clm0007 - Evidence on Small claims limit for personal injury

Written evidence from National Accident Helpline (clm0007)

This document sets out National Accident Helpline’s submission to the Justice Select Committee’s inquiry into 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.

Within the submission we have focused upon the following issues: the impact of raising the small claims limit to £5,000 for all RTA-related claims and to £2,000 for personal injury claims more generally, and the potential impact of this policy on the role of claims management companies and on the operation of the market for ‘before the event’ legal expenses insurance.

Introduction

National Accident Helpline (NAH) is the UK’s leading provider of personal injury advice, services and support. Part of NAHL Group PLC, we provide marketing and claims vetting services to 50 of the UK’s largest specialist personal injury law firms.

NAH has helped more than 2 million people injured in accidents that were not their fault since it was established in 1993, with a focus on promoting best practice in the industry – for example leading the new Ethical Marketing Charter to prevent cold calls and via our contribution to the Government’s Insurance Fraud Taskforce.

Summary

NAH has significant evidence to show that the Government’s plans to raise the small claims limit to £5,000 for RTA-related claims and to £2,000 for personal injury claims more generally will have a detrimental impact on individuals’ rights to access legal advice, and will prevent genuine claimants from being able to secure rightful redress.

While NAH supports the objectives of the Government’s reforms to reduce spurious claims, it is crucial to ensure that any changes are based upon up-to-date evidence to ensure that there are no unintended consequences on the rights of claimants to access justice.

In this context, the Government must ensure that any proposals are implemented carefully to avoid significant detriment to injured people. NAH is keen to offer our support and expertise to the Committee to ensure the objectives for the reforms are achieved while avoiding any significant unintended consequences in their implementation.

The impact of raising the small claims track limit for RTA-related whiplash claims and all PI claims

NAH has significant evidence to show that the Government’s plans to raise the small claims limit for all PI claims will have a detrimental impact on individuals’ rights to access legal advice and will prevent genuine claimants from being able to secure rightful redress. The impact would be pronounced with NAH data showing that 96% of settled RTA claimants receive general damages of less than £5000 and would be affected by the Government’s proposals. NAH observes that the proposed change captures all RTA claims and not just those arising from soft tissue injuries.

While NAH supports the objectives of the Government’s reforms to reduce spurious claims, it is crucial to ensure that any changes are based upon up-to-date evidence – to ensure that there are no unintended consequences on the rights of claimants to access justice.

NAH’s primary concern is the clear evidence which demonstrates claimants’ inability to pursue financially important personal injury claims without access to legal advice and support. For example:

► A survey of 100 customers who contacted NAH’s Kettering contact centre for claims advice between 15th and 18th December shows that 58% would not consider bringing a claim without advice and support from a lawyer. Fears about bringing claims were more pronounced in EL claims where 64% of consumers were unwilling to bring claims without support and OL/PL where 62% would not claim. The underlying reasons for not claiming without advice from a lawyer were lack of knowledge 54% and fear of paying costs 41%. It was clear that advice and reassurance from lawyers about process and risks is critical in enabling access to justice.

► NAH research, conducted by YouGov in 2016, showed that 88% of people would not have claimed if they thought they might have to pay the other side’s costs.

► This data is against the backdrop of growing concerns by the Judiciary regarding access to justice, with the recent Supreme Court ruling that the Government’s abolition of employment tribunal fees was in fact unlawful.

► Even if claimants do decide to pursue a case without representation, medical experts are reluctant to produce medical reports for litigants in person. The Bond Solon survey 2017 found 76% of medical experts would not accept instructions from a litigant in person, due, in part, to poor instructions from litigants in person and concerns over fees.

► It is unclear how litigants in person will contract to fund disbursements such as medical reports. These are currently funded by solicitors who, due to their buying power, can negotiate deferred terms for report fees. NAH requires its panel solicitors to fund disbursements for injured people. Litigants in persons’ inability to fund these considerable costs will create significant barriers to bringing viable claims, similar to the issues resulting in a material reduction in employment tribunal cases.

The practical impact of the Government’s reforms on those claimants who do decide to pursue their case as a litigant in person is also considerable. Both the Claims and MedCo portals are currently designed for lawyers and there are serious concerns over the accessibility of these portals for litigants in person. For example:

► In its fourth ‘Cost of motor insurance: whiplash’ report, the Transport Select Committee urged the then Coalition Government to analyse the impact of the electronic portal for submitting personal injury claims.

