Claimants and their solicitors will continue to demand after-the-event (ATE) insurance HP2-K37 post-April, meaning an ATE market – “albeit a much leaner one” – will survive, a leading insurer has predicted.
Phil Bellamy, group underwriting, ATE and special risks manager at DAS, also confirmed for the first time that the legal expenses insurer will stay in the ATE market.
He told last Friday’s Motor Accident Solicitors Society conference in Manchester: “With average motor injury disbursements of up to £400 each pre-issue, a case failure or abandonment rate in excess of 13%, and the fact that part 36 trumps QOCS [qualified one-way costs shifting] protection, potentially wiping out all of a successful claimant’s award, we are of the opinion that there is the possibility of an ‘ATE Lite’ type product.”
He added that while not many cases enter stage 3 of the RTA portal, at which point claimants are exposed to a costs risk, “we have had to pay out on a number of occasions, so the risk is certainly higher than zero”.
For those cases that fall out of the portal, the part 36 risk is considerable, Mr Bellamy emphasised. “With historic part 36 claims ranging from £125 right up to £100,000, and an average cost of £8,000, HP2-N29 this is still a very real risk to claimants, and could easily wipe out, all of a claimants damages awarded, post LASPO.”
He also pointed to research by the Access to Justice Action Group which indicated that eight out of 10 potential claimants would not pursue a case without full costs protection.
He said one form of ‘Lite’ product may take the shape of a traditional ATE insurance contract, between the insurer and claimant, but with the lower insurance premiums being paid out of a claimant’s damages in successful cases, following the abolition of recoverability.
Another variation being considered is that of ‘portfolio protection’, whereby law firms provide costs indemnities to their clients – which last year in Sibthorpe the Court of Appeal confirmed they could – and then lay off this costs exposure to an insurer, on a whole account basis each year.
Mr Bellamy said: “The advantage with this model is that it saves on time and administration, as individual insurance policies are not issued. Difficulties could arise with pricing, and accurately estimating a firm’s work load and costs exposure for future annual periods.”
The insurer also warned larger firms about providing Sibthorpe indemnities without any backing: “This ‘speccing’, as it used to be called, is entirely legal and even endorsed by the courts, but with the ever increasing scrutiny on insurers and funders capital adequacy and solvency ratios, in the run up to Solvency II, how long will it be before the Solicitors Regulation Authority starts to take notice of the growing liabilities these firms have committed to, without any form of robust reserving to pay for the eventual claims costs as and when they arise?
“With the Financial Services Authority already looking into this area of potential risk, it may well become compulsory for firms to insure these liabilities through a regulated insurer in the not too distant future.”