Examination of Witnesses (Questions 240-258)
TERESA PERCHARD,
JAMES SANDBACH
AND ADAM
GRIFFITH
17 JANUARY 2006
Q240 Mr Tyrie: What is the balance
sheet? Earlier we had very bad news on CFAs, now we have had something
of a balance put to it; some people are getting access who would
not otherwise. What is the balance sheet, from the point of view
of claimants?
Teresa Perchard: If this legislation
comes in quickly, it is going to get better for claimants.
Q241 Chairman: You are talking about
the Compensation Bill?
Teresa Perchard: Yes, in the sense
that it introduces a power to create a specific regulatory system
for claims handlers/introducers. That point of entry is the point
at which you need competent advice, quality customer care and
those people are currently outside any kind of professional boundary,
although they are working closely with solicitors and insurers.
Q242 Mr Tyrie: So is the silver lining
at least as bright as the cloud, provided we have a few more reforms?
Teresa Perchard: We do not think
the regulatory system goes to the heart of the big questions about
how you get a better system for dealing with compensation claims,
especially in personal injury because it does not look at how
you might control costs and charges between all of the parties
in the chain, and it may not look properly at how you get competent
advice at the front end. Often consumer protection regulations
are concerned with transparency and disclosure and that is good,
but it may not go as far as requiring a level of competence or
knowledge, although we hope that it will. Anybody who is inviting
anybody in this room to start a personal injury claim ought to
be able to explain exactly how that system will work and what
you might or might not get out at the end of it. If they cannot,
they ought not to be taking any money from anybody in order to
generate your business, I think. That is what can happen today.
Adam Griffith: What may have happened
may have been a slight shift in terms of who is bringing the claims.
People who are not financially eligible have come in at the higher
end of the market. There are certainly concerns about people with
lower value claims or claims that are often described as borderline,
difficult claims, ones around 50%, those people have probably
lost out. What is clear is whatever system you have, the lawyers
are not going to be bringing the claims unless they think there
is over 50% chance of success I would think. There may have been
a slight demographic shift in terms of who is bringing the claims.
Apart from all the problems with claims management companies,
the main issue has been costs, and it does seem on the whole that
the main winners have been the lawyers and there are lots of arguments
about that. I think overall there has been a shift.
Q243 Mr Tyrie: The Treasury does
not have a Legal Aid bill saving?
Adam Griffith: The savings from
Legal Aid are fairly small because Legal Aid under the old system
essentially was an insurance against losing and the vast majority
of claims are won or settled, in fact the vast majority are settled
and quite a few are won. Under the old system, Legal Aid was picking
up a relatively small tab for having a system where some people
would lose and essentially that whole cost has been shifted on
to the insurance industry and ultimately on to people who buy
insurance.
Q244 Dr Whitehead: You mentioned
that we do need better forms of regulation. What would they practically
look like? How would the man in the mac chasing the man in the
van be regulated more easily in your view?
Teresa Perchard: There will be
some questions about whether sole practitioners are permitted,
but the essential thing is how do you authorise people to operate
in a particular market sector? There is a lot of regulatory experience
with regulating fairly disparate business sectors, such as debt
collectors and insurance intermediaries; people who sell you cars
are often selling you credit and insurance at the same time and
will need consumer credit licences from the OFT and come within
an authorisation regime run by the FSA. I would be looking for
a system where you have to get prior permission or authorisation
in order to be in the business of introducing people to a no win,
no fee agreement. And that you close off access to market by expecting
or even requiring any receiving firms, whether solicitors or insurers,
to deal with authorised intermediaries only. Then you have a question
about what are your standards to let people into the market in
the first place: are you just looking for absence of criminal
convictions in terms of fitness, or do you require people to demonstrate
some knowledge or commitment in terms of having complaints
procedures and certain ways of practising? Do you regulate the
forms that they use and do you even get on to regulating the price?
Do you regulate the advertising beyond general concepts of what
is misleading? The Bill does very little about describing what
the system of regulation is going to look like. Those are certainly
the sorts of things that we will be looking for and we have been
talking to the Government about introducing. Alongside that, how
do you make self-regulation work? Could self-regulation be a way
of achieving some of those standards without introducing statutory
regulations and can they come together? Essentially, we are looking
for consumers at the start of the process to get a good service,
good advice from somebody competent to advise up to the level,
not go beyond and not mislead and some redress when they do and
when they let the consumers down. That is what we would hope for.
