Written evidence from AXA UK |
REFERRAL FEES AND WHIPLASHAXA'S CASE
On 28 June 2011 AXA became the firstand so
far onlyinsurer to unilaterally ban referral fees from
personal injury lawyers, highlighting the need for legislative
and regulatory changes to curtail market practices which fuel
the "compensation culture" and consequential increases
in motor insurance premiums.
In this note we outline the background to this decision
and set out, in AXA's view, the right way forward to deliver a
better outcome for consumers. In particular we focus on the need
for urgent reform of the whiplash regime.
Personal injury claims arising from road traffic
accidents have increased by 43% over the past three years which
is perverse given that the number of motor vehicle accidents has
been falling progressively over many yearsby 31% in 2009
compared to the average for 1994-98 as published in the Committee's
recent report into the cost of motor insurance.
In our view there seems to be no question that UK
society is drifting into a compensation culture, encouraged by
an industry of claims management firms that has formed to profit
from the misfortune of others.
The insurance industry has stood accused of feeding
that industry by accepting fees for referring potential personal
injury claimants, and thus promoting a dysfunctional market which
has inflated motor premiums, particularly in those areas of the
country where claims management firms are so prevalent. In practice,
the role of insurers in this matter is only a small fraction of
the issuethe main reasons for the rise in personal injury
claims are the growth in accident management companies, credit
hire firms and personal injury lawyers.
Having concluded that the practice is immoral, AXA
has withdrawn from the practice of accepting referral fees from
personal injury lawyers.
Referral fees are a symptomnot the causeof
a broken compensation system. The main cause of increasing motor
insurance premiums is the frequency of minor personal injury claims
which cost in the region of £4,400 each. Banning referral
fees will help, but in itself will not bring about the step change
needed to drive a better, fairer and more affordable system; and
almost certainly will not lead to the reduction in personal injury
claims necessary for a restoration of cheaper motor insurance
In our opinion, reform of personal injury legislation
must have regard to the following dynamics:
fees averaging £800 are paid by claims management firms and
personal injury lawyers to a number of market participants. A
ban would eliminate their incentive to promote minor injury claims,
but must be structured so as to avoid replication by other meansfor
example by netting against the cost of providing services, or
other forms of cash/non-cash incentive.
fixed fee under the Ministry of Justice Road Traffic Accident
Portal is £1,200 which, allowing for an average referral
fee of approximately £800, is quite obviously too high meaning
that personal injury cases are too profitable. We estimate that
the true cost of handling these claims is likely to be nearer
£250. Fixed fees should be reduced so as to remove the excess
profitdeployed in part to pay referral fees.
some cases (for example large retail brokers), profiting from
personal injury claims is so fundamental to shareholder returns
that any ban on referral fees will likely be circumvented through
deploying new business modelsfor example, the acquisition
of personal injury law practices under the forthcoming "Alternative
Business Structures" which will come about following the
de-regulation of legal services. Measures should be considered
that would prevent a ban on referral fees simply encouraging market
participants to set up their own practices to capture the profit
from current personal injury practices.
is too easy to claim whiplash after a road traffic accident. Such
soft tissue injuries are impossible to prove, or disprove, and
as such represent an opportunity for a "lottery win"
of around £2,500 each for those involved but not at fault
in a minor accident. Reform is required to shift the burden of
proof, so that compensation is payable only where the party has
suffered demonstrable injury as is the case in some European countries.
Below we have expanded upon the whiplash regime,
which we argue needs fundamental reform.
The NHS spends around £8 million in treating
whiplash and other soft tissue injuries yet insurers pay out approximately
£2 billion in compensation for the same conditions.
Measures are required to raise the burden of proof
required for minor bodily injury such as whiplash. New medical
developments and also broader expert opinion on the possibility
of whiplash at low speeds or below certain force levels should
be examined. These have the potential to deepen our understanding
of minor soft tissue injuries. The burden should then switch to
the claimant to prove that an injury exists rather than an insurer
having to disprove it. In practice, it is simply too easy for
a claimant to secure a medical report that they are suffering
from whiplashthe doctor has no means by which to prove
or disprove, so medical certificates are provided with minimal
investigation, often several months after the event when a claimant
is "awoken" by either referral or advertising.
If these steps are taken as a package, then the insurance
industry will see a reduction in the frequency of minor personal
injury claims and a commensurate reduction in motor insurance
premiums will follow. This will have positive benefits for consumers,
not simply through lower motor insurance premiums, but through
arresting the decline into a compensation culture and the other
costs which arisefor example minor personal injury claims
against councils and employers.
What is needed is a process that ensures those injured
by the negligent acts of others receive the timely and fair compensation
they are due, and that fraudulent claims can be filtered out and
rejected without incurring unnecessary cost. We need a system
that does not encourage the harassing of people to generate these
With regard to whiplash and other soft-tissue
injuries we are about to embark on studies that will examine the
evaluation of muscle damage following a typical low impact road