Cost of motor insurance: follow up - Transport Committee Contents

Examination of Witnesses (Question Numbers 1-45)

Rt Hon Jack Straw MP, John Spencer, Paul Evans and Andrew Dismore

11 October 2011

Q1   Chair: Good afternoon, gentlemen. Welcome to the Transport Select Committee. Could you please identify yourselves with your name and organisation? This is for our records.

John Spencer: John Spencer, Vice-Chairman of the Motor Accident Solicitors Society, MASS.

Mr Straw: Jack Straw, Member of Parliament for Blackburn.

Andrew Dismore: Andrew Dismore, Co-ordinator of the Access to Justice Action Group.

Paul Evans: Paul Evans, Group CEO of AXA UK.

Q2   Chair: As you are aware, gentlemen, we have been looking at the rising cost of motor insurance premiums. We have produced a report on this. We have had a phenomenal public response because this is a very real issue causing very great concern. We have decided to extend our inquiry now to look at the current situation and new evidence. The recent figures that we have had suggest that the increases in premiums are levelling off. Can anyone suggest to me the reasons for that? Mr Spencer, do you have any ideas?

John Spencer: I can only think that it might have to do with some of the cost controls that have been put in around personal injury cases certainly since April 2010, where the industry, both insurer and claimant's solicitor, have agreed a costs position which may have an impact as those cases start to close. Probably the gentleman from AXA is best placed to inform us of why premiums might go down.

Q3   Chair: Is that information correct? Is there a downward move?

Paul Evans: What we are seeing is a slowdown in the rate of increase. I do not believe we have seen a levelling off in the sense that premiums are no longer increasing, but they are increasing by maybe 1% or 2% per month rather than the very large steps that we have seen since the beginning of 2010.

Andrew Dismore: There is a change in the insurance market as well. It is a soft market moving into a hard market and now it is probably softening up again. What used to happen—and indeed the CEO of Allianz warned about this as long ago as 2004—was that there were a lot of peaks and troughs in the insurance market. In a soft market they were prepared to take some hits to increase market share. It then transformed into a harder market where, particularly after the banking crisis, the objective was to try and build up reserves, which meant putting up premiums. I see that AXA's premiums were going up earlier in the year as well.

Paul Evans: Absolutely. Our premiums have increased and they continue to increase. We are still seeing inflation in the average cost of claim per policy running at between 10% and 13% a year. I believe there has been some catching up in premiums since the beginning of 2010 but we will continue to see continued increases for months to come.

Q4   Chair: So the premiums are going up. Mr Straw, you drew attention to evidence showing that the cost of premiums in the north-west was 50% higher than in other areas. Why do you think that is?

Mr Straw: Madam Chairman, may I also just say that it would be expected, given the huge double digit increases in premiums which have taken place in recent years—30% last year—that there would be some levelling off. That provides no grounds for complacency whatsoever about the current situation. What I am clear about is that, of a total of about £9 billion in premium income, £2 billion is costs caused by people who I think can accurately be described as the parasites in this system. They were not there before when premiums were, in real terms, significantly lower. Premiums for cars have gone up by about 75% in cash over the last 10 years and about half of that in real terms. I have the exact figures which I can give you. Those costs were not there before to anything like the same extent. They are now, including claims management companies, credit hire companies and these other intermediaries. Of course they have to take their costs and profit out, which in turn is put on to the backs of the policyholders.

  In terms of the variable costs, I have loads of data on this which I can certainly give to the Committee. There is not much doubt that there is certainly a statistical connection and correlation—I think myself it is causal—between the density of claims management firms by region and the level of premium. It would be unsurprising if that were not the case. The claims management firms exist to generate claims artificially. By chance, as I was preparing to give evidence to your Committee yesterday evening, the phone rang and it was a claims management company saying I had had an accident within the last three years and would I like to claim. I have not had an accident within the last three years but it shows the relentless pressures inside these very dodgy firms. My colleagues here can see the data. These are the numbers of claims management companies. That is the north-west. The mauve bar is also by year. I can give you all this information.

Q5   Chair: That would be helpful. You might also be interested to know that I received a telephone call this morning saying they understood I might have had an accident over the last three years. When I asked where this information had come from, and indeed where my ex-directory phone number had come from, the phone went dead.