Q245 Dr Whitehead: How would you
include advertising in this? Would you place restrictions, put
a lot of actors out of work?
Teresa Perchard: There is a highly
specific scheme of regulation of consumer credit advertising which
deals in minute detail with things about the basis of the APR
that you use for advertising and typical rates, and the prominence
of certain messages and questions about responsible and misleading
credit advertising. Why not the same kind of issue about responsible,
not misleading, advertising relating to access to legal services
including access to the personal injury claims system?
Q246 Dr Whitehead: Could you have
an easy elision of responsibility and the perhaps fairly widespread
feeling that advertising tends to entice people into the process?
Teresa Perchard: I was interested
you asked the question earlier about advertising, whether it is
a good or bad thing. I do not think advertising in itself is a
bad thing because many consumers learn about things through advertising
and marketing, and that has a much bigger reach through broadcasts,
direct mail than anything my organisation can achieve or afford.
Given it is getting out there and has potential to tell consumers
about their rights, the possibilities, how things can work, how
can we make sure that consumers are not misled and advantage is
not taken. The oft-cited "Did the doctor or nurse make it
worse?" advert is clearly in the area of inappropriate advertising
and in the wrong place, but there would be other advertising about
personal injury which would not be. How do you influence the market
to make sure they do not do the wrong thing, but they can do the
right thing? You need to be able to take action, take things off
the market. There are lots of self-regulatory bodies that can
do this; the premium phone line regulator is very effective at
getting some of those premium rate phone lines stopped and closed
down very quickly. I do not see why the claims industry cannot
abide by a code of conduct on marketing and advertising as well.
That will be good for business because ethical, good advertising,
which is informative and communicates well with consumers, may
well generate better business.
Q247 Dr Whitehead: Do you have any
evidence in terms of regulation that there is a widespread, as
it were, re-selling of insurance? That is after-the-event insurance
arising from the emergence of no win, no fee arrangements, where
people have before-the-event insurance already. Would a regulatory
regime be able to deal with that?
James Sandbach: Yes, one thing
often found is in some cases where insurance policies have been
checked is there is before-the-event insurance that could have
been claimed, but because the sales people from claims management
companies are looking to achieve targets for after-the-event insurance,
they are not going to check out all of those different insurance
options. There has been a lot of what is effectively mis-selling,
yes.
Q248 Mr Tyrie: What about asking
the Law Society to do self-regulation? I was very interested in
what you said about self-regulation; it seems eminently sensible.
Teresa Perchard: Self-regulation
and claims handlers?
Q249 Mr Tyrie: Yes, you say to the
solicitors "if you come through a claims handler who has
not done the job properly, I am afraid you cannot have the business".
Teresa Perchard: I think it was
four years ago we started working with the Law Society and the
claims handling bodies to try to develop a self-regulatory code
of practice following the Law Society discussion forum with consumers,
lawyers and claims handlers. That in a sense has led to the creation
of the Claims Standards Council and the formulation of a code
of practice which is still under development. We are talking about
a self-regulatory organisation that needs some better capability
than it has today, but we have all been working on trying to find
a self-regulatory route and are pleased that the Government has
come in and decided to introduce regulation because I think we
would still be there in four years' time if not.
James Sandbach: At the same time,
it was also an issue of the Law Society's own professional rules
being pretty lax as to whose business they can take business from.
Q250 Mr Tyrie: That was my point.
James Sandbach: Certainly the
Department for Constitutional Affairs is pressing the Law Society
on this, I understand. Really the solicitors firms should only
take referrals from claims companies that are signed up members
of the Claims Standards Council and, the Law Society has had a
big internal debate about the issue of referral fees and paying
for business, essentially offer financial inducements for new
business. That is where the whole market has been opened up a
lot for case management companies because their business is generated
referral fees.
Q251 Keith Vaz: Concern has been
expressed about the number of minor claims of the "tripping
and slipping" kind, being brought against public authorities
and voluntary organisations. Do you have a view on these claims
and to what extent do Citizens Advice or ASA and its client bodies
represent clients of such claims through the small claims process?
James Sandbach: I think the public
liability claims are going down which is what the statistics show
us anyway.
Q252 Keith Vaz: Why is that?
James Sandbach: Where the figures
have shown a big rise in so-called compensation culture is in
the areas of employers' liability rather than public liability.
I think part of the problem of public liability has been stoked
up a lot in the media. There have been particular instances, claims
and cases that have been blown out of proportion in the media
and there has been a powerful organisation of lobbying. In the
public sector we have the problem of public liability. I do not
think it is such a fundamentally big problem as it has been made
out to be in some quarters.
