Written evidence from Aviva
Aviva is pleased to submit evidence to the Justice Select Committee Inquiry on the small claims limit for personal injury (PI). We remain fully supportive of the proposed increases to the small claims track (SCT) limit as part of the package of measures (alongside the Financial Claims and Guidance Bill, and Civil Liability Bill) to deliver improved access, transparency and a more efficient system to all that use it. It continues to be crucial that all of these reforms are implemented at the same time so as to avoid the risks of fragmented reform.
Summary
• As previously outlined, the intention of the SCT to deal with low value and low complexity injury claims has been lost by inflation of damages and the huge increases in numbers of whiplash claims over the last 16 years.
• This, combined with the removal of legal aid for personal injury claims in 2000, has resulted in a significant increase in legal costs payable on a large volume of low value PI claims. The cost of these claims has a direct impact on consumers through higher insurance premiums.
• The attempt to fix costs and reduce those fixed costs over the last few years has made little impact. The right approach is to fix the level of damages by way of the tariff and remove costs recovery.
Aviva believes:
• Increasing the SCT to £5,000 is the right solution and will reduce costs to the benefit of consumers.
• The rules relating to the SCT need to be brought fully up to date and take advantage of online capabilities and alternative dispute resolution.
• That providing additional safeguards (some of which are in the Government’s plans and others which need further developing) will better ensure fairness and access to justice.
Aviva provides peace of mind for more than 15m UK people. In 2016 2.54m UK vehicles were insured by Aviva, up 5% from 2015 and in 2016 Aviva dealt with 833,000 claims paying out £2.3bn.
Further detail
1.1 The increase of the SCT to £5K is needed to improve the efficiency of the system for PI claims and combined with other changes will ensure fair outcomes for both consumers and injured parties.
1.2 We all pay for the inefficiencies in the current PI claims system. While it is not funded directly by taxpayers, consumers do pay for them in rising motor insurance premiums – which are now at record levels (the average motor premium now costs £485 per year).
1.3 There is strong evidence of the inefficiencies in the current system. The SCT has been set at £1,000 since 1991 (when approximately 50% of injuries from road traffic accidents (RTA) fell under the SCT), but, due to injury claims inflation and the growth of whiplash claims, there are now virtually no RTA injury claims covered under the SCT, which is no longer sustainable.
1.4 The increase in the SCT limit is therefore long overdue and should be set at a level that reflects the intention of the system which is to capture as many low value / low complexity claims as possible and resolve them in a zero or a low cost process.
1.5 In addition, a surprisingly high proportion of legal firms appear to focus on small claims just above the threshold. In particular 40% of firms derive more than 80% of their revenue from claims under £5000. This shows the value of the “claims industry” farming/encouraging low value claims (some of which are fraudulent, exaggerated etc) and the cost to consumers which has built up following the growth of whiplash claims.
1.6 The SCT for non injury claims was increased to £10,000 some time ago and there have been no adverse consequences in relation to access to justice. We believe, with the right safeguards that are being developed, the new SCT process will be simple and easy for a claimant to use in person.
1.7 We do not think comparisons with the current SCT process and the claims Portal are valid. There is already work under way by the Ministry of Justice stakeholder working groups to develop new rules and a new online claims process/interface for Claimants which is simple to use to replace the current RTA portal process.
1.8 The new process will build on the tariff of damages for low level whiplash claims proposed by the Ministry of Justice and also look to resolve simple quantum or liability disputes without the need for actual legal proceedings to be issued in the small claims track. This will encourage both parties to resolve any dispute without the need for a hearing which is easy and fair for all.
1.9 It is therefore important that the SCT increase is “interlocked” with the introduction of the personal injury tariff and whiplash definition which, in conjunction with the new processes / rules will create transparency for injured parties and allow easy self valuation of their claim combined with an independent medical report in terms of their prognosis. The new process is intended to be automated, pre-populated with as much information as possible and not to be adversarial -recognising that the cost of legal advice will no longer be recoverable.