Mr Straw: These people are verging on the criminal, if not the criminal. In any other walk of life we would describe the whole racket of referral fees as bribery. Why I think this needs to be taken very, very seriously by this Committee, if I may suggest this, is because motor insurance is compulsory. You have no choice. You do have a choice about whether you insure anything else in your life for any other kind of risks. You have absolutely no choice about whether you insure for motor risks. It is a public good. At the moment it is delivered through the private sector. These practices are leading to very substantial increases on the law-abiding motorist for no public benefit.

Andrew Dismore: The insurance industry are bringing a lot of this on themselves. If you look at some of the other abuses in the system, like the credit hire system, that puts £44 or 10% on each policy. The body shop fiddle also adds to that. The increase in claims, in large part, is down to third-party capture. If you look at the graph of claims increases, it roughly coincides with when third-party capture started to become a lot more popular in the mid 2000s. If you look at the question of referral fees, a fifth of cases are referred by the insurers themselves, apart from third-party capture, and they are taking referral fees for those too. If you look at CMCs, a lot of them will also provide other services.

Q6   Chair: Can you say what these are?

Andrew Dismore: Claims management companies. They do not just phone people up; in fact, most of them do not. It is against the claims management rules which are supposedly run by the Ministry of Justice. You will find that most of the calls that are cold calls are from marketing companies or people outside the system who are not regulated and are operating unlawfully. There is a very simple answer to cold calling. That is to empower the phone operators to cut off the phone lines. That is what they do with prostitutes' cards when you see them in phone boxes. If they see the numbers, they cut them off. If people are making illegal cold calls that are unsolicited, then the remedy is a relatively straightforward one. Cut the phone lines off and that will stop it.

Q7   Julian Sturdy: I come back to the average quoted premium per region. I am amazed when you look at the figures, as I think most people are, that in the north-west it is three times higher than Scotland, and Yorkshire is twice as high. You are saying that the density of claim management firms in that particular region is dictating that. Does everyone on the panel agree with that?

Paul Evans: Can I give a quick statistical answer? Certainly, as far as AXA is concerned, we see that in Scotland, for example, 7% of every RTA—road traffic accident—will involve a personal injury claim. In the north-west 26% of road traffic accidents will involve a personal injury claim. Towers Watson has produced a report and you can map the frequency of personal injury claims with the location of accident management companies. It is statistical and it is there. I should say that we look at regional premiums. We do see different frequency of road traffic accidents by region but the variation might be only one-and-a-half times; that is, I might see one-and-a-half times more accidents in one region than another. You can see up to four times more personal injury claims in some regions than others. That is leading to the regional pricing. There is no question at all in my mind that the greatest driver of regional motor insurance pricing is the incidence of personal injury claims which can be mapped to the location of claims management companies.

Q8   Chair: Mr Straw, you have referred to the problem of risk being assessed in relation to postcodes rather than across the region. Would you like to say something about that?

Mr Straw: I confirm what Mr Evans has said. I have looked at the data. The correlation is very clear. If you are a north-west Member of Parliament, as some of us on all four sides of this table are, it is palpable, eternally on daytime television. There are a lot of dodgy firms of solicitors who are part of these rackets. I go down the end of my street where my home is in Blackburn and there are two firms of solicitors within 100 yards saying "£600 for a referral" and so the whole thing spirals.

  What is also clear is that within a region there are significant variations in premium, which is nothing to do with the individual drivers or the risk of theft of, or from, vehicles but to do with the overall level of personal injury claims arising from people whose address is in that area, but whose claims may not have arisen from that area. I first got on to this, Madam Chairman, when I asked for the data about motor accidents in the Blackburn and Darwen area and thefts of and from vehicles. Those were going down quite dramatically. I could not work out why it was, therefore, that premiums were going up.

  I understand why all the insurers have alighted on this model where they are postcode- specific. If one is this sophisticated, the others have to follow their lead and there will be no competition in terms of model. The social effects of doing this are really very severe. The level of premium for people in some areas—completely law-abiding people who pose no risk at all and who are not going to make a claim—is now extortionate. Some groups of young in those areas, who may also pose much less of a risk than other young, are being excluded altogether. There is geographical and social exclusion taking place.

  The insurers say to me, "We have to be able to assess risk on the most sophisticated basis of all." As I say, this is compulsory. They are delivering a public good. It is not like any other insurance. Ultimately they will price people out of ability to follow the law. That cannot be right.

