The change in the personal injury claims sector

BertTheRaccoon

Just bringing this to people's attention and to encourage some debate and get people's views on it.

Reforms are due to come in next April which will see the ban of referral fee payments being made by solicitors to insurers and accident management companies. This has been in the pipeline for some time.

But what is going to cause a lot of change in the industry is the proposed changes to costs solicitors are entitled to.

Currently a solicitor dealing with a personal injury claim where liability is admitted would be entitled to a fixed fee of £1250.00 regardless of how much actual work goes into the claim.

The government, in the pockets of the insurers, now proposes to reduce the fee to £500 for claims worth under £10k and £800 for claims worth between £10-£25k.

"so what" you may think, but the implications will be felt for many years to come as this is going to drive many law firms out of business, particularly the smaller High St type firm. What it will do is leave the vast "factory firms" and the insurers with the marketplace to themselves.

Many people probably couldn't give a stuff about this and would not have any degree of sympathy for lawyers. The realisation will become apparent when you actually suffer an injury and find yourself off work or a claim where there is a dispute as to liability.

This is where the factory firms will really fail with their clients as they simply won't have the people with the skills to do a proper job and they will be so overburdened with cases that you'll be lucky to get a half decent job done.

There is some helpful background info found here

http://www.ciuks.co.uk/comment/government-wrong-rta-legal-fees.shtml

So my question is, do you care?

Will you be content when there are few independent law firms left to deal with a claim and you are thrust into the clutches of a law firm your insurance company probably owns?

But most importantly, after all the spin and conjecture peddled in the press by the insurers, do you actually believe your motor insurance premiums will be a fraction of what they are now in say 18 months?

Spiderham

Two points here that I believe were the logic behind this.

Firstly, referral fees are paid by many law firms which can be as high as £750, the amount of the reduction in stage 1 and stage 2 costs combined. No referral fee to pay out from the costs so same income, not saying I agree with this but it is AN argument.

Also, don't forget that solicitors will also be entitled to charge contingency based fees to the client (which won't be recoverable from the defendant insurers) of up to 25%. If the full 25% is taken that means the break even point for a solicitor is a £3,000 claim (around the point for whiplash causing pain for a medium-term period). Now this does mean that some of the settlement figure will be given to the solicitor not the claimant, but there is an uplift in general damages of 10% precisely related to this. If this additional 10% (ie 9.1% of the claim) is taken as the contingency fee then a £8,250 claim (£7,500 in old money) is the break even point. Also the JSC guidelines which came out at the end of September increased general damages by just under 10% also so that's again more money in the claim pot, some of which can go towards fees.

Again it's AN argument.

I do find the response from solicitors (such as those on the Law Gazette website comments) quite amusing. There's a lot of talk about how fat cat lawyers is a fallacy and it's a product of the media and false but then the claim that insurance companies (in a market where last year £1.06 was paid in claims and running costs for every £1 of premium and the year before it was about £1.20) are really a bunch of fat cats, it's in the papers so you can find out about it.

deutsch

this won't fix false whiplash claims...

BertTheRaccoon

No lawyers are going to charge their clients contingency fees as clients will just look around for a lawyer that doesn't do this.

A firm paying a referral fee is the same as a firm marketing itself as far as the outlay is concerned. So with only £500 in fees to be claimed, this leaves a firm who was never paying referral fees in the first place with absolutely no money to market itself.

Profits are tight in this sector and the "fat cat lawyer" line is synonymous with the rubbish sprouted in the Daily Mail and from the lobbying of insurers and afternoon tea with David Cameron.

InsideInsurance

BertTheRaccoon wrote: »

A firm paying a referral fee is the same as a firm marketing itself as far as the outlay is concerned. So with only £500 in fees to be claimed, this leaves a firm who was never paying referral fees in the first place with absolutely no money to market itself.

If it wasnt paying referral fees before how was it marketing itself? I've not worked from the solicitors perspective but a combination of LE and paid referrals I believed was by far the majority of how solicitors and injury clients came together.



Did the reforms ever go through about the ownership of solicitor firms? Certainly if they did then replacing referral fees you will simply find insurers owning their own legal firms.

BertTheRaccoon

This is the thing. Not all firms have been paying referral fees. So the high st practitioner who advertises in his local rag or whatever other means now has no money from the costs he earns to pay for marketing.

