Squaring up to the bullies

Local government has traditionally had a reputation as one of the soft touches of the insurance world. ‘No win, no fee’ solicitors were quick to identify cash-strapped councils as easy targets for low-value claims. But the authorities are fighting back and councils are bucking the trend of ever-rising claims.

Most of the claims that councils receive are what Zurich Municipal head of local government Andrew Jepp describes as “slips and trips”. This refers to the most common claims lodged against local authorities – injuries to people who have stumbled on cracked pavements. The other big favourite is claims from people who have been injured after their car has hit a pothole.

The incidence of such claims went through the roof following the introduction of ‘no win, no fee’ arrangements in the late 1990s. Research carried out by the Local Government Association – the umbrella body for councils – with Zurich Municipal showed that 81% of local authorities claimed that these new arrangements had increased the annual cost to their authority of handling compensation claims.

Local government’s burgeoning reputation as a soft touch inevitably attracted fraudsters’ attention. The kind of public liability claims lodged against councils are often inherently hard to defend because they occur in out of the way places, when no witnesses are present.

In addition, as QBE claims director Andrew McBride points out, these kinds of claims are so low value that for a long time it was hard for authorities to justify the time and money to fight them. An industry swiftly developed of firms that specifically target councils. Amanda Wallis, who runs Cunningham Lindsay’s Fraudline service, says: “The claims organisations put through low-level claims to test the resolve of local authorities.”

Browbeaten

But, as motor insurers are now discovering to their cost, councils found that they were haemorrhaging cash in compensation payouts. By 2002, the Association of Local Authority Risk Managers estimated that council tax payers were forking out £120m per annum to cover the cost of compensation claims.

While the damages themselves were low, personal injury solicitors Stephensons partner Andrew Welch calculates that factoring in legal expenses can increase a £2,000-£3,000 claim to £20,000. This resulting increased cost of premiums has concentrated council chiefs’ minds. Weightmans’ public sector group director, Andrew Cooper, says: “You don’t want to give encouragement by simply buying claims off.”

Jepp adds: “We are talking about public money and local authorities clearly have a responsibility to manage that money.”

Forum of Insurance Lawyers (Foil) vice-president Tim Oliver says: “There’s no question that over the last three or four years, whether it’s been the Jackson Review or some other cause, there’s been a lot more focus on the cost of claims.”

Welch has witnessed councils take a tougher approach. “Local authorities have been getting more bullish over recent years. They are taking a much more robust approach,” he says.

Fighting back

Key to this change of approach has been a greater focus on risk management. “Local authorities have done a lot of work on the quality of their risk management,” says Jepp, who believes that there is now a hugely improved awareness of the issue across local government, reflected in the increased number of town hall officials with risk management qualifications and training in health and safety.

Improved understanding of risk management has translated into investment designed to nip claims in the bud. Last year, councils spent approximately £60m on filling potholes alone. Cooper says: “Councils have invested a lot more resources into highway infrastructure, which means the pavements are a lot better, despite what many think.”

This investment also reflects closer joint working between risk managers and education and highways departments, he adds. By fixing the pavements, councils can ward off the threat of claims. Better intelligence about the state of their highways means authorities are better placed to mount a defence, while claims can also be warded off if councils are able to prove they have systems in place to detect and eliminate disrepair.

The increased willingness of councils to share legal teams has also boosted authorities’ expertise in tackling potentially fraudulent claims.

Zurich Municipal, which dominates the insurance of local government, has seen a reduction in the volume of claims it handles. Jepp says: “Better risk management has improved councils’ ability to defend fraudulent claims.”

Cooper agrees that councils now know they can take a chance on fighting cases. “Local authorities have improved their risk management so that there are fewer cases and they are prepared to fight those cases. If there is a more than 50/50 of success, they are prepared to take it to court.”

Last year, the LGA estimated that the figure for claims compensation payouts had now fallen to £35m. In fact, Zurich Muncipal’s head of technical claims Andrew Hunter recently told a Forum of Insurance Lawyers (Foil) conference that the private sector should take a leaf out of local government’s book.

For evidence of improved performance, he pointed to Norfolk county council’s success in repudiating 84% of the highway claims that it received last year.

Hands tied

However, many of these improvements are at risk of being reversed as a result of the fast-looming public spending squeeze. With defence, education, the NHS and international development budgets all protected to varying extents, other areas of public spending – like Whitehall’s subsidy to town halls – face even bigger reductions than the 25% headline figure for the public sector as a whole.

Oliver, who is also an elected member of Surrey county council, says: “It goes without saying that local authorities continue to be strapped for cash and, therefore, it’s all about being pragmatic and keeping costs down.”

Surrey alone needs £25m of investment just to bring its roads completely up to scratch, Oliver estimates. Councils are seeking to make cuts by removing back-office staff rather than frontline services, like highway maintenance. But, given the scale of likely spending cuts, it is hard to see how substantial reductions to frontline expenditure can be avoided.

Capital spending is likely to be particularly attractive area for cutting, given that the impact is less immediately noticeable to voters. Jepp says: “It will be interesting to see what happens as local authorities feel the squeeze and what impact it will have in terms of the number and cost of claims.”

Oliver believes that the squeeze will lead to new spending priorities.“Local authorities have a statutory responsibility to maintain pavements and highways, but they have other statutory responsibilities too,” he says.

The question for councils will be whether they opt to discharge their responsibilities at a bare-minimum level. “In previous years, they have had a little left over and they have been able to use that to improve a pavement or fill a pothole, but they are not going to have that leeway over the next few years,” Oliver says.

“They may have to spend that on education or social care, otherwise they will be judicially reviewed. Local authorities will be constrained to operate with a more back-to-basics approach.”

But on a more optimistic note, he suggests that improved technology enables councils to identify claims hotspots, thus more efficiently targeting scarce resources. “They have looked at the data of where accidents are occurring and where claims are made.”

Jepp comments that authorities need to take risk management into account when deciding where the cuts will go. “There’s a need for risk managers to be engaged in the debate about how savings should be made,” he says.

However, even in the current cash-strapped environment, slashing areas like highways would be shortsighted, warns Cunningham Lindsay’s Wallis. “The question isn’t ‘can we afford to do it’, it should be ‘can we afford not to do anything’. If you take the view that it’s too costly to combat the problem, it’s only going to get worse. If you do that the problem is going to be 10 or 20 times worse than it is today.” IT

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