  In other fields of insurance the insurers have accepted that they have to modify their postcode specificity. For example, in respect of flood victims, the insurers were pricing people who lived in flood areas out of the market but they have had to modify that. The great irony is that in respect of the ultimate insurer of motor risks, including personal injury motor risks, which is the Motor Insurers Bureau, the insurers could be postcode-specific. They have all the data about where these accidents happen and where the defendant is not insured. They could say, "Right, if you happen to come from Blackburn we have assessed that instead of the average across the country of about £40, which is what you pay for the MIB, because Blackburn has a higher propensity you should pay £80 or, if it has a lower propensity, you should pay £20." They don't; they simply say, "We are going to average this across the country."

  My point is that this is compulsory. We give insurers a profit—that is the idea—in return for delivering not a private good but a public good. There has to be modification of the way the insurers behave. You cannot do that by exhortation because they are locked into their model. You have to do it by law. What I have proposed in my Bill is that the insurers cannot specify or identify the risk in respect of personal injury claims below the level of a standard region. It is not other claims. It is not about age, driving record or anything else. I do accept that, if we have a particular problem in the north-west over avaricious, rapacious claims management companies, then it is not fair for people in the south-east to have to bear that one. My view is that the geographical area that I have chosen, which is the region, would provide a fair balance.

Q9   Chair: What would the impact of that change be? Mr Spencer, is that something you could comment on?

John Spencer: It was not the specific point that I was concerned about, but it is on the same point.

Q10   Chair: Just let me ask this one and I will then come back to you. Mr Evans, could you help us on that point, please? What would be the impact of the change proposed by Mr Straw?

Paul Evans: We need to break the dilemma into several chunks. The first dilemma without question is personal injury. I believe that one of the first objectives of Mr Straw's Bill is to cut the fixed fee that solicitors can earn from motor personal injury claims. I fundamentally support that.

Q11   Chair: What about the issue of distributing the risk? What is the impact of that?

Paul Evans: To go to the heart of the question, if we went to regional pricing, then, because the level of risk is higher in conurbations due to the higher density of traffic, you will see a higher premium in the rural areas of that region. There will be a significant transfer of premium to those in the rural areas and from those in the conurbations. Given that those in the rural areas are already often observed as being disadvantaged, that would simply be a further transfer of cost to those living in rural areas.

John Spencer: In my view there are two big areas for this Committee to be very concerned about in the control of motor insurance premiums. One is the activity that has been alluded to in terms of advertising and gaining work, where I hope we would all support better cohesive advertising control—control under the Data Protection Act in terms of when your details can be released to claims management companies, insurers and so on.

There is also another big area of concern, which is the insurers themselves. It has been alluded to already. There is the practice of third-party capture and being engaged in referral fee income themselves. I know that Mr Evans is notable as an exception within the insurance industry recently being converted to a no referral fee system—and I underline the word "recently"—but insurers can and do receive large amounts of referral fee income which is not transparent, as this Committee picked up when it last met. There are no available statistics with regard to the level of income received.

  For some reason we have seen motor claims increase and almost double over a period of five or six years. I do not think it is right to alight simply upon the claims management industry to explain that. The insurance activity around capturing clients—that is intercepting them before they have the opportunity to see and be independently advised by a solicitor—is quite a big issue. An even bigger issue, in my view, is the referral fee income gained by those. There is one insurer that has published some statistics that I have seen to the investment community. RBS Insurance published that it received £15 million of fee income from referral fee cases which it has sold to its panel of solicitors.

  I would like to see more transparency around what other incomes are received by insurers, claims management companies and others. There are all sorts of commissions around medico-legal fees, credit hire, witness statement taking and costing companies. There is a whole flux of activity and profiteering going on. Unless you look at this in both segments, in terms of the claims management sector and the insurance sector, and ancillary services as well as referral fees, it is my fear that the goal of this Committee which everyone would support, namely, reducing the cost of motor insurance, will not be reached if we keep seeing it as either insurers or claims management companies or solicitors. It is the whole lot.

Q12   Chair: We will be pursuing these. We did refer to the "merry-go-round" of referral fees and we will be exploring those too.

John Spencer: You did, and you were right to do so.

Q13   Paul Maynard: So that I am clear about the role of claims management companies, does the panel believe the existence of CMCs is the problem, the practices they engage in or the practices that unregistered CMCs engage in? It was not clear from any of the evidence what proportion of CMCs were unregistered.

Andrew Dismore: The answer to your question is that CMCs have done a great deal to improve access to justice. Mr Straw has talked about the number of cases in his area, but if those cases have no merit then they will not get paid out. The point remains that CMCs have improved access to justice for people who might not otherwise have known about it in his area.

