A before-the-event (BTE) legal expenses insurer has warned of the “unintended and very serious detrimental effect” on the market of the government’s personal injury reforms.
Jason Tripp, operations director at Coplus, told the justice select committee  earlier this week that the planned increase in the small claims limit for RTA cases would “cast doubt” on the ability of the BTE industry to provide legal representation as a standard part of the service.
He described the reforms as a “one size fits all” approach, which did not distinguish between the “primary market”, consisting of claims made shortly after the accident, and the “secondary market”, arising from those generated by claims management companies (CMCs) “months or often years” afterwards.
Mr Tripp said the secondary market was responsible for the sharp rise in personal injury claims over the past five years and not the primary market, which “works well and is much better behaved”.
Referring to the planned increase in the small claims limit for RTA cases from £1,000 to £5,000, he told MPs: “The question is not so much the value of the limit as the complexity of the claim and at what point a claim is capable of being handled by an individual by themselves.
“We survey our clients regularly. They say that in the absence of legal representation they would be left very unclear as to how to proceed. A consequence of that would be that they would be more likely to turn to CMCs.
“There is very little distinction in complexity between a claim valued at £1,500 and one valued at £5,000.”
Mr Tripp agreed with Labour MP Bambos Charalambous that the reforms could be described as “a sledgehammer to crack a nut”, which would have an “unintended impact” on BTE insurance, when the real issue was the regulation and control of CMCs.
He said BTE insurers would have a “stark choice” between stepping away from personal injury claims worth less than £5,000 or funding those cases on the small claims track, making the product more expensive.
He said the take-up of legal expenses insurance had fallen, in the wake of tougher regulation by the Financial Conduct Authority and increased premiums.
In its written evidence to the committee, Coplus described the personal injury reforms as having an “unintended and very serious detrimental effect” on the operation of the BTE market.
Coplus estimated that around 10m customers had BTE motor legal expenses insurance, and around £250m in increased costs could be transferred to them following the personal injury reforms.
Increasing the small claims limit would “shut off the supply of income” to both the primary and secondary personal injury markets.
“The problem is that it could cripple the primary BTE motor legal expenses insurance market and would not stop the secondary market operating”.
In particular Coplus predicted that BTE “costs and therefore premiums” would rise, with “many policyholders, some with quite serious injuries” left to their own devices in the small claims court.
The insurer called on the government to conduct a detailed impact assessment of the BTE market, ban CMCs from cold calling or marketing personal injury services, and set the small claims limit “at a level commensurate with inflation in the range £1,600 to £2,000” – at the same level as other types of personal injury.
A report on BTE published by the Civil Justice Council  in November predicted that an increased small claims limit “may increase the need for BTE”, since lawyers would no longer want to take out “large numbers of lower-value personal injury claims” under conditional fee agreements.
However, the working party came to no conclusion on whether the change would increase BTE premiums.