Transport CommitteeWritten evidence from the Forum of Insurance Lawyers (FOIL) (WL 33)

FOIL (The Forum of Insurance Lawyers) exists to provide a forum for communication and the exchange of information between lawyers acting predominantly or exclusively for insurance clients (except legal expenses insurers) within firms of solicitors, as barristers, or as in-house lawyers for insurers or self-insurers. FOIL is an active lobbying organisation on matters concerning insurance litigation.

FOIL represents over 8000 members. It is the only organisation which represents solicitors who act for defendants in civil proceedings.

This response has been written specifically for the Committee. Any enquiries in respect of it should be addressed initially to:

Shirley Denyer, Shirley Denyer LLP, FOIL Knowledge Services (Consultant)

Sinclair House, 2D Park Avenue, Eccleston Park, Prescot, Merseyside, L34 2QZ

Executive Summary

Whilst vehicles have become safer and the number of road traffic accidents is reducing, claims volumes continue to increase. This is the result of a dysfunctional system created on the back of referral fees and difficulties in diagnosing whiplash. Fraud is a significant problem.

Some of the reforms to the provision of medical evidence which the Government is proposing have the potential to improve the accuracy of diagnosis and prognosis and reduce damages and costs. This in turn could reduce motor premiums.

An increase in the Small Claims Track limit would not impact upon fraudulent claims. It is unlikely to reduce costs (therefore limiting the opportunity for a reduction in premiums) and has the potential to increase them.

Other steps could be taken to reduce the cost of claims, and therefore, potentially, motor premiums: legislation to address the issue of third-party fraud; and a reduction in the limitation period for RTA claims.


1. FOIL members have significant experience of handling, for defendants and insurers, a wide range of civil claims arising from road traffic accidents, including claims for whiplash.

2. Research and development over recent years has significantly improved vehicle safety, meaning that cars are safer for drivers and passengers than they have ever been. Coupled with these improvements, statistics produced by the actuarial profession1 show that accidents giving rise to third party claims are reducing, with third party damage claims frequency reducing 11% in 2011, the most pronounced drop in five years.

3. At the same time, however, there was an 18% increase in the proportion of third party accidents resulting in a personal injury claim in 2011, the biggest increase the Institute and Faculty of Actuaries has seen since it began compiling statistics. The Faculty notes that this increase alone increased the cost to insurers by £400 million “and as a result it is likely that motor insurance premiums will rise”.

4. FOIL believes that the increase in personal injury claims arising from road traffic accidents over recent years has been encouraged by two specific aspects of the claims process:

A regime of referral fees and excessive legal costs has created a dysfunctional system. Potential claims have become a valuable commodity, leading to unprecedented marketing by claims management companies, pressuring would-be claimants to commence claims for personal injuries. Offers of up-front payments and gimmicks such as free iPads and other consumer gifts upon notification of a claim, coupled with social acceptance of whiplash claims, have incentivised claimants to see damages as a natural consequence of every vehicle shunt or bump, ultimately leading not only to invented and exaggerated claims of injury but the invention and staging of accidents.

The lack of an objective test for soft tissue injuries, including whiplash, leaves medical experts dependent upon the claimant’s account of the accident and injury to diagnose whiplash and provide a prognosis. With no test to “prove” that whiplash has occurred it is very difficult to disprove.

5. Fraudulent claims for compensation are a significant and increasing problem. Whilst access to justice must be preserved for the genuinely injured, exaggerated, misrepresented or fabricated claims are a blight on the compensation regime and cannot be allowed to go unchallenged. Through the work of its own Special Interest team on Fraud, FOIL is concerned to address practices which allow fraudulent and exaggerated claims to be pursued and to work with other organisations, wherever possible, to discourage fraud and exaggeration in civil claims and improve detection.

6. FOIL is supportive of the Jackson package of reforms, and has welcomed the steps taken by the Government over the past three years, since the publication of the final Jackson Report, to rectify the problems within the system and enable it to operate effectively. FOIL believes that the reforms underway will contribute to a more balanced claims regime, providing access to justice to both claimants and defendants. In particular, it welcomes:

The banning of referral fees, taking out a layer of cost.

The provisions within LASPO to remove recoverability of success fees and ATE premiums, giving claimants a direct interest in the costs incurred in their names.

The introduction of QOCS, with the exception for claims which are “fundamentally dishonest”.

The development and proposed extension of the protocol and portal process, introducing a more streamlined, cost-effective claims process.

7. Together, these reforms will play a part in directly reducing costs and creating incentives for claimants to exercise control over their own legal expenditure. With costs taken out of the system claims will become less of a commodity, with less incentive for claimants to be provoked into making claims, which should result ultimately in a reduction in inappropriate and fraudulent claims. This would reduce costs and, potentially, in turn, motor premiums.