  The biggest problem arises from unregulated marketing companies, people who are working outside the system, and of course insurers themselves. It is no surprise that Admiral's share price dropped 13% on the day the Government announced that they planned to ban referral fees because they have a large part of their income from referral fees.

  CMCs do not just advertise. They meet the marketing needs of a lot of law firms which would have to be paid for anyway if they were not being done by CMCs and would cost rather more because they would not have the economies of scale. They also screen the cases and do a lot of the preliminary investigation. It is not just money for old rope. They do something for the money that they earn. As I say, they have also done a significant amount to improve access to justice.

  If we are talking about advertising, we need to put the other half of the argument, which is the amount that the insurance industry itself spends on attracting policies towards itself. If you look at the top 10 motor insurers in 2007, each of them spent £11 million on advertising. That had doubled by the following year.

Q14   Chair: Can you try and keep to the point more closely?

Andrew Dismore: The simple point is this. There is an attack on advertising by CMCs. I can see nothing wrong in advertising for claims when the insurers are allowed to advertise for the policies in the first place.

Mr Straw: Mr Maynard, my view, and it has changed over time in the light of experience, is that, fundamentally, claims management companies are parasitic and the reforms which were introduced with all-party support in 2006, for which I was responsible as Justice Secretary, have not worked effectively. My own view is that there was perfectly adequate access to justice before we had ever heard of a single claims management company. They have imposed costs which the British public, the law-abiding motorist, has had to pay.

  My last point is this, Madam Chairman. I profoundly disagree with Mr Dismore when he comes up with his syllogism that if cases have no merit they will not be paid out. Frankly, this is nonsense, Andrew. You know it is utter nonsense. It is self-serving lawyer's nonsense. It begs the question about whether claims should lie in those circumstances.

  Lots of people have been paid out for whiplash because the current state of the law and the costs of insurers fighting these cases is such that £3,000 or £3,500 has become the going rate. It is very hard to argue that anybody should be paid out simply for their neck going forward and then back.

Andrew Dismore: Can I answer the question?

Q15   Chair: No; we are not having dialogue. Mr Evans, you wanted to say something.

Paul Evans: Mr Maynard asked what the root cause is. I profoundly believe that the root cause of this personal injury dilemma is the amount of fixed fee that personal injury lawyers can earn at the point of prosecuting a claim against the insurer. The amount that is receivable as the fixed fee, which is £1,200, is quite evidently so high that they can afford to pay on average £800 as a referral fee. It means that the poor, innocent victim of an RTA is immediately a profit centre and a very valuable commodity that everyone wants to get their hands on to sell to the solicitor, who can earn so much money from prosecuting a case that Mr Straw observes is generally whiplash and is medically unprovable. Because it is my responsibility to defend a claim as an insurer, I have no defence because I can't prove that it does not exist any more than a customer can prove that it can exist, and therefore it is a very easy claim.

You have a situation where the fees paid to the solicitors are too high. That encourages them to want to attract customers, who can have the opportunity of claiming whiplash, suddenly to be reminded that they have a stiff neck—or had a stiff neck some months ago, I hasten to add—and to bring about a case that can pay to the customer, say, £2,500, which will cost the insurer £4,500 including all the legal costs, for which in the past the insurers have participated in this merry-go-round to attract the £800. £800 minus £4,400 is not a very happy merry-go-round. AXA jumped off because fundamentally we think it is immoral. It is immoral for the consumer and it is immoral for society that motor premiums have to pay for the fact that this is so profitable to prosecute.

Q16   Chair: Mr Evans, you have decided that you are not going to receive referral fees from insurance companies. Are you receiving them from any other bodies such as repairers or credit hire companies?

Paul Evans: We receive referral fees from credit hire companies, yes.

Q17   Chair: So you are still doing that.

Paul Evans: Yes.

Q18   Chair: You think that is all right.

Paul Evans: First, I would observe that the situation is quite different with credit hire. AXA will go to other insurers and arrange a bilateral agreement not to pursue credit hire if one of their customers, the other side, is the non-fault customer. AXA will do this. For example, last year we referred only 4,700 people into a credit hire situation for an average fee of £300. That is £1.5 million worth of income.

  We are addressing this as an industry. I believe this is dysfunctional too. I would acknowledge that. It is difficult for AXA to jump off unilaterally. We do it in this case by going to each insurer in turn and saying, "Look, this is stupid. Let's stop doing it to each other." We are doing that quite successfully and it is coming down. We believe that the industry has a responsibility to address this issue itself. We cannot always come to Government and say, "Please solve our problems for us." In this case we believe we do have to ask Government to help us to solve the problem because AXA cannot alone, unilaterally, solve the problem. It is just too big.

