11 December 2012Print This Post

Farewell Mr Whippy?

How can we be sure she’s telling the truth?

Posted by Neil Rose, Editor, Litigation Futures

We can now say, with finality, that summer has ended. The Ministry of Justice said some time ago that its whiplash consultation would be published in the summer – stakeholders were even given a date for it in August – and so now that we finally have it, it is time to pack away the beach towels and suntan lotion.

For all the delay, the contents are no great surprise as the twin proposals of raising the small claims limit and introducing independent medical panels have been well trailed since the Prime Minister’s little get-together with the insurance industry earlier this year. But the consultation paper itself raises several troubling issues.

First, the entire premise of the consultation is that fraudulent and exaggerated claims need to be stamped out. Nobody would disagree with this, but the paper presents no real evidence of the scale of the problem. It says the number of whiplash claims has grown in recent years – that much, at least, is undeniable – to a cost put by insurers at £2bn. The accompanying impact assessment quotes the Insurance Fraud Bureau’s estimate that there were over 30,000 fraudulent motor accident claims in 2009 (and that fraud costs the industry around £350m a year). Here’s a key sentence: “These figures have not been verified by government.”

Given that there were around 540,000 whiplash claims last year, that means the government is upending the system to deal with a problematic 5% or so of claims – is that really proportionate?

Again, nobody would deny that fraud is a significant problem, but the consultation almost gives the impression that we should reverse the burden of proof and assume claims are false unless proved otherwise. It makes for uncomfortable reading. And I continue to wonder why insurers do not make the considerable fraud information they have gathered available to claimant solicitors.

Insurers do not help themselves with the ever-more prevalent practice of making settlement offers before they have seen any medical evidence, but they would argue that this is because the perverse economic incentives in the system make it commercially sensible to pay up quickly, whatever the actual merits of the case.

I have some sympathy with the logic, if not the practice because of the risk of undersettlement. But if insurers had made the investment of standing up to claims they believed were fraudulent years ago, then maybe they would have stopped the trend in its tracks, it would have ended up costing them less overall and we wouldn’t be where we are today.

The government rightly identifies some of the key risks in raising the small claims limit, which boil down to whether claimants will be willing and able to go it alone against insurance companies and their lawyers. The mitigation it suggests – greater help for self-represented litigants (the new name for litigants in person) and before-the-event cover – doesn’t really sound like the solution.

Instinctively I suspect many people would not want to handle their claim without a solicitor (I don’t think I would, certainly not to the stage of going to court) and certainly nobody would be able to value their own claim.

Alternatives that spring to mind are solicitors offering some kind of low-cost valuation service (such as that provided by InterResolve), acting on a contingency fee basis or maybe direct access barristers stepping in to advise, able to charge less given their lower costs. I bet Stobart Barristers is interested in this.

As, indeed, will be claims management companies. Facing extinction from the referral fee ban, does the prospect of handling sub-£5,000 cases for 25% of the damages suddenly breathe life back into their businesses?

I am also troubled by the section on medical evidence. Again there is more than a whiff that you can’t trust GPs – because they are too close to their patients – and you can’t trust doctors employed by medical reporting organisations because they want to keep on being instructed. This may well be true in certain cases, but it is slur against the medical profession as a whole to suggest it without citing anything more than “anecdotal evidence”, as the impact assessment does.

And then there is the bigger picture of where this sits with the other civil justice reforms. The consultation acknowledges that the Jackson reforms will have a significant effect on whiplash claims anyway, and does put the option of leaving it to them to deal with whiplash. One might suggest that the more intelligent move would be to await the results of the reforms before implementing yet more changes in a sector already overwhelmed by them.

A more immediate problem is the current consultation on the new fixed fees for RTA portal claims, with the proposal being to cut the basic fee from £1,200 to £500. One assumes (because shamefully the government has yet to explain how it calculated them) the figures are heavily influenced by the fact that the majority of cases going through the portal are the “relatively straightforward” ones valued at less than £5,000. So what happens if those cases are removed? The least the government should do is provide a rock-solid commitment to revise the portal fees upwards if and when this happens.

Finally there are a couple of mentions in the consultation of forthcoming Department of Health guidance to doctors on diagnosing whiplash. The ease or otherwise with which this can be done is a fraught issue that divides medical and legal opinion. I wonder whether, in the end, this is where the number of whiplash claims will be stemmed, by having a level of injury below which whiplash cannot be claimed.

At the same time that would require insurers to stop making pre-med offers, a sensible claimant proposal absent from the consultation – surely that would even up the playing field just a bit?

Contrary to the impression some have, I’m neither pro-claimant nor anti-insurer – I tend to write more about claimants because they are more vocal. What I am, however, is sceptical of a government consultation that seeks to take some very big steps on the basis of precious little evidence. And not for the first time.

 


3 Responses to “Farewell Mr Whippy?”

  1. I am from the defendant insurer side of the industry but have to agree with all the points made.
    I just cannot see potential claimants bringing their own cases – there needs to be a catalyst such as broker, repairer, claims farmer, solicitor with something to gain – so the net effect seems to be that “minor” whiplash claims under £5k will effectively cease to exist.

    On the medical side it is notoriously difficult to objectively prove whiplash (or more significantly, disprove it) which is why it has been such a profitable hunting ground for fraudulent claimants and less than scrupulous claims framers and claimant solicitors.

    The answer seems to me to be fixed costs ( at a reasonable level, so claimant lawyers can still make a profit) as envisaged by Jackson. This on top is surely a step too far.

  2. Martin Smith on December 11th, 2012 at 2:16 pm
  3. I have to agree with what is said. Jackson wanted to base his reforms on empirical data. Where is it here? There is none. The Irish PIBA proves that expecting self representation is unrealistic.
    FOIL has never supported the increasing of the small claims limit and I hope it maintains that position.
    Insurers question why a PI claim needs a lawyer when a household one doesn’t. Simple, a fridge is a fridge, but a broken arm or an injured neck is quite different!
    Mark Boleat did a report some years ago and his brief was to simplify claims and regulate CMCs. The idea was make it easier to claim. What did people expect? Less cases, surely not!
    This is the thin end of the wedge in my view and like the referral fee ban is reform for the sake of it. The new fixed fees ought to be allowed to bed in at whatever level they come out at but this is too much too soon.

  4. Anthony Hughes on December 11th, 2012 at 8:44 pm
  5. I agree with Anthony and Martin above, too much too soon, which is utterly unsupported by evidence.

    Mr Cameron is essentially demolishing the claims industry to the financial gain of the liability insurers. He knows this.

    Claimant and Defendant solicitors will lose staff and business. There will be financial reliance upon the state by lawyers, paralegals, secretaries, clerks , juniors, admin people etc as a consequence of imminent redundancies, a loss to HMRC of VAT and PAYE as well as Corporation Tax and Schedule D tax. The DWP and CRU will lose the collection of valuable medical charges from liability insurers.

    In the meantime, there will be significant contributions to the Conservative Party fighting fund from major financial institutions. There will be further job losses in the ATE sector and within the medical profession. How much of the liability insurers savings will be passed on to policy holders.? I would suggest virtually zero. By how much will their profits increase, and what financial wizardry will be employed by the insurers to limit their exposure to paying increased revenue to HMRC? I wonder!

  6. Martin Coyne on December 12th, 2012 at 10:16 pm