On the 1 August 2013 a new system for dealing with Personal
injury claims relating to Employees and members of the public was introduced.
The insurance business has long felt that the costs enjoyed
by solicitors dealing with these incidents unreasonably outweigh the
compensation awards obtained. It is not unusual to see costs being 300% of the
amount of Damages awarded for pain, suffering and loss of earnings.
A compromise has been agreed and the result initially looks
positive.
- Referral fees banned
- No more insurance policy taken out to insure the costs of
losing
- Fixed fees for claims up to £25,000 of between £900 and £4,000
- Online to make it faster
Naturally the legal profession has also made some gains.
- Strict timescales for response
- 24 hours to acknowledge
- Liability to be decided in 30 days
- Substantial cost penalties if these timescales aren't
achieved
Claim amount Fees In
time Fees time not met Increase
£2,000 £900 £1,300 44%
£15,000 £1,600 £3,000 87%
£25,000 £1,600 £4,000 150%
- The claimant will never face costs being awarded against
them even if their claim fails unless for fraud
- 10% damage award increase, solicitors can now net their fees
off the damages
- Allegations relating to the standing of the client or fraud
need to be robust enough to withstand scrutiny
- Arguing contributory negligence is now uneconomic
Castlemead concerns
We are not convinced that these reforms will achieve a
reduction in claims and that they may even inspire a greater claims culture, indeed
there are several unintended consequences.
- Solicitors have bypassed referral fees rules by direct
advertising or corporate structures that remunerate advertisers in different
ways for example dividend payments
- Solicitors will press hard to push claims outside the portal
to maintain their fees
- Next day 1st class post delivery is used as the measure for
the 24 hours to start
- Our experience of the post system is that it is not reliable
enough for this
- Settlement should now take 3 months unless medical evidence
is complex or the injury is ongoing, solicitors will be able to advertise this
fact promising a speedy payment
- By waiving rights to costs insurers have little incentive to
go to court as any barristers and solicitors fees expended are unrecoverable and
will form part of the claims experience
- We believe insurers will move to settle as many incidents as
possible under £25,000 chasing the perceived benefit of reduced fees
- Fraud and contributory negligence arguments used in the past
to 'horse trade' with claimants solicitors over damage awards are now
eliminated as negotiation tactics leading to higher damage awards, this is
together with a 10% automatic increase in damages award
What we need our
clients to achieve
- Deal with post promptly get the claim documents to us by
email same day, a big ask but necessary
- Provide investigation documents by return following a claims
investigation or better on the day, we will provide a list of documents to you
when we are notified
- Draft a process for this internally for us to share with
your insurers
Why?
- We are concerned insurers will recharge the increased
solicitors costs to those clients who fail to forward documents in time in a
similar way to Pre Action Disclosure requests not being met in the past
- At £1,500 a time this could mount up
Outlook
- Claims for £25,000 or less will result in insurers taking
the most economic, if not the most robust strategy and paying claims
- Castlemead believe we are likely to see an increased volume
of low value claims, similar to the whiplash phenomenon, processed under this
system due to speed of process and solicitors needing larger volumes of work to
make up lost revenue
- Claimants still get 3 years to make a claim, however the
rules are not retrospective
- Claims experiences will change in profile, it is very
unlikely that we will see claims reserves sitting on policies for years on end.
- This is a positive although it reduces insurers limited
opportunities for investment returns, it makes client exposure very quick to
establish
- Some insurers invest much more heavily in claims
investigation at early stages to defend claims
- We believe insurers performance on defending claims will
become homogenous meaning that the larger process driven household name
insurers will be able to deal successfully with claim intensive clients
- The increased number of claims will increase premiums
serving to increase insurance company premium volumes and margin return
typically 30% is aimed for by insurers
- We believe that clients with large footfall exposures may
well be better off considering a self insurance excess that will take out
claims and reduce overall cost of risk
- Taking the self insurance option means that a client’s health
and safety systems and controls need to be exceptionally robust to make it
worth investing in the fees incurred in defending this type of claim
If you would like to discuss any of these issues raised in
this blog regarding MOJ and how they may affect your business over the next 18
months please contact Richard Ingleby
richard.ingleby@castlemead.com,
direct dial 0117 9453907.
We have a number of examples of BACS causing a problem. We
recently discovered that the Sort Code and Account number does not relate to
the payee loaded onto the banks systems. We have seen a client loose a six
figure sum due to a clerical fraud.