1.10 The introduction of a more user-friendly process means that it is now possible to have a much more efficient and consumer friendly pre-action legal system for small, standard RTA claims without impacting access to justice and making sure as many claims as possible are settled fairly. There will be on-line guidance given and we are pushing for an additional helpline process.
1.11 The Ministry of Justice cross stakeholder group (including claimant and defendant representatives) is currently designing this system so that it will work fairly and effectively for claimants once the whiplash reforms proposed by the pending Civil Liability Bill are in place.
1.12 We would however recommend that the SCT increase is implemented for accidents (or claims notified) on or after the date of implementation of the full whiplash reform package together and not in isolation of one another. This will ensure a fair lead in and that existing claimants who do not have the benefit of the new process are not impacted.
1.13 We believe a mechanism to move the SCT limit automatically in future, such as a link to inflation or a regular review mechanism. This will ensure that stagnation does not occur again in the way it has.
2.1 Additional changes to support the SCT rise and improve fairness
2.2 Regulatory Changes to better control CMC’s and protect the claimant
2.3 We welcome the transfer of the regulation of claims management companies (CMCs) to the FCA. However, we do not believe stronger regulation by itself will be enough to address the “widespread misconduct” by CMCs which the Carol Brady Review identified in the Fraud Task Force review.
2.4 Even after the Government’s proposed introduction of tariffed damages (in the Civil Liability Bill), the opportunity to claim for the cost of rehabilitation, credit hire and credit repair referral fees remains unaltered and is just as lucrative to CMCs as before.
2.5 We therefore believe better regulation should be accompanied by a specific cap on fees that CMCs can charge in relation to PI claims. We would also like to see specific guidance from the FCA that consumers can make a claim themselves without having to use a CMC.
2.6 It is our view that a fee cap would, alongside stronger regulation, serve to control the excessive behaviours identified in the Fraud Task Force review in respect of personal injury claims. It would also make sure that any claimant who chooses to use a CMC as opposed to making their own claim is adequately protected.
2.7 If the cap is not introduced it will quickly be exploited by CMC’s who will (on evidence of past behaviours) charge customers excessive fees so in our view this is the correct time to make this cap part of the Bill and part of the overall reform “package”.
2.8 The Government has accepted that a fee cap is required on the fees charged by CMCs in relation to Payment Protection Insurance (PPI) claims (in the form of a Government amendment to the Financial Guidance and Claims Bill which was passed in the House of Lords). The argument for an equivalent fee cap for RTA personal injury claims is in our view just as strong and is needed now to cap the % in the same way as the legal fees a Solicitor can deduct are capped.
2.9 Without a cap, CMCs are more even likely to target PI claims as the impending increase in the small claims limit for PI will mean that CMCs will have a bigger potential market share because more claims will be taken forward without legal advice from a Solicitor. The impending cap on PPI claims will also result in CMCs needing to diversify as they have done over the last couple of years to dramatic effect in creating the lucrative holiday sickness claims market.
2.10 Improving Before the Event Insurance offerings
2.11 We would like to see an improvement by insurers of the offering of Before The Event (BTE) legal expenses insurance. We are of the view that this is a product which can offer consumers some practical assistance and additional peace of mind.
2.12 As a BTE legal expenses insurer we will also be playing our part in developing our legal expenses product in line with the new rules and it is our intention to provide guidance and support to our customers who wish to make a claim for their injuries where it falls within the limit of the SCT if support is required.
2.13 If one of our customers has chosen to purchase cover to make sure they receive legal advice in a PI claim within the Small Claims Track limit, this will be provided as a policy benefit.
2.14 We should caveat that we believe that this guidance should be in exceptional cases as the revised SCT process detailed above will be simple to use. In any event and is likely to be provided by a legal helpline which is already a standard part of many legal expenses products.
2.15 It is also important to note that some RTA claims will of course be above the SCT limit and our BTE product will continue to cover the cost of providing full legal advice and representation in cases where the injuries are more serious and often result in additional losses giving our customers full peace of mind.
December 2017