► With the Committee having also noted concerns around access to justice, the weakening of anti-fraud procedures and potential cost implications, the Government confirmed it would ‘defer any increase to the limit until we can determine the impact of our wider reforms on motor insurance premiums and better safeguard against the risks identified by the Committee’. NAH therefore believes that the Government should undertake each of the actions recommended by the Committee prior to considering an increase to the small claims track limit.

► More recently in July 2016, the Civil Justice Council (CJC) said considerable ‘time and money would be needed’ to ensure the portals were suitable for claimants with no legal knowledge.

► Furthermore, NAH notes the plans to develop online courts. Whilst progress is at an early stage, NAH recommends that any decision to increase the small claims track limit is deferred pending the development of technology arising from Lord Briggs’ report.

In his report, Lord Justice Briggs said he had been over-simplistic in assuming the claims that would be captured by the small claims track under the reforms would simply fall into the online court, and that in his opinion such claimants should not be excluded from the intended benefits of the online court and that the decision should lie with them rather than being imposed upon them. Furthermore, his conclusions also note:

► That the success of the court will be ‘critically dependent upon the painstakingly careful design, development and testing’ of the stage 1 triage process and that without this, it will offer no real additional benefit. NAH supports this and recommends the thorough testing of any online procedures before implementation.

► That the success of the online court will also be dependent upon legal education for the general public and digital assistance for those challenged by IT.

► That notes from a CJC workshop on extending the small claims court said that in principle the portal could be made accessible for litigants in person, but that it would take time and money, highlighting the need for an end-to-end service, anti-fraud security checks, and a separate Portal Protocol written before the website was redeveloped.

During 2017 NAH rolled out a digital process whereby consumers could have their claims assessed online via a detailed digital triage process. Whilst this programme is in its infancy it is interesting to note that the vast majority of consumers (91%), still prefer to discuss their claims with an advisor. Furthermore, of those consumers that commenced the online triage process, 32% completed the process, with 68% failing to complete the full assessment. These processes will continue to be refined and developed but are a clear demonstration that consumers often prefer to be advised by a human being rather than to default to digital solutions. Creating online solutions in legal services is far from straight forward.

Defendant behaviour would be a further barrier to justice under the Government’s proposed reforms whereby defendant delays and failure to concede liability in appropriate cases would frustrate the claims process and prevent litigants in person from securing rightful compensation.

► The Claims Portal Management Dashboard provides a useful insight into current and future behaviour. Despite the significant cost advantages of handling claims within the portal environment, insurers fail, either deliberately or due to inefficiency, to respond in accordance with prescribed time limits in large volumes of claims. In RTA cases defendants were timed out, having provided no response on 20% of claim notification forms. The figure rises to 23% in public liability (PL) claims and 24% in employers’ liability (EL) claims. These figures relate to stage 1 of the process. There is significant additional drop up during stage 2.

This data demonstrates that any increase to the small claims track limit for cases in which liability is challenging to prove may create a perverse incentive for defendants to ‘starve’ unrepresented claimants out of their legal action, presenting a major barrier to litigants in person being able to challenge a claim against a well-armed insurer. The small claims proposals eliminate, at a stroke, the current incentives to accept liability within protocol time limits.

NAH is concerned regarding the reliability of the evidence underpinning the case for the Government’s reforms and points to data from a variety of credible sources which contradicts a number of key assumptions. For example:

► Claims Portal Ltd data shows a material decline in the volume of RTA claims being registered with the portal. The most recent year to date figures (October 2017) show 357,678 claim notification forms created and sent to a compensator, down 45,523 from 403,201 in October 2016. In 2015 the figure was even higher at 435,886. In fact, 2017’s figure is the lowest since 2010/11.

► Official data from the Compensation Recovery Unit (CRU) shows that the number of EL and PL cases registered to the CRU is in significant decline. The number of EL claims has dropped from 105,291 in 2013/14 to 73,355 in 2016/17. The number of PL claims has dropped from 103,578 to 85,504 during the same period.

► Furthermore, the Government’s own data originally promised savings of £50 for every motorist if the reforms took place. This has dropped to £35 since the discount rate was adjusted to -0.75%, and just £16 (or 30 pence per week) in the 2017 Autumn Budget.

