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Satellite litigation, law firms in run-off and major job losses – a vision of life after the latest PI reforms

Hughes: credit hire and deafness claims will be next [1]

Hughes: credit hire and deafness claims will be next

The government’s personal injury reforms will trigger satellite litigation, small claimant law firms going into run-off, and big job losses at defendant law firms – but not a reduction in insurance premiums, a leading consultant has predicted.

Anthony Hughes of Jackson Hughes, a one-time president of the Forum of Insurance Lawyers, also warned that the Association of British Insurers would move onto new areas to press for reforms once it has achieved what it wants with whiplash.

With the government set to consult shortly on its plan to increase the small claims limit for personal injury cases to £5,000, and remove the right to claim general damages in low-value whiplash cases, Mr Hughes said he would put his mortgage on there being satellite litigation.

The former chief executive of defendant law firm Horwich Farrelly said: “If whiplash is banned, the definition will almost certainly be challenged by innovative lawyers. Innocent RTA victims will suddenly develop different types of injuries that the lawyers say fall outside the definition.”

Claims management companies would move into managing claims to replace the loss of referral activity, while on law firms, he said: “There are hundreds if not thousands of SME law firms who rely heavily, or in some cases entirely, on PI income. If the owners of those firms are say 55 or over, possibly approaching retirement it would not surprise me if they simply go into to run off. Stop all marketing spend, maximise cash and move on.

“This, of course, plays into the hands of the bigger firms who can operate on lower margins due to economies of scale.”

For firms that remain, routes to market would become even more vital to grab the available work, he added.

Mr Hughes reckoned that what would be a huge reduction in the number of claims would lead insurers to “rationalise” their operating models, while defendant law firms would be even harder hit than they were by LASPO, when there were “huge” job losses.

“The only logical outcome is mass consolidation of that market as firms concentrate on bigger-ticket disputes and cut overheads,” he said.

The solicitor anticipated that the anticipated £50 per policy saving from the reforms was not realistic.

“The insurance world operates in cycles depending upon market capacity and investment returns. I accept claims costs are relevant, especially if other returns are low, but are they as relevant as is being suggested? Also, an inevitable consequence of these reforms is an increase in the cost of after- and before-the-event cover, so what you gain with one hand, you lose with the other.”

Beyond that, Mr Hughes predicted that insurers would return to challenge credit hire. “Noise-induced hearing loss is very much in the cross hairs and no doubt other diseases will be considered for the fixed fee portal environment, especially with all the capacity that will be created if whiplash goes.”

See blog: King Canute or David & Goliath? [2]