Q253 Keith Vaz: It is going down
anyway.
Teresa Perchard: Yes, in 2003-04
there were fewer public liability claims than in 2001. It was
a fairly static figure in the number of claims.
Q254 Keith Vaz: What more can be
done to ensure proportionality, so that people who have smaller
claims do not incur more in legal costs than the damages that
the claim is worth?
James Sandbach: I think it is
very much a matter for the new regulatory regime to ensure it
does not happen. What is often forgotten is that a large proportion
of claims are settled out of court and so some of the CFA rules
are not really applying. The CFA rules do not apply because the
cost rules are not applying in the same way they are applying
if a judgment is made, where insurers settle between themselves.
The rules on settlement need to be looked at as well.
Q255 Chairman: It is too easy to
carve up a generous cost settlement when you are not going into
court?
James Sandbach: Yes.
Adam Griffith: Another part that
is a problem generally with personal injury claims is the relationship
between the value of the claim and the work needed to be done
properly to put it forward, and the complicating factors in it.
There is no particular correlation between the two. You find that
the amount of work done or how complicated a case is that is worth
£1,000 or £2,000 is not very different from a case worth
£4,000 or £5,000. This just seems to be the nature of
the beast, and something that we have to take account of. Most
claims we are talking about are road accident claims, and road
accident claims are subject to an agreement brought about, as
I understand it, by the Civil Justice Council which regulates
the level of success fees you can recover at different stages.
The question, which is still an open one, is whether or not some
agreement can be reached between essentially the claimant lawyers
and the insurance industry in relation to non-road traffic cases.
It seems to me that the other question is whether or not the parties
involved can scale down somehow what they are doing in relation
to the lower value claims. For instance, it seems from the research
that the Association of Personal Injury Lawyers did the same proportion
of cases have liability being denied that are worth £1,000
as are worth £5,000. Insurance companies are fighting every
case as if it was a big case. There needs to be some kind of change
in culture essentially on both sides to say, "Look, this
is a small claim. Let's keep things in proportion". I do
not think that there are any easy answers to this. I think there
are dangers of raising the small claims limit, as you have suggested
previously, to sort out the lower end of the market because the
problem is not one that relates directly to the value of claims.
Q256 Chairman: The ABI—the
Association of British Insurers—has come up with its own
scheme; I think £25,000 was the figure they suggested under
which they would have time to make an offer of compensation, then
there would be mediation and they would pay for legal advice and
you would have to go through that before you went to court. Have
you looked at that and what you do you make of it?
Adam Griffith: I have not looked
at it. I was here last week and I heard it being put forward.
I am afraid that my ultimate doubt about that is the suggestion
that the insurance industry is in the business of making fair
offers unprompted. I was a bit struck by Mr Howarth's story of
his wife. There is no obligation on the insurance companies to
come right out and offer £4,000, of course they will offer
£500 first, that is their job. There is nothing wrong with
that. There are conflicting interests between what the insurers
need to do, which is ultimately to keep the costs down and settle
cases as economically as possible, and achieve justice for claimants.
My worry then is that a system like the one they are proposing
would lead to more claims being rejected and more low offers being
made. Anything of that nature would have to have a really strong
independent element in it, which is rather similar to the discussion
that you were having earlier in relation to the redress scheme.
Q257 Chairman: Small claims courts
have that of course in relation to the smallest claims, but then
we have the personal injury lawyers and perhaps you were hinting
at "Oh, well, if people simply went to the small claims court
by keeping their claim down, say, to £2,500, they might not
realise they can get twice that if they go to the court system".
Is it a case of the best being the enemy of the good here? Are
we not producing an obstacle to at least some of the methods to
get around, as you described, the possibility that people could
have got more money if they had gone through a more complicated,
more expensive and possibly more risky process?
Adam Griffith: It is a balance
that we have to strike somewhere, I am not denying that.
Teresa Perchard: I think the key
is it should not be painted as a hunt for money. Money is at stake
here, but there should be other issues as well. If, as a result
of an accident, you have lost substantial earnings, you may have
paid for physiotherapy if your doctor advised you to do that and
having funded that yourself, you may have had to make significant
lifestyle changes as a result of the accident. The money may help
people with the very real cost of the impact of the injury on
them, rehabilitation and change in lifestyle, so it is not just
something to stash away in a tin or go off to Brazil with really.