8. The current reforms together represent a sea-change in the handling of personal injury claims. FOIL believes there are further steps which could be taken to improve the claims process (including through improvements in the provision of medical evidence in whiplash claims) and to reduce fraud. However, FOIL is cautious at the prospect of the further major changes that would be introduced if the Small Claims Track limit were to be increased: firstly, on the basis that the further changes would be against a background of very significant reform which has yet to be introduced and bedded-down (which further change could affect adversely); and, secondly, on the basis that FOIL does not believe that the reform will achieve the stated Government objective of reducing fraudulent claims.

FOIL wishes to address two of the five points upon which the Select Committee has requested evidence, on which it has appropriate experience and expertise:

Issue 3

Whether the proposals put forward by the Government, in relation to medical evidence of whiplash and incentives to challenge fraudulent or exaggerated claims are likely to reduce motor insurance premiums and, if so, to what extent?

Improved Medical evidence

9. In its consultation paper the Government proposes that, in future, medical reports for whiplash injury claims should be supplied by independent medical panels, using a standard report form.

10. For FOIL, the main issue to be addressed here is one of independence. The growth of MROs in recent years has improved the provision of medical evidence in low value RTA claims. The current system is unrecognisable from that in place several years ago when reports were routinely obtained from orthopaedic consultants, involving significant cost and delay. As the use of MROs has become the norm, it is very unusual for a claimant to obtain a medical report from his or her own GP. MROs have been instrumental in delivering improved service standards.

11. It is important that the providers of expert evidence are independent and clearly seen to be so. Company structures which bring MROs under the same ownership as claims management companies or ABS are a challenge to this and therefore create a concern.

12. Medical reports are already prepared using a standard format. There is a balance to be struck: standardised reports ensure the information is easy to analyse and facilitate the use of case management software but too much standardisation can lead to a tick-box approach which provides little assistance when settling a claim. Careful thought should be given to the nature of the examination and the exact information to be provided in the report, to ensure it is effective without building in unwarranted costs. It is important that the process is kept proportionate. The cost of medical evidence should be fixed in the CPR.

13. A major defect in the current regime is that reports are usually based entirely on evidence from the claimant, with the medical expert not even having the benefit of the defendant’s account of the facts surrounding the accident. The medical expert is therefore hampered by a lack of information on the type of vehicles involved, the speed and the circumstances of the accident, which can encourage misdiagnosis. It may also be useful in some situations for the medical expert to be provided with engineering evidence or information from WITkit, to give a more rounded picture of the circumstances of the collision. This would assist in identifying claims in which examination of medical records would be helpful.

14. In considering the alternatives models for the independent medical panels put forward by the Government, FOIL believes that an accreditation scheme would be beneficial. It would be keen to see training improved for medical experts focusing on low value RTA claims and for an accreditation system to provide a means of challenging experts outside the court process, to maintain standards. It is important that the system has teeth.

15. FOIL believes that if the reforms set out above were implemented it would be harder for claimants to obtain medical evidence in support of a fraudulent or exaggerated claim. This would deter non-genuine claimants from commencing a claim and help in identifying fraud and exaggeration as claims progressed. It is more likely that medical evidence obtained would accurately identify the diagnosis and prognosis for in injured individual, creating a firmer footing for compensation awards. It is likely that all of these effects would reduce the damages and costs paid by insurers which could in due course result in lower premiums.

Increase in the Small Claims Track limit, either for whiplash or for all RTA claims

16. Significant reforms to the civil justice system for personal injury claims are about to be introduced. FOIL believes it would be inappropriate to make further changes to the civil justice process by increasing the Small Claims Track limit before the current package of reforms has been introduced and the impact on the market and the civil justice system has been identified.

17. FOIL has called consistently for the implementation of Lord Justice Jackson’s reforms as a package. It is well-known that Sir Rupert rejected calls for the Small Claims Track limit to be increased substantially and instead recommended an increase based on inflation.

18. With respect, FOIL believes that a smaller increase to the limit than that proposed, to more than £1,000 but less than £5,000 would bring with it significant problems. The combination of the higher than average increases in PSLA damages in the latest edition of the Judicial College Guidelines and the 10% increase in damages under Simmons v Castle have already raised damages levels significantly. With the average whiplash claim settling currently for around £2,500, the above factors, coupled with claims inflation driven by a desire to recover legal costs, could very easily push the average claim to more than £3,000, and, without a very significant stretch, to over £5,000. Such a development would compound the problems many of the recent reforms have sought to address. It would be disastrous to have reforms in place to reduce cost, only to find that the effect is neutralised by higher damages and, in some cases, higher costs, than can be recovered at present.