Finally, it is possible to reduce the number of whiplash claims by focusing on the correct targets and without diminishing access to justice for genuine claimants. A number of steps can and are being taken to tackle fraudulent and exaggerated claims. These include:

► Banning cold calling: the Government has announced its intention to ban claims management company cold calling through an amendment to the Financial Guidance and Claims Bill, a measure that NAH has been calling for since 2012 – first through our Stop Nuisance Calls campaign and more recently through founding the Ethical Marketing Charter.

► Implementing recommendations on the lines of the Insurance Fraud Taskforce report (contributed to by NAH). These include:

Discouraging fraudulent claims by ensuring that recent claims proceed as normal through the fast track, but putting older claims through the small claims track.
Reducing recoverable costs by 50% if a minor PI claim is notified six months after the accident.
Promoting collaboration between the regulators of nuisance calls.
Requiring solicitors to undertake client identity checks.

► Complying with the guidance issued in the SRA warning notice updated in December 2017.

► The transition of regulatory responsibility of claims management services from the Claims Management Regulator to the Financial Conduct Authority which will be achieved through the Financial Guidance and Claims Bill.

Moreover, raising the small claims track limit could have a detrimental impact on counter-fraud measures as established law firms’ profits are squeezed and priorities are diverted. This could lead to the danger of new low-cost market entrants, with less robust anti-fraud systems and an insufficient concentration scrutiny of claims filling the void.

The potential impact of the policy on the role of CMCs and the operation of the BTE insurance market

The role of claims management companies

Whilst consolidation and uncertainty are expected, in part due to the existing downward trend in the number of personal injury claims management companies (CMCs), the overall impact of this policy on the role of CMCs is unknown. The lack of evidence makes way for speculation on the policy’s potential impact, much of which has been shaped by previous changes to the financial services claims process and existing concerns about the conduct of illegitimate CMCs. These impacts include:

► Genuine claim volumes remaining largely unchanged. Based on previous evidence, the number of accidents and number of consumers with genuine claims is unlikely to change, at least in the short term.

► The proliferation of unscrupulous CMCs. As a result of the consolidation of the market, there is a risk that unscrupulous CMCs will seek to exploit the absence of legal advice from lawyers, increasing the number of litigants in person, rogue marketing practices and spurious claims.

► Potential tactics employed by rogue CMCs are to mirror poor experience from financial services claims. This involves deluging the system with high volumes of claims, abandoning more difficult cases and exploiting maximum revenue from straightforward claims. It will become uneconomical for CMCs and lawyers alike to pursue more difficult claims (e.g. where liability is denied or where the injury or losses are not straightforward), within the small claims track. Such adverse consequences are contrary to the interests of injured people, insurers and the legal system.

► Slimmer profit margins will drive a business model where overhead costs are cut to the absolute minimum, resulting in poor service, under-settlement for claimants, and dubious marketing tactics.

The reforms will inevitably drive low-cost and illegal claims acquisition tactics such as cold calling and data mining. Whilst the intention is for these activities to be reined in by enhanced regulation and new legislation, enforcement at a practical level is challenging.

The operation of the BTE insurance market

A CJC study on before the event (BTE) insurance published in November 2017 said that it is not possible to anticipate precisely the impact of the small claims limit reforms on the BTE industry until they are introduced and the market has had a chance to react to them.

However, the BTE insurance market is unlikely to be sustainable in its current form.

► There is uncertainty about the adaptability of the market post-reform.

► The availability of suitable BTE is significantly restricted amongst less advantaged socioeconomic groups who often do not own their own homes and do not have access to the types of insurance that BTE is typically bolted on to.

► Furthermore, a data sample of 23,000 cases commenced over the last two years by leading firms confirms that BTE cover has been used in just 3% of EL claims and 6% of PL claims. These firms are required by their regulator to properly investigate funding options with each claimant and this evidence clearly demonstrates that BTE cover is not available for the vast majority of non-RTA claimants due to there being no cover, or it not being suitable due to policy restrictions.

► With a drastic increase in the number of cases where legal costs cannot be recovered from the defendant, BTE insurance presents a potential but highly challenged solution to maintaining access to justice. There are currently very significant shortcomings in the availability of BTE under the current system along with significant issues of lack of consumer awareness. The ability of insurers to create policies which provide appropriate BTE solutions in a small claims environment, at an affordable cost, is not known. Current pricing provides no benchmark.

Ultimately, the small claims reforms if not carefully implemented will create a significant reduction in access to justice whilst creating significant risks and a range of adverse consequences. Without appropriate protections the reforms will create an inequality of arms between claimants and insurers and a fundamental access to justice shortfall for a large segment of society.

December 2017