John Spencer: Can I correct one point because it is inaccurate? I sat on the Committee that set the £1,200 fee that has been referred to. It is an agreed figure. It was negotiated between insurers and claimant solicitors' organisations.

Mr Straw: It was poorly negotiated.

John Spencer: It was negotiated and reduced—

Q19   Chair: Can we resist the temptation for discussion between the witnesses?

John Spencer: I just wanted to make that point. The other point is that I am not a supporter of these other ancillary activities and profiteering that is being referred to. What they do in the end in a fixed fee system is reduce the amount of money available to properly represent the accident victim. With my firm I have been outbid by other practices that are paid to pay more and more money in referral fees to all the sundry organisations that are involved in this activity, because I know that if I go beyond a certain threshold we would not be in a position to conduct that client's case properly. You have to be careful if you simply see this as a reduction of fixed fees and everything will be okay. It might reduce down the level of service that people receive.

This danger is compounded by the advent of alternative business structures which are around the corner, where an insurer or a CMC, far from referring cases, will own the solicitors' practices that conduct them. They will devolve the conduct of these cases to the lowest common denominator. Who will suffer? The accident victim at the end of it will not get properly represented because they will still want to generate profit. There is a broader issue about licensing of insurers under ABSs and licensing of claims management companies who will look to go into new industries. I would like to see properly regulated conduct of cases with people being properly looked after and proportionate costs being spent, rather than trying to look at one segment or the other and just making, dare I say it, cheap political points out of it against the insurers—

Mr Straw: Who is making cheap political points?

John Spencer: I think there are cheap points being made around insurers and CMCs.

  Chair: Witnesses, would you please address the Chair and the Committee. I know that you are all very anxious to put your points. I am trying to make sure you all have the opportunity to do it.

John Spencer: It is too important for it to be a political football.

Q20   Iain Stewart: I would like to go back a couple of points and look at the likely effect on premiums if injury referral fees are banned. The evidence I have looked at suggests that there is no consensus as to what would happen. I refer to written evidence we have received from Admiral Group which says that the net effect would probably be neutral. While there would be a reduction in whiplash costs, referral fees income cross-subsidises other unprofitable parts of the business. But others argue otherwise and I am trying to get my head round what the impact would be.

John Spencer: The accurate answer to that question is that, if the existing fixed cost regime remains as it is, it will have a negligible impact on the cost of motor insurance premiums because the costs are fixed. They are fixed by the agreement that I referred to. If you then go further and look at what you do with those fixed costs, it all begs the question of what you do with those fixed costs as to how much costs might be saved by that action. Here and now, doing nothing else, the answer is that there would be no impact.

  The other problem with this issue is that there is no transparency by insurers as to what they are paying. We don't know what insurance companies are receiving by way of fee income from referral fees. Up to last November their position was that they thought we should take a long, hard look at referral fees. Then this Committee sat and I gave evidence to this Committee. Then the insurers started saying they wanted to ban referral fees. They still have not done what should be done, which is to reveal what they receive by way of referral fee income.

Mr Straw: The Law Society and the Bar Council have also said ban referral fees. The Legal Services Board said they are concerned about it and they want greater transparency. The research on which they based that is extraordinary.

  If you halve the costs allowed through the portal, as I propose in my Bill and for which there is overwhelming evidence, you basically take out £600 per claim. The fact that Admiral's share price went down, to which Mr Dismore referred, indicates that its investors believe that they will have a lower income from this.

  We have unnecessary costs riding in the system. There is no one magic wand that is going to take these out; it is a whole series of things. On whiplash there are sensible changes which could be introduced on the pre-action protocol—the portal—as well as on referral fees. If we could move away from what the head of motor insurance in the ABI said was a dysfunctional system, in which everybody behaved badly, to a more functional system, in which people behaved well, we would then get some proper competition and we would not have in a sense the industry obscuring unacceptable practices until recently, as, for example, over credit hire.

Andrew Dismore: The problem with Jack's approach is that he overlooks the fact that, if you did not have CMCs providing the marketing and other functions, then the law firms would have to provide it for themselves. The fact remains that CMC advertising is more cost- effective than a law firm having to try and advertise itself, bearing in mind the cost per case of attracting that work, plus all the additional things the CMCs do in terms of screening cases and doing some preliminary investigation work. That work would have to be paid for one way or the other and you can't get a quart out of a pint pot.

