Examination of Witnesses (Question Numbers
Rt Hon Jack Straw MP, John Spencer, Paul Evans and
11 October 2011
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,
Mr Straw: Jack
Straw, Member of Parliament for Blackburn.
Andrew Dismore, Co-ordinator of the Access to Justice Action Group.
Paul Evans: Paul
Evans, Group CEO of AXA UK.
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.
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.
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 happenand indeed the CEO of Allianz
warned about this as long ago as 2004was 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.
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 years30% last yearthat 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 correlationI think myself it is causalbetween
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.
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.
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.
Can you say what these are?
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 RTAroad
traffic accidentwill 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
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 areascompletely law-abiding people who pose no
risk at all and who are not going to make a claimis 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
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
My point is that this is compulsory. We give
insurers a profitthat is the ideain 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.
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.
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
What about the issue of distributing the risk? What is the impact
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 controlcontrol 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 systemand 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
clientsthat is intercepting them before they have the opportunity
to see and be independently advised by a solicitoris 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
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.
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.
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.
Can you try and keep to the point more closely?
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
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.
Can I answer the question?
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 neckor had a stiff neck
some months ago, I hasten to addand 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.
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.
So you are still doing that.
Paul Evans: Yes.
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
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
Mr Straw: It was
John Spencer: It
was negotiated and reduced
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
Mr Straw: Who is
making cheap political points?
John Spencer: I
think there are cheap points being made around insurers and CMCs.
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
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
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 protocolthe
portalas 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
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
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.
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
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
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?
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 claimsthat
is, represent the claimantsand 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.
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
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.
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
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 forwardor that is the inference from the impactthey
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
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 sayingand
it does not say in the draft of the Billthat 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 sayand I am happy to give it in evidencethere
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
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
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.
Mr Dismore, can you make your points as quickly as you can, please?
We are running out of time.
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
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
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.
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.
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
Thank you. I see there is continuing interest in the issue.
Mr Straw: But bear
in mind that the Governmentand I welcome this unequivocallyhave
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.
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.
Mr Spencer, just one word. If you don't, say so.
John Spencer: Personally,
yes. My organisation has a broader range of view.
But your view is yes. Mr Dismore?
No, because it goes against
I just want the answer.
It goes against the principles of good regulation.
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
See supplementary evidence from AXA UK for clarification (CMI