17 July 2012
Fenn report casts doubt over expansion of RTA process
Fenn: RTA process and FRCS should be jointly reviewed
There needs to be an integrated system of fixed costs for all low-value, non-litigated road traffic accident (RTA) claims before the RTA process is extended to other types and values of claim – and even then it may only have a limited impact, a major report has claimed today.
The much-anticipated review of the first year of the RTA portal – commissioned by the Ministry of Justice and produced by Professor Paul Fenn of Nottingham University Business School – also warned about the risk of flat-rate fixed costs “diluting” solicitors’ incentives to act in the client’s best interests.
The Ministry of Justice has been criticised for delaying publication of the report until after the consultation period on its plans to extend the process to RTA cases worth £25,000 and to other types of injury claim, and its findings damage the case for introducing these changes next April.
The Fenn report looked at 7,416 pre-portal and 8,584 post-portal claims provided by three claimant and two defendant firms. The evidence suggested around a 6% reduction in mean damages, a fall of around 3-4% in average costs, and a reduction of around 5-7% in the average delay to settlement.
The study said that in the absence of other factors, these changes are assumed to be attributable to the RTA process, and in fact may well be significantly higher for cases that stay within the process as half of the cases observed left it.
Professor Fenn said: “The fact that this degree of leakage occurs for a class of personal injury claim where liability is often clear-cut, and where a very high proportion of claims are successful in terms of winning damages, is a little surprising.
“One possible explanation for the high numbers of exits is that the fixed costs payable by defendants under the RTA process are actually higher than fixed costs payable under the fixed recoverable costs scheme (FRCS) for RTA claims worth less than £2,000. This is an anomaly due to a lack of integration with the FRCS which needs urgent consideration.
“The high exit rate observed from the portal indicates that any extension of the process to other types of claim, such as clinical negligence and public liability, where proof of liability is often an issue, could result in only a minority of these claims settling within the process.”
He said the reduction in damages was not part of the intended consequences of the RTA process, and may be due to the effect of the fixed costs under the process being independent of the settlement outcome, unlike in the FRCS.
“Any extension of the RTA process to higher value claims would need to take into account the extent to which incentives for solicitors to act in the client’s interests are diluted with flat rate fixed costs, particularly in relation to claims where the calculation of quantum is more complex.”
Professor Fenn concluded that a common thread running through the findings is the interdependence of the costs under the FRCS and under the RTA process, and its effect on cases staying in the process.
“I therefore recommend that the current RTA process and the FRCS are jointly reviewed once a further year’s experience with the former has elapsed and more management information data made available, in particular in relation to the characteristics of claims withdrawn from the portal…
“Once an integrated system of fixed costs is in place for all low value, non-litigated RTA claims, it could in principle be extended to other types and values of claim. This review would be linked to the wider implementation of Jackson LJ’s recommendations in respect of fixed costs for all fast-track claims.”
A Ministry of Justice spokeswoman said: “We are committed to reducing the legal fees which are passed on to all of us through higher motor insurance premiums. A system of fixed legal costs, time limits and an electronic portal encourages swift and efficient management of claims, limiting delays and keeping costs down.
“Professor Fenn has provided us with important groundwork as we look to expand the fixed costs scheme to cover more drivers and other areas of law.”