  As far as whiplash is concerned, there is a very easy answer to this. Mr Straw knows about this. There is new evidence emerging that you can test whiplash. Equally, there is new evidence emerging from Australia that says you can show an organic cause. The answer is quite straightforward. If the insurers think whiplash does not exist at low velocity, test it in court. That is what they did with pleural plaques and that is what they did with all sorts of other asbestos cases. You would not legislate for that when you were the Secretary of State.

Mr Straw: That is completely different; you know that.

  Chair: We have enough to discuss by keeping to this one.

Q21   Julie Hilling: I want to come back to the point where you are saying you need the Government to legislate in terms of personal injury claims but you are quite happy that you should try and somehow sort out the other extremely costly parts of motor insurance. Mr Evans, you were saying this but I do not understand.

Paul Evans: First, we do support a ban as wide as Jack proposes. However, I would say that in the case of credit hire the impact on premium is very low. It is nothing like as systemic as the personal injury issue. It is relatively straightforward for two insurers to agree not to refer each other's cases. With personal injury there are too many other mouths in the trough, if you like, who are able to refer that individual to a CMC or to a personal injury solicitor that we just cannot control. Going back to the earlier question perhaps, we believe that, if the fixed fee is reduced, the personal injury dilemma will go away, I promise, and that premiums will fall because it is a very competitive marketplace.

  I am perfectly happy for credit hire to be wrapped into that and resolved in exactly the same way. I am simply saying that the insurance industry has a responsibility. I believe that it can address that issue itself but we cannot reduce the fixed fee available to solicitors in personal injury cases. That has to be reduced if personal injury frequency is to fall and motor premiums are to be reduced.

Q22   Chair: Have your premiums fallen now that you have stopped referral fees?

Paul Evans: No, not at all. They have not increased as a result of us not taking referral income, which might have been the other question. We cannot reduce premiums until the frequency of personal injury claims reduces. The frequency will not reduce even by a ban on referral fees. As pointed out earlier, alternative business structures will be formed. We will not do it, but they will be formed, which will continue the industry around this profit pool. The profit pool has to be reduced. It will be reduced by reducing the fixed fee. When that happens personal injury frequency falls, and when that falls premiums will fall.

John Spencer: Can I—

  Chair: You will have another opportunity. I want to let other Members put questions.

Q23   Mr Harris: Mr Evans, for how many years did AXA receive referral fees before deciding they were immoral?

Paul Evans: Since 2007.

Q24   Mr Harris: So for those three years they were quite acceptable and then last year you said they were immoral.

Paul Evans: It is a difficult position because this was a decision that I took. A corporate has a life of its own, but I took over as Group CEO in October 2010. I banned them in June 2011. I cannot really speak for predecessor views, but I certainly believe that it has been demonstrated, certainly more recently with the higher premiums, that it is having an immoral impact on the industry. The insurers' take of that is relatively small compared to the whole, but we have to make a stand.

Q25   Mr Harris: AXA were the first to go with the announcement that you were going to unilaterally ban them. Was that influenced at all by a strategy internal document by ABI which said: "Our sense is that it would help greatly if one insurer announced publicly that it would stop receiving referral fees and if others followed suit. This would give our lobbying efforts more credibility. The current ABI position that we want a ban while our members continue to receive these fees is not ideal and leaves the industry open to allegations of hypocrisy"? Were you aware of that discussion?[1]

Paul Evans: I have never heard that said, and no, I was not aware of that position. I called the ABI the morning of our announcement to make them aware that I was breaking the line of the industry calling for a ban while not banning it themselves. I found that intolerable and I unilaterally decided. I was not aware of that.

Q26   Mr Harris: You were not aware that the ABI wanted one insurer to do it first?

Paul Evans: I was absolutely not aware.

Q27   Mr Harris: You mentioned alternative business structures. Is it correct that AXA is not going down that road and you have no plans at all to buy Knight Law Ltd, for example?

Paul Evans: Knight Law operates for us as a defendant; that is, it supports our defence of personal injury claims. It does not prosecute claims—that is, represent the claimants—and never will.

Q28   Mr Harris: You have no intention of purchasing it.

Paul Evans: I have no intention of purchasing it. To be fair, I think I own part of it but I would need to clarify that.[2] I have no intention whatsoever of it prosecuting personal injury claims against insurers.

Q29   Mr Harris: You have no intention of purchasing any law firm in the future to service your clients in the event of a personal injury?