It is about putting things right, but there should be other actions
that put things right as well. The concern about simply saying
"Let's put them all through small claims because they are
all small value money", perhaps ignores the fact they have
a significant impact. It is for the accident and the injury that
is caused that you have to offer a system that helps the individual
feel that is what has been taken into account and they are getting
good advice at the start of it. They may not get quality legal
advice if they are going through a simple process where they or
lawyers would not feel it was desirable or affordable to become
involved. In our report last year we raised a lot of possible
alternatives to look at this vexed question of how do you keep
the cost down but get people the right sort of process? There
are all sorts of things like possibly increasing small claims,
setting case budgets, capping costs, regulating the costs limit,
looking at more ADR processes, setting up a special tribunal which
is basically what we are looking at with NHS redress, dealing
with things in a specialist way because they are special. People
have concerns the small claims process might not have the expertise
needed to deal with some injury cases. Then wider things like
helping people take out insurance before the event as well to
avoid the CFA system, using that as a strategy so people protect
themselves against unexpected legal costs. We very much want to
see the Government have a wider debate about how to make the whole
system work. That might mean having a range of solutions for different
types of cases—value, type and sector—but that debate
is not happening. There is no single bullet here; there are pros
and cons of different things you could do, and you certainly need
to do something about consumer education and understanding and
quality of advice and make sure that gets into whatever system
you have got.
Q258 Chairman: The starting point
for our inquiry is partly "Is there a compensation culture?"
You advise people who feel they have some case to take, some grievance
to pursue, but presumably you are also involved with individuals
who are part of providing public services and public activities
who are worried from the other angle, people who may believe that
there is a compensation culture and they cannot undertake the
activities they want to undertake. Do you see that side of the
picture in your advisory work?
James Sandbach: We do tend to
think that the whole compensation culture debate has been
misrepresented, particularly in the public sphere because it is
not supported by the evidence of the number of claims going through
the system. It has become a shorthand for a lot of different issues,
an increasing welfare dependency and an increasing tendency to
blame other people for misfortunes. I think a lot of different
issues have come together to form this phrase "compensation
culture" but every objective study that has looked at this.
For example, the Better Regulation Task Force report a couple
of years ago, when the Government charged them with looking at
the overall costs of the economy in the public sector of so-called
compensation culture, came out very firmly with the conclusion
that there was no such thing as compensation culture. It was simply
an invention of the media and political classes, if you like.
Adam Griffith: I think part of
the problem is if we are talking about the kinds of things you
were discussing last week, people volunteering or being scoutmasters,
people think "maybe I will not do that", but they do
not go and get advice. It would be very difficult for any of us,
if somebody came in here and said, "Look, I am thinking of
volunteering to be a scoutmaster. What is my chance of being sued?",
we cannot answer that question. We can only say, "As long
as you are careful, you will probably be all right". I do
not think people get advice on things like that. I think it would
be very difficult to give them advice on that.
Teresa Perchard: If I can add
on the compensation culture bit I think it is unhelpful because
for people who have suffered a devastating accident in a public
place or in the workplace, what it is saying is it is almost wrong
to think about compensation, but raising a complaint and seeking
compensation is not done by the majority of people these things
have happened to. It is a very important way of finding out how
safe or unsafe our workplaces are and identifying where there
are problems which really do need addressing. If there are other
ways of getting at some of that evidence, that is good. But it
should be seen as very important to find out what the problems
are and look at investing that intelligence in longer term solutions.
I think what the compensation culture idea does create perhaps
is fear in the public and voluntary sector about being able to
afford the cost of claims and maybe that is one of the things
that is being addressed by clause 1 of the Bill. Really if you
are going to be taking a group of young children on a very dangerous
outward bound course in the middle of winter involving canoes
in an overflowing, fast-moving stream, you should take care of
them and not take the view that "it was going to be good
for them so we bunged them in the water" with no regard to
the safety and risks. It is very important that duty of care is
not forgotten or put aside because it is overall better to be
offering those sorts of opportunities than to not do so. I hope
that will not be the consequence of that bit of legislation. The
less we can talk about compensation culture and more about how
do we put problems right, perhaps we will reduce the fear in the
voluntary and public sectors about these issues. Claims handlers
hanging around playgrounds is a bad thing and maybe the legislation
will clean up that market and stop that happening; it should do
if the system gets up and running quickly and is good.
Chairman: Thank you very much indeed.
We are very grateful for your help this afternoon.
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