What needs to be fixed in the Motor Insurance game

Crazy_Jamie

Parking_Trouble wrote:

I think CFA's were first allowed for Personal Injury Claims in the mid-1990's and since then the cost of legal fees has typically exceeded that of the damages paid to the claimant. There are undoubtedly some complex cases that require proper legal support for the claimant. However there are also many minor injury claims such as whiplash that insurers cave in quickly to keep costs down.

How to reduce the costs -
a. Cut back the solicitor success fees to 25% of the compensation. Success fees often double the real cost of the effort of the solicitor.
b. For low cost claims (up to £2500?) make the claimant go through the Small Claims process - a low cost, simple way to recover money owed and decided by a judge.
c. The defendant only has to pay the base costs if they lose.
d. Legal costs cannot exceed the compensation - if the they the additional money is paid by the claimant out of their compo
e. Stop cold calling by lawyers (or their agents) to encourage people to make claims. Especially where there is a commission paid to agents doing the calling (higher risk of mis-selling)

By way of information on this, a new process was introduced by the Ministry of Justice in April 2010 to deal with low value personal injury claims, incorporating a new pre action protocol (i.e. dictating how parties should act before a claim is issued) and a three stage process once the claim has been litigated. There is an article about it here, and the full paper on it can be found here. The latter link will probably be too heavy going, but all the information is there should you have any particular desire to wade through it.

The basic idea is that the process reduces both the costs of low value personal injury claims (defined as being between £1,000 and £10,000 in value), and also the time that these claims take to conclude. It does this on the efficiency side by setting strict time limits for various actions to be completed, and on the costs side it introduces a fixed costs scheme where for each 'stage' that the claim goes through the Claimant is entitled to a certain amount of fixed costs plus a fixed uplift. There are various ways that claims can 'drop out' of this system, but for the more 'straightforward' claims this system has seen results overall in the past couple of years.

Ultimately, if CFAs are to be entirely removed, there needs to be an alternative as I mentioned in the other thread, otherwise access to justice will suffer. This alternative, as has already been mentioned, would almost inevitably have to be the re introduction of legal aid in personal injury cases. Given the government's stance on the legal aid budget, I can't see that happening any time soon. The irony is that the government is actually doing its best to remove legal aid from clinical negligence claims, which is wholly counter productive as CFAs incur more fees that are usually paid by the Defendant, which in clinical negligence claims is usually the NHS, which is a public body. So legal aid in clinical negligence claims actually costs less than CFAs would, something which the government can't seem to see. But that's another discussion for another time. The point is that at a time when the government is trying to remove legal aid from one area of PI that it makes perfect sense to have it in, it is highly unlikely to re introduce it in other areas.

Parking_Trouble

Thanks Jamie. It makes interesting reading.

It won't cut down the dubious claims. It seems to accept there is not much you can do other than streamline the process and reduce the overheads.

Is it mandatory?

Crazy_Jamie

Parking_Trouble wrote: »

Thanks Jamie. It makes interesting reading.

It won't cut down the dubious claims. It seems to accept there is not much you can do other than streamline the process and reduce the overheads.

Is it mandatory?

It is mandatory for claims that fall within the remit of the scheme. Given its success thus far there is talk of introducing a similar scheme for higher value claims, though that may be more tricky as they are inherently more complex generally speaking.

You're right that it does nothing to cut down dubious claims, but then again fraud detection is an inherently separate issue. To be honest, I do feel that the insurance companies cannot win when it comes to fraud. Settling claims early does potentially make them more susceptible to fraud and has been criticised, but it keeps costs down. If insurance companies fully investigated all claims fraud would certainly decrease, but the costs of investigating all claims (the vast majority of which are legitimate) would result in a massive increase in premiums as the general costs of claims skyrocketed. Given that the ultimate concern for everyone seems to be premiums, I can't see that approach garnering much support either. So it is very much a lose-lose situation for insurance companies with regards to fraud.