Insurers want the brakes applied

13/12/2004

The insurance industry is calling on the government to clamp down on the ÃâÅ#8220;have-a-go cultureÃâ? even though evidence out this week showed that the UK is not moving towards a US-style compensation culture. The insurers say this is adding millions of pounds to compensation costs and leading to higher premiums for consumers. Norwich Union, the UK’s largest insurer, says claims management companies and no-win-no-fee solicitors are exploiting the public’s expectations of how much compensation they can win for personal injuries.

ÃâÅThe inevitable consequences have been an increase in frivolous and vexatious claims, and an explosion in claimants' costs,Ãâ? says Norwich Union's director of technical claims, Dominic Clayden. ÃâÅThe latter now represents 40 per cent of all payouts.Ãâ?

Norwich Union’s call comes as Citizens Advice is expected to call on Monday for regulation of ÃâÅ#8220;claim farmersÃâ? who promote no-win-no-fee deals, saying they are misleading consumers. It also follows a call last month from Lord Falconer, the lord chancellor, for so-called ÃâÅ#8220;ambulance-chasingÃâ? claims companies to put their house in order or face regulation.

Norwich Union re-ignited debate on the issue this week by calling for the compensation system to be modernised by allowing insurers in low-value cases to deal directly with claimants and not their lawyers, and by stopping claims for bruises and cuts.

Norwich Union has suggested that claims under £1,000, which account for most cases, should not be recoverable.

It also proposes that legal costs for claims up to £5,000 should be made irrecoverable in effect locking out lawyers from the compensation process. The group says that a non-contentious claim, which has a settlement value of £3,000, still attracts legal costs of about £2,000. ÃâÅ#8220;We want to find a way of settling straightforward claims direct with the claimant,Ãâ? says Norwich Union.

As part of its call, the company also wants laws passed so that both claimant and wrongdoer are required to consider rehabilitation before compensation amounts are discussed. Claimants who refused rehabilitation ÃâÅ#8220;unreasonablyÃâ? would have their damages reduced by the amount by which their recovery had been delayed and by a minimum of 10 per cent, Norwich Union suggests.

Equally, if the wrongdoer failed to offer ÃâÅ#8220;reasonable rehabilitationÃâ?, the claimant would be entitled to 10 per cent more in his or her payout.

ÃâÅChanging our compensation system would be disruptive, but the current financial dynamics, together with the lack of claimant focus, suggest that continuing the current approach is not a responsible option,Ãâ? says Norwich Union.

The company’s call came as a study by Axa UK, another insurer, found that 81 per cent of respondents believed the UK compensation culture was ÃâÅ#8220;getting out of controlÃâ?.

The survey of more than 1,000 people aged over 16 found that one in five respondents who had claimed personal injury compensation in the past two years admitted ÃâÅ#8220;exaggeratingÃâ? the claim.

Axa says 71 per cent of the survey’s respondents would accept a cap on compensation payments in return for lower motor and home insurance premiums.

Dennis Holt, chief executive, adds that a clampdown on legal fees would help drive down insurance costs. ÃâÅ#8220;As a rule of thumb, 40 per cent of large claims payouts from the insurers are just paying for legal fees. That does nothing for the policyholder and that does nothing for the rest of us because it will come through the system again in the form of higher premiums.Ãâ?

Consumer groups and lawyers reacted with concern to Norwich Union’s proposals and said it was in insurers’ interests to talk up the ÃâÅ#8220;have-a-goÃâ? culture.

ÃâÅ#8220;Scaremongering about the emergence of a so-called compensation culture is part of the backlash by industry to stifle consumers’ rights,Ãâ? says Phil Evans, principal policy adviser at Which?, the consumer lobby. ÃâÅ#8220;Trying to cap lower-level damages claims shows a total disregard and arrogance towards ordinary consumers.Ãâ?

The Association of Personal Injury Lawyers (Apil) says Norwich Union’s ÃâÅ#8220;modernisationÃâ? would restrict access to justice for injured people, for many of whom £1,000 was a lot of money.

ÃâÅNorwich's so-called claimant-centred approach is a smokescreen for cutting their own costs by seriously limiting consumers' access to legal advice and assistance,Ãâ? says Colin Ettinger, Apil president.

Ettinger agrees that the system for low-value claims was often cumbersome and adversarial, but the solution is not to lock out lawyers. ÃâÅ#8220;People still need professional legal assistance, particularly as they will be up against large insurance companies with experienced claim handlers,Ãâ? he insists.

The view of the insurers came as Datamonitor, independent market researchers, yesterday revealed that the number of personal injury claims in the UK was 9 per cent up in the 12 months to March this year at 770,000 compared with the previous 12 months. However, Datamonitor says general claims figures remained static in the period as accident claims, which account for the bulk of personal injury cases, actually fell by 10 per cent. What boosted the overall figure was an ÃâÅ#8220;anomalousÃâ? surge in disease claims ahead of the closure of the British Coal respiratory disease scheme.

ÃâÅThe underlying trend is that claims numbers are falling,Ãâ? says David Stephenson, author of the Datamonitor report.

Stephenson says this trend debunked the myth that a compensation culture was alive in the UK. ÃâÅ#8220;The level of media coverage that surrounds personal injuries claims has created a myth about the rise in numbers.Ãâ? His report also found that the cost of claims had risen by nearly 10 per cent over the period to £7.2bn. The main causes were ÃâÅ#8220;escalating legal fees and advances in medical scienceÃâ? including better disease detection technology.

ÃâÅClaims costs will continue to be the bugbear of the sector, rising by 41 per cent over the next five years to £10.2bn in 2008-09,Ãâ? the report predicted.

Norwich Union’s report was released this week as the insurer appeared in the High Court in London in a case which is set to decide whether employers or their insurance companies should pay compensation to claimants for an asbestos-related condition called pleural plaques.

Financial Times Online