Examination of Witnesses (Questions 140-149)
NICK STARLING,
JUSTIN JACOBS,
DOMINIC CLAYDEN
AND PHIL
RUSE
10 JANUARY 2006
Q140 Dr Whitehead: Would it be, for
example, a good idea to include before-the-event insurance on
all policies, so that you would not have to take out after-the-event
insurance, and would that have a substantial impact were that
to be done?
Justin Jacobs: I think ultimately
it has to be customer choice, and the market cannot decide actually
that it will force people to buy before-the-event insurance because
that would be anti-competitive, but it is a product that is out
there and it is often attached to motor insurance, for example,
and it has to be customer choice about whether they wish to take
that up.
Q141 Dr Whitehead: When you say "cannot
force it", would any sort of code, or arrangement, or agreement
such as you have on the success fees, be the sort of mechanism
which might replace compulsion but bring about a beneficial result?
Justin Jacobs: I think if insurers
as a market said, "We are only going to sell X policies if
they include before-the-event", no, that would be anti-competitive
according to the competition law.
Q142 Dr Whitehead: You would not
advocate, for example, changing competition law then?
Justin Jacobs: No, I think that
would be quite difficult.
Dominic Clayden: I can add to
that. For example, in the motor market there is evidence to show
that the level of take up of before-the-event insurance is in
the range of 80 to 90%, so there is a real take up of it, and
we would certainly prefer people to use that in preference to
the more expensive options, and we believe solicitors should look
at that. In any event, if before-the-event was a blanket across
the board, there would be a group of claimants who have suffered
injuries who would not ordinarily be covered. For example, pedestrians
would not necessarily have the coverage, so in the current system
there would be a place for after-the-event insurance, and we are
not per se against it. We have concerns how the system operates
in part, but we are not desperately against all of it.
Q143 David Howarth: Can I take you
back to the answer you gave to me earlier about the tariff system?
I am trying to think through why you are suggesting this, and
I am puzzled by something. I am obviously just missing something.
At present what happens—and I know this from personal experience—is
that the initial offer to the victim from the insurance company
is rather low and then, as you say, it is then haggled up. If
there is a tariff and the tariff is based on the existing law,
that at first sight would mean that insurance companies would
be losing, because instead of getting some people to settle at
below the tariff rate they would now be settling at the tariff
rate. That means that the savings that you would make in terms
of lower transaction cost—that is those lower haggling costs—must
outweigh that difference; but that then the raises the question
of why you do not do this now. Why do not you just offer people
more at the tariff rate at that set in the well-known practitioners'
books like Kemp and Kemp and save yourselves this money
from the start?
Nick Starling: Can I make a general
comment about that, and I think Dominic will want to answer the
specific point. Insurers want to pay appropriate compensation,
and, as I said I think earlier, it is for society to decide what
those levels of compensation are, and those levels of compensation
are then reflected in the premiums that you pay, that we all pay,
and I think that is a fundamental to the way we approach things.
A tariff system just makes it clear what levels can be expected
for relatively straightforward accidents. We do not have that
at the moment, and I think that leads to the sort of negotiation
and discussion which happens now with the system.
Q144 David Howarth: But we sort of
do, do we not? Through the Judicial Studies Board's tariff and
through the leading practitioners' works like Kemp and Kemp
we do have a tariff. My own experience of this negotiation was
as follows. Insurance company to my wife, who had been injured:
"We will offer you £500." My wife to the insurance
company: "I have looked it up in Kemp and Kemp. It
is more than £4,000." Insurance company: "Okay,
here is 4,000." Why do we need to go through that iteration?
Why did they not just say, "Here is £4,000"?
Dominic Clayden: I think that
what we are identifying as part of the difficulty with the current
system, that what we see on a number of occasions is a situation
where the claimant lawyer will, when asked for the current figure,
pitch at a figure which is very high, and we do go through this
horse trading to get to what is an end position which happens
at present. What we are suggesting is that those transactional
costs should be avoided and we cut to the chase and have a system
with a tariff that produces the level of settlements that we are
currently achieving at the moment.
Q145 David Howarth: So this seems
to work by getting the lawyers to accept what is in the tariff,
you are saying?
Dominic Clayden: What we believe
is that the tariff should be subject to transparency and independent
scrutiny. We would not wish to as an insurance industry impose
numbers. We believe that should be by discussion with stakeholders.
Justin Jacobs: There is an additional
point as well in having transparency for the claimant, because
there are the JSB guidelines, there is a lot of case law. It is
not as simple as saying that any independent claimant can work
out what they are entitled to. We think there is a strong advantage
in the claimant being able to see, "I have had this injury.