19. By the end of July, the protocol and portal system will handle RTA claims worth up to £25,000, bringing within the streamlined process the vast majority of RTA personal injury claims. With reduced FRC within and outside the portal the regime is poised to become much more cost effective. There is a danger that an increase in the Small Claims track limit will adversely affect this development, driving more claims away from the portal, to be handled in a manner which will be administratively more expensive for defendants.

20. FOIL believes that an increase in the Small Claims Track limit will have an adverse effect on the operation of the RTA portal, by removing from it claims which would have benefited from its reduced-process, reduced-cost regime. Whilst it may be possible to amend the portal process to allow it to be used by individual claimants either directly or through a third party, the benefits of the portal system come from the process itself, not from the software. Without strict adherence to the rules, which could not be expected from lay claimants, the system would lose its effectiveness with claims dropping out of the system to be handled through the courts in an expensive, ad hoc fashion.

21. With an increased Small Claims Track limit claimant representatives would be likely to develop a service to handle claims under Damages Based Agreements, taking a 25% cut of damages. On a £3,000 claim that would equate to £750, significantly more than the new FRC under the portal. Claimant firms would be incentivised to bring lower value claims once more and increase the value of them, requiring insurers to face the cost of handling and paying more claims, and passing on higher costs to injured individuals.

22. FOIL does not believe that increasing the Small Claims Track limit will reduce the incidence of fraud or exaggeration. Any incentive to bring claims and maximise damages, as identified above, will inevitable also increase the number of fraudulent and exaggerated claims. Such claims are expensive to challenge under the present regime because the issues are complex and time-consuming. In reality, such claims would not be handled within the Small Claims Track but would be transferred to a costs-bearing track. The anticipated “virtuous circle” of fraudulent claims being challenged and therefore deterred would not occur. Increasing the limit is unlikely to decrease costs, and has the potential to increase expense, with more litigants in person in the system and more insurer resource absorbed in handling small claims. This would not assist in reducing motor premiums and could, potentially, create circumstances in which they have to increase.

Issue 5

Whether there are other steps which the Government should be taking to reduce the cost of motor insurance

The judicial response to fraudulent claims

23. FOIL has campaigned for some time for third party fraud to be treated in the same way as policy-holder fraud: for a finding of fraud to lead to dismissal of the entire claim, not just the fraudulent elements.

24. This issue has long been within the domain of the judiciary, which has, in general, calibrated the test for fraudulent behaviour at a very high level. In the judgment in Widlake v BAA Ltd, EWCA Civ 1256 (November 2009), for example, Ward LJ commented as follows:

“Given the judge’s findings of dishonesty in this case, [a punitive sanction] may be appropriate here. I sound a note of caution: lies are told in litigation every day up and down the country and quite rightly do not lead to a penalty being imposed in respect of them. There is a considerable difference between a concocted claim and an exaggerated claim and judges must be astute to measure how reprehensible the conduct is”.

25. The issue came before the Supreme Court more recently in the case of Summers v Fairclough Homes Ltd, [2012] UKSC 26. In that case the court held that the court is able to strike out a fraudulent claim in its entirety but only in “very exceptional circumstances”. In that case, a claim which had been inflated ten-fold was held not to fall within the circumstances which would have allowed the whole claim to be struck out. Such decisions undermine any message that fraud in personal injury claims is not to be tolerated.

26. FOIL has previously called for the issue of the appropriate response to third party fraud in personal injury claims to be considered by the Law Commission but was informed, following the publication of the eleventh programme of reform in 2011, that the issue was not to be included as the Ministry of Justice did not consider there was sufficient support for a change in the law. In the light of the decision in Summers v Fairclough Homes, which has made it difficult to prevent fraudulent claimants from still recovering damages, FOIL believes it is time for a change in the law through legislation.

Late claims

27. Whiplash claims brought just before the expiry of the limitation period present a real challenge for defendants and this is becoming an enormous problem. Medical reports which merely record the claimant’s account of an injury suffered and a recovery made some months later, provide no support to the claimant’s case and offer the defendant no assistance in handling the claim.

28. A reduction in the limitation period for RTA claims would require claimants to pursue claims in a timely fashion, whilst allowing the judiciary to take further issues into account to extend the limitation period in cases of more serious injury where delay can be justified.

April 2013

1 The 2012 report on third party motor claims and periodical payment orders (PPOs) from the Institute and Faculty of Actuaries.

Prepared 29th July 2013