Examination of Witnesses (Questions 120-139)
NICK STARLING,
JUSTIN JACOBS,
DOMINIC CLAYDEN
AND PHIL
RUSE
10 JANUARY 2006
Q120 David Howarth: That would be
enforced how?
Nick Starling: There are a variety
of ways in which it could be enforced, but we think that ideally
this system would need to be enforced by government through the
DCA.
Justin Jacobs: I was going to
say, ultimately what we are proposing is that the Government should
introduce these reforms and they would then be the norm to follow
through this process, and only if agreement cannot be reached
would you fall out of it and go into the court system.
Q121 David Howarth: But you envisage
some sort of administrative system to enforce rather than using
the court system itself?
Justin Jacobs: The court system
would still be there as a last resort.
Q122 David Howarth: One final question.
I think you mentioned somewhere in your submission that there
should be more cooperation between government departments about
rehabilitation. I am wondering what lay behind that. Do you want
to say a few more words about that?
Nick Starling: We think this country
is actually quite poor at rehabilitation, about the business of
getting people back in health and back to work, and the problem
is that everyone thinks it is a good idea but everyone thinking
it is a good idea does not mean it has the drive that is needed.
We think that it needs much more attention from providers, from
the Department of Health; we think it needs to be focused via
formal requirements on the Health and Safety Executive, to have
it as part of the Health and Safety at Work Act. It essentially
needs an impetus from government that says rehabilitation is extremely
important, it is a vital part of our Health Service and a system
which would work better as a result.
Q123 Chairman: The legal profession
in their evidence to us, if I can use that term generally of those
who spoke to us, did not think that the Motor Insurers Bureau
provided a very good model for an insurance industry organised
scheme of the kind you are talking about, that actually that is
quite a slow and cumbersome process rather than something that
is speeding things up and making them easier. Do you have an answer
to that?
Justin Jacobs: The Bureau is part
of the current compensation process, so it is still subject to
the same process that all insurers and all claimants are. What
we are proposing would be a whole new process. It is not saying
insurers have the right to handle claims however they want; it
is a whole new process which sets new timetables, new targets,
new penalties on both sides; so I am not sure that the Bureau
is an embodiment of what we are proposing, the Bureau itself it
is part of the common process that we are seeking to move away
from.
Q124 Chairman: I mention it to bounce
the lawyers' arguments off you. They say that insurers consistently
undervalue claims. How do you prevent that from happening where
the lawyers are excluded?
Dominic Clayden: The issue is
that at the present time we have an adversarial system where,
for want of a better phrase, horse trading occurs. We believe
that adds delay and cost to the system. We believe that the assessment
of damages should be subject to transparency, clarity and independent
scrutiny so that everyone is clear what is going to be awarded,
so that an independent doctor prepares a medical report which
is then subject to a process which is clear to assess damages.
Nick Starling: It goes alongside,
I think, the tariff of general damages so it is quite clear what
people deserve to receive.
Q125 Chairman: Where does that leave
the consumer? If insurers are organising medical reports, they
are funding the legal advice, where is the independence?
Justin Jacobs: The independence
is there because, although it might be funded by the industry,
it does not mean that it is doing the industry's wishes. They
will ultimately be accountable. The legal advice will be accountable
to the claimant and responsible to them. It would then be funded
by the insurer.
Q126 Chairman: Do you think that
if this process was adopted there would be real cost savings,
and how much could you see premiums being reduced as a consequence?
Nick Starling: At the moment there
are something like 40% transaction costs, and for claims under
£5,000 I think something like 93% are transactions costs—in
other words, there is £5,000 compensation and 93% on top
of that—so there are huge costs at the moment. If you can
reduce those costs, that would be a downward pressure on premiums.
Many of the other cost pressures in the compensation system are
in terms of real value of compensation claims themselves, so we
would expect those things to balance to some extent, but any reduction
of costs and time would certainly benefit consumers.
Q127 Chairman: You do not like to
put a figure on it though, do you?
Nick Starling: No, of course not.
Justin Jacobs: It is impossible
to put a figure on, but what we can say is that we know that transactional
costs currently amount to two billion pounds a year and that two
billion pounds is paid for by UK businesses and UK motorists,
so anything we can do to bring down that cost will benefit those
businesses and motorists.
Nick Starling: We are prepared
to put a figure on time. Employers' liability cases take about
three years from accident to the end of the process, and our proposals
say that you should, in the vast majority of cases, get that down
to six months, and that is a major saving.