Paul Evans: No. I want this issue to be resolved as quickly as possible so that that would become a foolish strategy. I have no interest in doing it.

Q30   Kwasi Kwarteng: I want to go back to the whiplash story. Are people on the panel suggesting that there is a severe problem with whiplash and that fraud is not a factor in any of these instances of whiplash? It is a question to you, Mr Spencer.

John Spencer: Ever since the introduction of seatbelts, motor accidents have incurred the whiplash injury. It is better than what went before but clearly not good. The problem with whiplash is that it covers a huge range of injury from the very modest to the quite severe. My issue with Jack's proposal with regard to whiplash is that, if you choose a mile per hour parameter to determine whether or not someone has a claim, say, 15 mph, which is the speed at which vehicle damage will be apparent, you will exclude cases of quite severe impact on individuals by doing that. Gender, height and pre-existing conditions all have an impact on how severe the injury is.

Andrew Dismore: There seems to be an inference that every whiplash claim is somehow fraudulent. The ATE insurers have done some research on the number of cases that have actually proven to be fraudulent. DAS, which is ATE and one of the biggest, had only six cases in one year. It is 0.018% of their cases. ARAG, another big ATE insurer, is 0.02%. Experian Fraud Index found 12 cases in every 10,000 applications and cases. Let us keep a sense of proportion about the actual incidence of fraud rather than what is alleged.

  To finish the point about whiplash—

Q31   Chair: I want to hear Mr Straw on this one.

Mr Straw: It is not quite how it works. Leaving aside the cash-for-crash claims where people double or treble the number of people alleged to have been involved, if there is an accident and somebody's head goes forward—or that is the inference from the impact—they are then encouraged to put in a claim. The claims management company sells the claim, so they have a real interest in pursuing it to the point of profit. They are then sent to medical practitioners who are in the pay of the CMC—"You will get a fee for this"—and as sure as I am sitting here—

Andrew Dismore: That is wrong. They are not in the pay of the CMCs.

Mr Straw: Hang on a second—

Chair: Each witness must give their own answers.

Mr Straw: As sure as I am sitting here, they are paid by the CMCs. The CMC ultimately, if they succeed, will get the fee back from the insurer. I have spoken to people who have been in this situation. They have reluctantly been persuaded to make a claim for whiplash because they just want to get them off their back and they say it is £3,000. They go and see the doctor. The doctor says, "Did your head go forward? Are you sure you didn't have a headache? You must have had a bit of a headache." He ticks a whole series of boxes and it is £3,000. It would not stand up in a fraud prosecution. It is right on the edge.

  What I have suggested in my Bill, and I have thought about this very carefully, is that the onus is on the claimant to satisfy the court that there is independent objective evidence that they have suffered harm. No damages should be recoverable if the only evidence is a subjective description of symptoms by or on behalf of the claimant.

  On Mr Spencer's point, I am not saying—and it does not say in the draft of the Bill—that if the accident took place at a relative speed of 15 mph or less then no claim will lie. That is one possibility, but it also has to be shown that there are no musculoskeletal signs of any injury, including fracture or dislocation. If you have a crump below 15 mph but you had these signs of musculoskeletal injury, then of course damages would lie.

Q32   Kwasi Kwarteng: You are saying that the focus is that there should be third-party corroboration that the injury happened.

Mr Straw: Yes. Can I just say—and I am happy to give it in evidence—there is a major academic study of the invention of whiplash, which started in the United States? I know the old story that it is all to do with seatbelts, etc. It is a little bit to do with seatbelts. Frankly, it is also to do with the avaricious tendencies of an industry chasing premium income and damages and a common law system which has not been adept enough to keep pace with these other developments. That is the truth of it. It has happened in the US. It has happened in Australia. It is happening here. The fact that it does not happen in Scotland or Germany to the same extent illustrates that this is basically artificial for the most part, but not completely.

John Spencer: A survey by Davis in 1998 demonstrated that whiplash injury is sustained upwards from 2.5 mph, which is six times less than 15 mph.

Q33   Kwasi Kwarteng: I remember that you came earlier, a few months ago, and we looked at an international comparison with Germany where instances of whiplash were practically zero. Yet you are saying that this is an incredibly devastating condition. How do you explain the fact that in Germany there are very few instances of it?

John Spencer: I do not think there are fewer instances; I think there is a different legal system operating with regard to the ability to claim for that injury.

Q34   Kwasi Kwarteng: So you think thousands of Germans are suffering from whiplash but they do not have the means to claim?

