The behaviour of defendants has changed since 1 April, including what seems to be a “disproportionate” increase in the level of costs they are claiming, according to a leading after-the-event (ATE) insurer.
Russell Smart, chief operating officer of Elite Insurance, also told the recent PI Futures conference that the key consideration for ATE insurers has changed from the merits of the case to whether the defendant can afford to pay the premium.
“Defendants’ costs seem to be rising disproportionately,” he told delegates in Manchester. “Whether that is to scare ATE insurers from the market I know not, but some of the defendant costs bills are certainly coming in having been fairly well exaggerated and inflated.
“Indeed, it’s quite common with just a phone call to be told ‘we’re very sorry, we must have got that wrong’ and often up to 50% of the defendant’s costs bills are coming off.”
Mr Smart argued that there was no difference between this practice and claimants exaggerating their injuries, which defendants argue is fraudulent.
Defendants are also increasingly making direct contact with the ATE insurer to make allegations of fraud against the claimant and asking them to withdraw cover, he revealed.
Mr Smart explained that ATE insurers are “facing a different challenge now – not whether or not the premium is high, but whether or not the client can pay for it… Up to 70% of cases since April have been rejected by our underwriters for no other reason than they are not affordable by the clients”.
He said that for personal injury cases – where there is qualified one-way costs shifting but also remaining risks to insure, such as disbursements and part 36 – “the only way to make them affordable” is if ATE is taken out from the outset. Insurers have no appetite to insure cases once they have become litigated because the premiums are “disproportionately high”.
Those who do not insure will “suffer” around part 36, he predicted, using the example of the solicitor faced with deciding what to do when a £150,000 offer is made on a £700,000 claim.
The “real problem”, however, is non-personal injury cases, he said. Going back to principle that the ‘many pay for the few’, Mr Smart said “ATE needs to be widely purchased to make it widely affordable” – and again, at the earliest opportunity, and not until after budgets have been approved, for example.
ATE insurers have reacted in different ways, he said. While some have pulled out, others are targeting work providers, so that all cases are insured, or focusing just on those areas where there is still recoverability – clinical negligence and insolvency.
ATE insurers are also starting to work more one to one with solicitors, he said, insuring their whole caseload.
There are also new products, with some insurers no longer taking 100% of the costs risk in return for a reduced premium. There are also products where the premium is expressed as a percentage of the damages.
Mr Smart said the risk of not being paid has also meant that some insurers have stopped offering deferred premiums.