Q128 James Brokenshire: You have
already touched upon the issue of costs, and I note, Mr Starling,
you have just referred to this figure of 40% in terms of the legal
or other costs associated with a claim, and I note, Mr Clayden,
that in the evidence from Norwich Union you have also highlighted
this 40% figure in terms of the overall legal costs in personal
injury claims. Cost is a factor in terms of the perception of
risk in the "compensation culture". Part of that might
be addressed through the reform of the small claims system and
raising the thresholds. As you may be aware, we have examined
that as a committee, but I think in this context it would be interesting
to hear your views on whether some of the problems might be addressed
more easily by raising the small claims threshold?
Dominic Clayden: I think if the
small claims limit was raised, and we believe it should be, it
is clear that we would need a system to ensure that people who
have had an accident get the compensation they are entitled to,
so we believe that part of the debate with raising the small track
limit is how do we ensure compensation is paid, and we believe
that the system we are proposing can have a part in that so that
consumers get a fair deal.
Nick Starling: We believe it should
be raised to £5,000.
Q129 James Brokenshire: But part
of that in terms of ensuring that people do get the compensation
that they are entitled to, in terms of the process that you go
through and in personal injury claims, and that is partly the
medical evidence, and one of the stumbling blocks in terms of
the procedure and ensuring that you can actually claim the compensation
that you justly deserve is presenting medical evidence in a cost-effective
and simple manner. What would your views be in terms of the procedural
side of accepting less comprehensive or more straightforward medical
evidence submissions on a small claims case to actually speed
up the process and in some ways assist justice by ensuring that
a matter is dealt with more efficiently and effectively?
Dominic Clayden: Provided that
medical evidence is sufficient that you can understand what injury
a person suffered and what their likely prognosis is, I think
it is to be welcomed. To give you an example, in a simple road
traffic case where somebody suffered a whiplash injury which has
resolved within two or three weeks, I actually believe a report
from a GP, who are the normal clinical practitioners who would
see people with that type of injury, is the correct route to go,
and I do not believe, for example, the additional costs and delay
of having a consultant seeing that person is really going to assist
the process.
Q130 James Brokenshire: We have touched
upon the issue of legal involvement on small claims, and it is
interesting that, despite the issue of a legal costs not
arising in the small claims procedure, quite frequently, as we
heard in our submissions on our previous inquiry, lawyers are
still directly involved on a small claims matter and insurers
quite frequently send a legal representative, or a lawyer, or
a solicitor, to represent them on the small claims case even though
technically that is not required and the fact is that those costs
would not be recoverable. Why is it, do you think, that that procedure
is still followed and, for example, the claims handler could not
go along and present the evidence and not sort of overlay that
additional cost and hopefully cut the premium by cutting the cost?
Dominic Clayden: Each case will
be on its individual facts. My immediate reaction to that is in
a practical sense on a lot of occasions the person who is handling
the claim may be geographically a long way away from the court,
and it is simply ensuring that there is someone to go along and
be present at court and it is convenient to have somebody who
is a lawyer attend. There is no particular reason why a lay person
could not do it.
Q131 Chairman: That is a surprising
answer! Normally you would measure people's time and what it was
costing you and also the effect on the conduct of the case. I
asked a judge in a very minor road traffic case how long it would
have taken to hear the case in the Small Claims Court if the two
lawyers had not been there and the reply was about half the time;
and you are paying someone for that time in the case of a lawyer.
Nick Starling: We are dealing
with the system as it is now, and it is an adversarial system
and everyone behaves in adversarial ways. What we are trying to
do is to get that adversarial system removed in the vast majority
of cases, and this is not us just saying that lawyers have to
change, we are quite clear that insurers have to change their
behaviour as well. It is not pointing the finger at other people;
our whole system needs overhauling.
Q132 James Brokenshire: Although
it is arguable that the small claims procedure itself is somewhat
less adversarial by the involvement of the deputy district judge
and the way that evidence is taken during that format, given that
in many cases people are unrepresented and, therefore, it is not
consensual, but the way it is presented is less confrontational,
if I can put it in that way, and whether that might lend itself
to not have the lawyers directly involved, as the Chairman was
suggesting?
Dominic Clayden: It may be a way
forward. The other thing to bear in mind is that the vast majority
of cases do not end up in the court process, and particularly
when we are dealing with injury claims, very few claims fall below
the current threshold for small claims. Minor cuts and scrapes
are the typical types of injury that attract damages below a thousand
pounds.
Q133 Chairman: Going back to the
rehabilitation agenda you mentioned earlier, would you see benefit
in developing a scheme for contracts to provide care or treatment
such as envisaged in the NHS Redress Bill, and, if so, should
those be contracts with the Health Service or would the consumer
have any greater confidence if it created an entitlement to private
sector treatment?
Nick Starling: For that I think
that we would like to see a whole variety of providers. We think
the NHS would have an important role to play, we think there is
also a role for government in accreditation of such providers,
but we think that the wider the provision and the more varied
the better.
