Written evidence from Ai Claims Solutions
(UK) Ltd
SUMMARY
The Transport Select Committee is due to hear evidence
from a number of bodies, including Jack Straw MP, during its re-opened
Inquiry into Motor Insurance. Ai Claims Solutions is concerned
to ensure members of the Committee are given the opportunity to
hear evidence from both sides of the motor clams argument, especially
where referral fees and reform of industry practices are concerned.
CONTEXT
Justice Minister Jonathan Djanogly MP has announced
that the Government is to bring forward legislation to ban referral
fees for personal injury cases. In a Written Ministerial Statement,
the Minister said:
"Our aim is to reform the system to end the
abuses that have occurred while ensuring that victims who have
suffered a personal injury through someone else's negligence remain
able to make a claim for damages where they have an appropriate
case. Alongside the planned reforms to conditional fee agreements,
the ban on referral fees will contribute to the Government's plans
to tackle the compensation culture by discouraging unmeritorious
claims and controlling the disproportionate costs of personal
injury claims, without denying access to justice."
There is no official statement on when the Government
is likely to introduce legislation, nor any clear sense of the
scope of the reforms. In media interviews, the Minister inferred
that legislation may be introduced in the Spring of next year.
KEY MESSAGES
1. A ban on PI referral fees will not resolve
dysfunctional market
Despite the Government's intention to row back against
the compensation culture, Ai do not believe a ban will have the
effect ministers believe.
— A ban
will drive more public marketing and advertising from solicitors.
— Solicitors
will still pay money to pick up potential clients, but the practice
will go underground.
— Solicitors
will change they way they attract referrals by switching to payment
through "marketing". It is hard to see how legislation
can counteract this, even if the practice is criminalised.
— A ban
would not create fairer treatment for customers and no reduction
in the cost of claims.
— A ban
would not stop insurance fraud.
— Referral
fees are not a major factor behind the rise in motor premiums;
if they were banned, premiums would continue to rise.
2. The effect of ABS (Tesco Law)
The genesis of alternative business structures (Tesco
Law) is already creating changes in market practice. Government
should monitor these changes before taking precipitate action.
Insurers (even those who have already said they'll
ban referral fees) are setting up law firms to generate new revenue
streams from claims management. Customers in an accident will
be referred to the insurer's own law firm. Although more transparent,
customers won't have the freedom to choose their own provider,
as they will come under pressure to use the law firm specified
by the insurer.
Claims for whiplash have risen in recent years—but
the science behind whiplash has barely advanced.
— Lack
of investment from NHS into whiplash—£8 million last
year versus £2 billion paid out.
— We
need to explore how other legal systems deal with whiplash and
seek new ways to manage this type of injury.
— The
ABI's own statistics are flawed and unreliable.
— A large
proportion of the ABI membership do not want a ban on referral
fees.
The insurance industry is divided on the issue of
referral fees, which in any event are a small issue in context
of other industry practices.
Examples include:
— Insurers
profiting from vehicle repairs.
— Insurers
selling data to data mining businesses.
— Insurers
misselling legal expenses insurance.
— The
growing incidence of fraud.
— Insurers
poor claims management practices which delay settling claims.
If Government was serious about reducing the costs
of motor insurance, there are more appropriate targets and approaches
than referral fees.
Ai is unconvinced that the Government has fully thought
through the implications of a ban, given the lack of detail in
the Minister's statement about the scope of the legislation.
Our sense is that the decision seems to have been
made in response to pressure from campaigners, as the Ministerial
statement contains little evidence/facts to justify the ban. Ministers
must clarify the benefits in clear and monetary terms so that
the industry can see the positive effects of a ban.
QUESTIONS REQUIRING
FURTHER INFORMATION
FROM GOVERNMENT
1. What the real figures are to drive the decision
to legislate? How many PI claims have been made and what is the
total solicitors cost? What is the total paid out in compensation?
2. By banning, how much "income" that
goes back into the system to insurers would be lost—how
would insurers make up the shortfall? There are no clear figures
on how much whiplash actually adds to a premium? The ABI says
87% but is this figure before or after insurers take their income?
3. The Government's announcement has come before
the impact of alternative business systems (ie Tesco Law) is in
place. This will bring about significant market changes, in particular,
policyholders being channelled into insurer-owned legal firms
rather than being given a free choice.
4. There are many other issues which need resolution
as well as referral fees (a ban on its own won't have much impact).
Ministers need to consider regulating insurer profits from repairs,
mis-selling Legal Expenses.
September 2011
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