I know therefore I am entitled to this amount." It is both
good for them so they know when they are getting a fair offer
and also good in relation to the problem we first talked about
in terms of clause 1, in terms of managing expectation so that
people know what they are entitled to both in terms of how high
it is or how low it is, depending on which angle the claimant
is coming from.
Q146 Chairman: Later today we will
be hearing from voluntary organisations who are at the sharp end
of all these perceptions about compensation culture, and it is
quite possible they might refer to the insurance industry and
to either their difficulty in securing insurance for some activities
and ventures or the conditions the insurers might impose, which
could be a discouragement from carrying out these activities,
the very issue which clause 1 at a different level seeks to address:
balancing desirable activities against all the issues around risk
management. Are you the villains of the piece? What would be your
answer?
Nick Starling: We are certainly
not the villains of the piece. What the insurance industry wants
to do is to encourage sensible risk management, and, for all activities,
if you manage risks sensibly and appropriately, then you do not
get into trouble. That is the broad principle we take. We try
and encourage it. We issued a publication last year on precisely
this and directed at the voluntary community. We are very happy
to send that to you if we have not done so already. It just sets
out the basic rules about ensuring you manage your risks effectively.
Q147 Chairman: Obviously not just
the voluntary community, the public authority sector, the local
authority sector in particular, for example, will sometimes cite
the same reasons: "Our insurer has told us that if we did
this we would have to up the premium or install this that or the
other." In the voluntary community it is even harder because
of the time and expertise available on the part of volunteers
to meet some of these demands.
Nick Starling: I think that you
quite often have to look behind the stories here, but before I
joined the insurance industry I was in the Health and Safety Executive
where the line was always, "Health and Safety will not allow
it." Now I have joined the insurance industry they say, "Insurance
will not allow it." Sometimes that means that people have
not actually bought the insurance, which is slightly different.
Quite often it means that people cannot be bothered, to be honest.
I am not saying that your witnesses who are coming up are saying
this, but people do not want to think about it, do not want to
manage the risk sensibly and use insurance as a bit of a scapegoat.
In most of the cases where people say, "Insurance will not
allow it", you will find generally it is people over interpreting,
being risk averse, not having the right insurance, and we think
that is a situation that does not need to be and should not have
been.
Q148 Chairman: Is there anything
more you can do to challenge the perception on which that is based,
to say, "Yes, of course there is insurance available. No,
it does not cost much more money. No, it is not incredibly bureaucratic
and beyond the abilities of a scout troop or a church organisation
to meet our very limited requirements"?
Nick Starling: We are extremely
keen to participate in this wider risk debate, and the Prime Minister,
you will recall, gave a speech on this in May which we supported.
As I said, we have issued publications and the next witnesses
have started a very interesting debate about this and we are very
keen to do this. Sensible risk management is usually commonsense.
It is taking the risk in the first place in a managed way, seeing
what might go wrong and seeing if you have got mechanisms deal
with it, and insurance is there to help you do that. It is not
the villain of the piece in stopping it. My own personal advice
is if anyone ever says to you, "My insurance company will
not let me", ask them what the insurance company has actually
said and whether it is simply a matter of not having the cover
or not having spoken to the right people.
Q149 Chairman: Have you come across
any cases where the premium you think you are obliged to require
in order to meet your level of risk actually turns out to be disproportionate
to the amount of money which can be found from, let us say, the
parents or whoever else it may be, to fund the particular activity?
Have you come across a situation, "We have to admit actually
it would cost more to insure than we think could reasonably be
raised around this voluntary activity"?
Nick Starling: I have not.
Dominic Clayden: I cannot think
of a particular example. What I can add in that debate is that
how we assess premiums is quite simple, and we look at what we
assess the potential claims cost to be and the potential frequency
of those claims costs and that helps to build the potential cost
of a premium, and that does create difficulties in, for example,
riding schools, which was a particular feature, where unfortunately
potential claims costs in those establishments historically have
been large, and that in itself drives large premiums into an environment
where it may be difficult to pass those costs on and it may have
an impact on people's ability to enjoy it.
Justin Jacobs: I think the consequence
of that is that the industry is doing everything it can to understand
this better and to price premiums according to those risk levels.
Naturally therefore the result is that if companies, voluntary
organisations and others are managing their risks effectively,
those organisations, companies, charities will find competitive
insurance. Equally, however, we have to recognise that if there
are organisations which are not managing their risks effectively,
despite support and help and encouragement to do so, then the
result is that they will find their insurance is higher because
that is the nature of effective risk pricing. Those who manage
their risk well will benefit, but those who do not, for whatever
reason, will find themselves facing high premiums.
Chairman: Gentlemen, thank you very much
indeed for your help this afternoon.
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