handle low value claims but, as it will not be introduced until 2020, an interim solution will be needed to allow the new whiplash claims regime to come into effect on 1 October 2018 as proposed.

 

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

             

  1.                It is likely that whatever the system for handling low value claims, CMCs and claimant law firms will develop a business model allowing them to continue to acquire an income stream from that work. The experience of PPI and travel delay claims suggests that claimants are willing to pay for assistance in bringing a claim even where they could do it themselves and where the compensation is relatively low.

 

  1.                Business models based around fees which are a proportion of the damages recovered provide an incentive for CMCs and law firms to offer commoditised services which are not necessary for a consumer wishing to claim and which encourage damages inflation. In its consultation on CMC fees in financial claims, the MOJ proposed an overall financial cap on fees for some types of claim regardless of the sums recovered. Adopting a similar approach for minor personal injury claims would discourage CMC activity and benefit consumers.

 

  1.                FOIL welcomed the proposals for tougher regulation of CMCs arising from both Carol Brady’s review of CMC regulation, and the Insurance Fraud Taskforce, in particular the need for effective enforcement of the referral fee ban; a clamp down on “phoenix companies” which CMCs use to re-invent themselves; the abuse of data protection rules; and the need to ensure that CMCs are run by ‘fit and proper persons’. FOIL supports the transfer of regulation of CMCs from the MOJ to the FCA.

 

  1.                FOIL highlighted its concerns at McKenzie Friends acting as pseudo lawyers in its response to the consultation by the Lord Chief Justice and the Judicial Executive Board on the issue in May 2016. FOIL is concerned at the evolution of the McKenzie Friend from informal lay friend to a semi-professional service. It welcomed the draft rules put forward in the consultation to control and formalise the conduct of McKenzie friends, including the proposed ban on charging.

 

  1.                It is important that reform in this area is seen as a comprehensive package. Work is being undertaken on a number of fronts, both within Government and the judiciary. It is important that the reform of RTA soft tissue injury claims includes both process and regulatory reform.

 

 

4 April 2017