After the accident

The tale of The Accident Group (TAG) has become notorious within the insurance industry and beyond. Once held up as a shining example of business success, its name is now synonymous with ambulance chasing and questionable business practices.

The company, which spectacularly collapsed in 2003 with debts of more than £100m and which sacked its staff by text message, left its insurer partners nursing tens of millions of pounds of losses.

The insurers that had underwritten TAG’s legal expenses policies subsequently launched a legal action, led by Winterthur, against TAG’s panel of law firms. In January this year, the law firms and the insurers reached an out-of-court settlement, thought to be in the region of £30m.

So the dust has finally settled. But can the insurers and lawyers put TAG behind them, or are the ramifications for the personal injury and the after-the-event (ATE) legal expenses market still reverberating around the industry?

TAG, founded by Mark Langford, took on personal injury compensation cases on a no-win, no-fee basis, in the belief that it could make money on the cases it won.

But when the cases failed, the company’s insurers had to pick up many of the legal bills. They later alleged that TAG had not weeded out weak cases, resulting in poor success rates and losses.

The insurance industry’s reputation has been battered by TAG, according to some. “The image of some of the most unsavoury things that happened arising out of the TAG debacle did the legal expenses side of the market no good,” says Composite Legal Expenses managing director John Mullin.

“The whole TAG model was built on shifting sands. The insurance industry will look on it with a degree of shame.”

Paul Asplin, DAS Legal Expenses chief executive, says that the perception of a British compensation culture is the worst and most lasting legacy.

“TAG and others have frightened away a lot of people from the legal expenses market. They have given the whole thing a bad reputation and I don’t think the ATE side has fully recovered from it.

“People think the insurers are just there to print money, whereas in reality very few underwriters, if any, have made any profit from the market at all.”

Peter Smith, managing director of legal expenses at First Assist and an expert witness in the TAG case, says that the failed company has damaged the reputation of the personal injury market. “I think for some of the people who were burned at the time it has undoubtedly affected their view of participating in the market. There is a reluctance to be active in the field or to try something different, so it has held back the development of the market.”

So has the mess left in the wake of the collapse of TAG damaged demand for the ATE market, and the willingness of insurers to get involved with it?

“I think they will now be more wary of getting involved,” says Mullin. “There is still a case for ATE, particularly in more sophisticated areas like clinical negligence, but I think you will find that the underwriting models that relate to these risks are going to be pretty sophisticated.”

With hindsight it is perhaps hard to understand why both solicitors and insurers went into business with TAG. In entering any new market, companies need to have an understanding of who they are working with, what the business model is, and how sustainable the flow of money is.

Asplin says some of the companies failed to look into Mark Langford’s background properly, and ignored the “moral hazard” inherent in its business model.

“They didn’t understand what they were doing and thought it was a source of easy money. People think that the majority of cases are easily won, but you have to be prepared to lose some cases.”

Martin Bare, president of the Association of Personal Injury Lawyers (Apil), says some were seduced by the potential of a new market. “There was a certain amount of people dreaming the dream and believing the brave new world was going to go on forever,” he says.

Smith says that some insurers did not grasp how the TAG model worked – and that it was open to abuse. “They should have checked that the quality of the cases was controlled, and that those going through were sensible.

“Anyone who understood the number of available [personal injury] claims [within the UK per year] should have realised that if someone promised to bring you such a huge volume of cases, the quality of those cases was likely to be different from what you were used to seeing.”

The collapse of TAG also had ramifications for solicitors working in the personal injury sphere.

“There was a loss of confidence in the conditional fee agreement/ATE model,” says Simon Cohen, senior partner at Rowe Cohen Solicitors, one of TAG’s panel of law firms.

“The problem was that when the new regime [Access to Justice reforms in 2000] came into place no one knew how it was going to work out,” he says. “Market forces were unleashed on the legal system without any regulation, creating the potential for chaos and abuse. If we’d had a stable system then, people would have been able to build their business models around that.” That stability is now firmly in place.

Some argue that the scandal surrounding TAG has helped to clean up the claims management market. Mullin says people will not forget the lessons of TAG easily, leading to a much more professional market than there was before.

Expertise in the ATE market has greatly increased, and the Compensation Act has imposed regulation on the claims management companies, in addition to the legal regulations already in place.

Apil’s Bare says the collapse of TAG was an important accelerant in bringing in regulation for the sector. “It encouraged government in the view that regulation was required.”

But DAS’s Asplin warns that there are still problems: “I think some of the sharp practices are still going on. This side of the market is still plagued with dishonesty. There are rogues who still need to be flushed out.

“TAG has given a lot of people the wrong impression about a lot of things. People have learned some very expensive lessons and hopefully they will remember them.”