Q134 Chairman: Is that because it
allows for the variety of outcomes that cannot be predicted at
the time that the settlement is made as between something which
could go on for years and maybe exceed what appears initially
to be the appropriate amount provided, if you do it by way of
a capital sum, or, conversely, a problem which maybe even goes
away because the person dies not very long after the accident?
Is that what you are trying to address by this, or is it purely
motivated by the rehabilitation technique, getting people back
to work?
Nick Starling: There are a variety
of things with rehabilitation. In some cases it is simply repairing
people and getting them back to work as quickly as possible, making
sure that their condition does not get worse. Obviously the more
serious the case, or a case that develops over time, then it is
a much more complex situation, it is likely to be a much higher
cost compensation proposal anyway. I think we are basically making
the point that rehabilitation services in this country are not
as developed as they should be. We would like to see a much stronger
market in it. Insurers can play their role, but there are issues
around the supplier side, which is both from the NHS and from
private providers.
Dominic Clayden: I think there
is an additional feature in terms of how compensation is paid
in respect of catastrophic injury claims where in the present
environment we are, in effect, building one-person care regimes
around an individual, and it may be, by engagement with the NHS,
that the services can be spread across a number of people as a
potential option and we could produce a social benefit and cost
saving.
Q135 Dr Whitehead: When we received
evidence from the Motor Accident Solicitor Society we were told
that conditional fee agreements, particularly as far as motor
claims were concerned, were very much pivotal on the existence
of after-the-event insurance and that that was certainly the case
with motor insurance, not perhaps to the same extent as with other
claims, but the point that was impressed upon us at that time
was that "after-the-event" insurers were leaving the
market place, or if they were not leaving the market place were
contemplating doing so, and that was perhaps a potential problem
in terms of the continuing integrity of conditional fee agreements.
Is that something that is your experience? What is the health
of the "after-the-event" insurance market?
Phil Ruse: I am probably best
placed to speak to that being the legal expenses insurer. I think
what we would say, and I am not really sure whether it addresses
the link you made with CFAs, but after-the-event insurance has
really developed since 2000 really to dove-tail in with the Access
to Justice and sits alongside CFAs, but that does not mean that
it has been perfect over the last five years. It has been extremely
difficult, as an underwriter of after-the-event insurance, with
any predictability to actually set premiums or terms. What we
would say is that there has not been any great certainty around
premiums. We have had premiums that have been, if you like, decided
upon at the conclusion of a claim by the courts, and that, as
I say, leads to a great deal of uncertainty for us. It is how
we can manage that uncertainty, speaking for Allianz Cornhill,
that would determine the extent to which we stay providing after-the-event
insurance in the future, but certainly, as we have seen over the
last few years, plenty of underwriters have exited the market,
and there are two features that have been driving that. One is
unprofitability and the other one is uncertainty.
Q136 Dr Whitehead: Does that mean
the eight premiums are rising?
Phil Ruse: No, they are not rising.
If anything, as a result of legal challenges, we are actually
probably seeing some of the premiums coming down. Certainly in
the sector where I am involved, which is mainly around the fast-track
claims, the lower level claims, there has been a lot of downward
pressure on premiums.
Q137 Dr Whitehead: So when we come
to the extra costs that are involved in the process, what proportion
would you say then arise from success fees and, to counter that,
are insurers making savings, for example, due to the absence of
legal aid or are those savings being taken up, for example, by
after-the-event insurance?
Dominic Clayden: For our part
what we have is an industry negotiated agreement that the success
fee mark up for solicitors in motor cases is 12.5% and in accident
at work cases 25%.
Q138 Dr Whitehead: Is that an across
the board agreement by insurers?
Dominic Clayden: And solicitors;
and it is actually the rules of court. That is a standard figure
representing the premium paid to solicitors across the board,
and, in addition, we pay the after-the-event insurance premium
which is added on top of that. For our part, it was government
policy to, in effect, transfer the cost of legal aid to the insurance
industry, but we certainly have seen a significant increase in
the overall cost to us which far outweighs the legal aid savings.
Q139 Dr Whitehead: Is there anything
in the argument that part of the additional cost might be, indeed,
as I think the ABI reported to us in written evidence, that actually
claimant representatives are not checking to see whether their
client has got before-the-event insurance and is selling their
client after-the-event insurance so that effectively the insurance
is doubled with the person going into court? Do you think more
could be done to discourage that kind of practice and do you think
if that practice were discouraged it would make a substantial
difference?
Justin Jacobs: We certainly think
it is important that where a claimant already has before-the-event
insurance it is used, and I think there is evidence that that
is not always the case, and that clearly is something that we
would like to address, but in terms of your questions about the
costs over recent years, certainly since around 2000 there is
a lot of evidence that the claimant costs and disbursements have
increased dramatically over that period.
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