John Spencer: We have an ability in this country, which is well established, to present a claim for your injury and be compensated for it. The system within Germany is different from that which operates in this country. I do not think it is a physiological difference.

Q35   Kwasi Kwarteng: I ask you a simple question. Are there thousands of people who are suffering from whiplash in Germany who have no legal means of redress?

John Spencer: I expect that there are similar numbers in Germany to those that there are in this country, yes, because I do not believe that physiologically we are different.

Q36   Chair: Mr Dismore, can you make your points as quickly as you can, please? We are running out of time.

Andrew Dismore: I will, very quickly. Jack refers to evidence from the US. There is other evidence now emerging from scientists in Australia about whiplash. The answer is very straightforward. Time and again the insurers test these things in court. When I was in litigation myself I defended a number of test cases and, indeed, brought test cases. That is how this is resolved. It is not by a Committee like this, august though it may be, and not by legislation, but by the evidence being tested in court in a test case that goes all the way to the Supreme Court. Let the Supreme Court decide, as they have done time and again on many other aspects of personal injury law.

Q37   Jim Dobbin: For the record, Chair, I did have a text a couple of days ago saying that I would pick up £3,700 for the accident I never had. It just did not exist, quite honestly. On the back of that, how is all this information getting out to these people? Are the insurance companies breaching the Data Protection Act by making personal data available to solicitors, garages, credit hire firms and others without the consent of the policyholder? Is that what is happening?

Andrew Dismore: I can answer that because I have just renewed my insurance policy. For once I listened very closely to the very long recorded message at the start when I did it over the line and I read the small print of the policy very closely. I was authorising the insurer concerned to basically sell my data to anybody they wanted. The data concerned, which is supposed to be there to prevent fraud and misrepresentation, is being used to sell on that information. The answer is relatively straightforward. The data should only be allowed to be transferred if the client insured gives specific authority in relation to the case in question and not one of these general authorisations. The CMCs cannot get that information from anywhere else other than insurers.

Q38   Chair: So you think that is the way to deal with it. Mr Evans, do you have any view?

Paul Evans: All I can say is that there is absolutely no evidence whatsoever that insurers are selling data. Can I explain the conversation that takes place with a customer? A customer calls to report a claim. We would ask that customer, "Has anybody been injured?" as part of that claim. The customer would say, "Yes: X and Y." We would ask that customer, "Do you want any support in pursuing your claim?" If they say no, fine. If they say yes, we say, "We can refer you to a solicitor." If they say, "Yes, I would like you to do that," we do so. In the past we would have written to them to say, "We have referred you to X and we have received a fee of X" as a response. Now we say, "We referred you to X." We do not mention a fee as there was not one. There is no evidence. Believe me, the ABI have made lots of inquiries of any insurer selling wholesale data. It is not happening.

Mr Straw: The answer is that there are clear breaches of data protection and Ofcom rules, not necessarily in respect of insurance companies but by other parties here. I have had correspondence with both Christopher Graham, the Information Commissioner responsible for data protection, and Ed Richards, the Chief Executive of Ofcom, about this. I am happy to submit that in evidence.

Q39   Chair: Finally, Mr Straw, would you support a request I am about to make for a debate on this topic to the Backbench Business Committee?

Mr Straw: Very strongly.

Q40   Chair: Thank you. I see there is continuing interest in the issue.

Mr Straw: But bear in mind that the Government—and I welcome this unequivocally—have committed themselves to the abolition of referral fees, although not to the other changes. My guess, and it is no more than that, is that those changes may be the subject of new clauses or amendments when the Legal Aid, Sentencing and Punishment of Offenders Bill comes up for its Report stage, whenever that is.

Q41   Chair: I would like from all of you literally a one-word answer. Do you support the banning of all forms of referral fees? That means not just in relation to lawyers.

Mr Straw: Yes.

Q42   Chair: Mr Spencer, just one word. If you don't, say so.

John Spencer: Personally, yes. My organisation has a broader range of view.

Q43   Chair: But your view is yes. Mr Dismore?

Andrew Dismore: No, because it goes against—

Q44   Chair: I just want the answer.

Andrew Dismore: It goes against the principles of good regulation.

Q45   Chair: Mr Evans?

Paul Evans: Yes.

  Chair: Thank you very much, gentlemen.

1   See a letter from Nick Starling, Director of General Insurance and Health, ABI, for a response to this question (CMI 13d) Back

2   See supplementary evidence from AXA UK for clarification (CMI 38a) Back

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Prepared 12 January 2012