The only ones who will survive on teh proposed fees are the factory firms, owned by insurers or with financial arrangements with insurers, who will "pile 'em high and sell 'em cheap".

The reforms did go through with the licensing of ABS's - Alternative Business Structures.

Spiderham

BertTheRaccoon wrote: »

Profits are tight in this sector and the "fat cat lawyer" line is synonymous with the rubbish sprouted in the Daily Mail and from the lobbying of insurers and afternoon tea with David Cameron.

Loving the duality of thought here (as I mentioned earlier) that "fat cat lawyers" media frenzy but "rip off insurers" gospel truth. Ever thought they could both be hyperbole given the loss making nature of motor insurance for the last few years, especially the double whammy of through the roof claims and lack of investment income in current market.

As I said the point about the difference being referral fees is an argument that I've heard not necessarily a reflection that it's fair.

If the law firms that are able to operate at a lower cost and charging people less by remaining efficient then is that such a basd thing? Change the word law to insurance, has your opinion changed?

If insurer A quotes a price but insurer B can beat it as they feel they can afford to insure for a lower amount, people are quick to accuse them of being a rip off. If solicitor X wants a fixed fees plus contingency fee but solicitor Y feels they can offer the service for the fixed fee alone, does solicitor X not deserve the same accusations of rip off? Not saying either (necessarily) is or isn't ripping off. Of course if all solicitors felt unable to provide the service without a contingency fee then the argument wouldn't stand but then neither would the argument of contingency fees not being chargeable. As I have said damages were increased specifically with contingency fees in mind.

The SRA have said they are going to block an ABS is they feel it is being set up purely to get around referral fee ban.

The race to the bottom, reducing of professionalism, "high quality firms don't stand a chance" firm argument is exactly the same as one I've heard levelled at price comparison sites for insurance but consumers seem in favour of those.

Maybe a better solution would be for law firms to not be able to recover costs from the defendant insurers (and damages increased to cover this) then solicitors and their clients could arrange the level of remuneration between themselves. What would your thoughts be on that system?

BertTheRaccoon

Well D Day has arrived and the insurers have managed to succeed with the political parties and rampant change is due on 1st April with slash & burn of legal fees for injury claims arising from RTA's.

Whilst I know that not many people will have sympathy for injury lawyers and the "fat cat lawyers" tag will most likely be used. The reality is that the insurers have suceeded in gaining more control of the whole industry and have interfered with a free market.

So when anyone has an RTA and submits a claim for injury after 1/4/13 they will either have to endure a teenager with a headset running their claim and barely getting chance to do a proper job, or consider entering into a damages based agreement with a lawyer who may take a small slice of the action.

There is a judicial review supposed to be taking place tomorrow to challenge the decision of the Ministry of Justice, but it is not expected to change anything despite the abysmal and one-sided approach that has been taken thus far.

One thing I would bet on is that despite all the promises from insurers that everyone's premiums would go down, there is little chance of that as there will be another excuse.

Already insurers are starting to report record profits and combined operating ratios falling below 100% for the first time in years. Have your premiums tumbled already? yeah thought not.

Spiderham

I'm going to leave the scaremongering aside aside to say the rates payable seem to be based on the MOJ doc I saw in line with those for legal aid based on anticipated hours and fees for RTA PI claims.

Couple of factual issues I want to question.

Isn't the Judicial Review on 5th March (Wednesday)? That's what the Law Gazette said.

The changes have been delayed to some extent (even if the JR is unsuccessful). The sub £10k fees change at end of April and the portal extension happens at the end of July.

Doesn't look like the general public has been clamouring to keep the fees where they are or increase them...

Spiderham

Oh and if anyone is interested the 43 page pdf outlining the Government's findings from the consultation is here. Took me a while to read through that today.

dacouch

BertTheRaccoon wrote: »

Already insurers are starting to report record profits and combined operating ratios falling below 100% for the first time in years. Have your premiums tumbled already? yeah thought not.

The profits are due to the premiums rising to a level the Insurers can make a profit.

This always happens in a hard market typically during a recession, the market will soften (It always does) and prices will drop and the Insurers margins will go down with typically most losing money again.

The hard and soft market cycle has existed since insurance started and unfortunately will probably continue.