Written evidence from Keoghs LLP (clm0011)

Small Claims Limit increase

Additional Submission from Keoghs LLP

INTRODUCTION

1. Keoghs is the only top 100 law firm to focus exclusively on handling and defending both mainstream and specialist insurance claims. We offer an end-to-end claims service to insurers, public sector bodies and self-insured companies which includes pre-litigation, litigation and costs negotiation activities. Keoghs acts for nine out of the top ten UK general insurers, and with 1400 dedicated staff, is a recognised leader in its field. In the last 12 months we handled approximately 90,000 claims across all classes of personal injury claim.

OUR SUBMISSION

2. This supplementary evidence is in addition to the evidence we submitted to the Committee in March 2017, as part of its original inquiry on whiplash and the small claims track limits. In this submission we gave our full support to the Government’s plans to introduce tariff damages for low value motor claims, ban pre-medical offers and increase the Small Claims Track for both motor and EL / PL claims.
3. This new submission takes account of the Government’s Financial Guidance and Claims Bill and the Government amendment which was passed in the House of Lords at Third Reading of the Bill, providing for a cap on fees that CMCs and legal services providers can charge claimants for claims management services in relation to PPI claims.
4. The main thrust of this submission focuses on the issue of consumer detriment. We have real concerns that a potential unintended consequence of proposed Government reform in the personal injury space will be a growth in CMC activity which if unfettered could drive an increase in claims frequency and cost, both to the detriment of genuine claimants and those who pay for the compensation process by way of premiums. This will include young drivers, families, UK PLC and local authorities. Responsible, regulated and fee capped CMC’s can support access to justice but a fee cap must be set in place to control the excessive behaviours demonstrated by firms who see injured people simply as a valuable commodity and the claims process as a means to make excessive profits at the public’s expense.

PAYMENT PROTECTION INSURANCE (PPI) CLAIMS

5. As the Committee will be aware, the Government has decided to legislate for a cap in advance of the Financial Conduct Authority (FCA) taking over responsibility for claims management regulation and to set this cap at 20% (excluding VAT) of the claim value.
6. The intention is that the cap would be introduced two months after the Bill receives Royal Assent which, subject to Parliamentary approval, is expected to be by March 2018. This interim cap would remain in place until the FCA exercises its own fee-capping duty under Clause 17 of the Bill.
7. The interim fee cap will be enforced by the Claims Management Regulator (CMR) in respect of CMCs and the legal service regulators in respect of law firms.

PERSONAL INJURY (PI) CLAIMS

8. Given that the Government has accepted that there needs to be a cap over how much CMCs can claim from PPI claimants, we believe that a similar cap should be introduced for Personal Injury (PI) claims.
9. It is particularly important that this be introduced - as a matter of priority - for two reasons:
1. The impending cap on PPI claims will result in CMCs looking at other areas to generate business, most likely the PI arena. We would cite holiday sickness claims as a prime example of UK CMC’s diversifying their activities with devastating effect and creating new and lucrative markets in a very short time span. This behaviour will be further exacerbated by the now announced Government deadline on submitting PPI claims of 29th August 2019.
2. The impending increase in the small claims limit for PI will mean that CMCs will have more of a potential market to target because more claims will be taken forward without legal advice. This is dependent upon the timing of the implementation of the reforms, which, although officially stated to be October 2018, is at present unconfirmed and unclear. The Government may consider that the personal injury claims portal is sufficiently straightforward for claimants to bring their own claims but history teaches us that in a very simple PPI claims process, more than 85% of claimants used a CMC[1].
10. We welcome the transfer of regulation of CMCs to the Financial Conduct Authority, but tighter regulation is not enough. The claims management industry is driven by economics and therefore imposing a limit on fees paid to and charged by claimants to CMCs is crucial to protect claimants. We would also say that:
1. CMCs often provide little value to claimants; the work that they carry out doesn’t require professional training and is limited in scope.
2. CMCs are not and should not be viewed as a necessary part of the claims process.
3. CMCs consistently overcharge for the work that they do carry out.
11. As it currently stands, a CMC can take any agreed percentage of damages away from their client - it is not uncommon to see CMCs charge 35% - 40% of sums recovered in PPI claims. These are not Damages Based Agreements (DBAs) for which there already exists a cap; solicitors and CMCs use other forms of agreement to circumvent these regulations.
12. This model will likely be migrated to PI claims. Even after the Government’s proposed introduction of tariffed damages, the opportunity to integrate credit hire and credit repair elements can mean that claims are worth pursuing by CMCs particularly in the absence of a percentage fee cap.
13. It would appear that the Government are not minded to move to cap CMC charges in PI claims. This is to the detriment of all consumers – both claimants and the premium paying public, UK PLC and local authorities who ultimately will pay for this through premiums. The FCA will have the powers to impose a cap but only when they are the CMC regulator and if they were so minded to do so.
14. It is crucial to extend the fee cap for CMCs to PI claims (which should include noise induced hearing loss and holiday sickness claims). If this doesn’t happen, the absence of a cap will fuel frequency and will drive severity – it is easy to see how CMCs, on a 40% fee of damages recovered, would be incentivised to maximise damages which in turn could lead to more fraudulent behaviour in the personal injury compensation arena. This could serve to undo much or all of the Government’s work in tackling these important issues through the Civil Liability Bill and associated secondary legislation.
15. It is important that the certainty provided by tariff damages is not eroded by allowing the proposed uplift of 20% other than in “exceptional circumstances.” If it is, then CMC’s will apply for it in every case leading to satellite litigation clogging up the court system on this issue.
16. The introduction of Part 36 offer consequences into the Small Claims Track has been proposed by the claimant lobby. It is not needed as the small claims track regime already provides for limited costs shifting that has worked well over the last 17 years. In addition, claimants have the protection of Qualified One-way Costs Shifting if they are unsuccessful. The introduction of Part 36 consequences would open the door to an involvement of lawyers within the process and would undermine the Government objective of tackling the high costs of whiplash litigation. 

RISK OF FRAGMENTED REFORM

17. It is also crucial that the increase in the small claims track limit and the provisions that are intended to be addressed through primary legislation (i.e. the whiplash definition, ban on pre-medical offers and the introduction of tariffed damages) are implemented at the same time. There are real dangers in a piecemeal approach to PI reform.
18. If the Government raise the SCT in isolation, CMCs will enter the PI market in droves as the deadline for bringing PPI claims approaches (in August 2019).
19. Extending a fee cap on CMCs to PI claims as well as ensuring that the wider whiplash/PI reforms are implemented together will reduce the risk of consumer detriment and unintended consequences.

December 2017