Blog: Whiplash reforms rise again

After the hope comes the gloom. The new MoJ ministers may have only been in office for a week or so, but they appear to have seamlessly adopted the mantra of – repeat after me - “taking costs out of the system” at the expense of all other considerations. With the saving from the whiplash reforms now estimated at only £35 per premium, even insurers must be wondering how they can sell the loss of support and service to consumers when the Insurance Premium Tax and other factors are pushing premiums in the other direction.

Having risen from the post-election wreckage, the new Civil Liberties Bill containing the whiplash reforms, is one of 27 bills which will attempt to keep parliament occupied over the next two years, in between considering the divisions and complexities of Brexit. Whilst many in the insurance sector will be pleased with the new Bill, I’m troubled that the government is still pursuing this path despite all the warnings about the likely consequences, continuing regulatory holes and the unanswered questions about how it will work in practice. The Government has missed an opportunity to engage on agreeing workable solutions and chosen once again to hurtle us down a path that will be predictably negative for the sector.  How will the reforms reduce fraud? How do we stop unscrupulous CMCs and McKenzie ‘Friends’ preying on vulnerable litigants in person? I see no answers to these very important questions.   How will we tackle abuse of credit hire, credit repair and rehab? If it’s about taking ‘money’ out of the system, merely taking away customers’ legal representation doesn’t achieve that.

The good news is that at long last the legislation necessary for the transfer of the regulation of CMCs from MoJ to the Financial Conduct Authority has been introduced. Only a short Bill, the Government has wasted no time in introducing the Financial Guidance and Claims Bill into the Lords. How speedily the full transfer of responsibilities can physically take place remains to be seen, but the new regulatory system can hopefully be in place by the time the other reforms are implemented. The transfer will do nothing, however, to stop the future explosive growth in CMCs actively encouraged by the whiplash reforms. I also have concerns that the high FCA fees will deter CMCs from seeking to be regulated.  Will these fees drive them underground?

Details on the Civil Liberties Bill are thin, but the core elements – a new fixed tariff and a ban on pre-meds – remain, although interestingly there has been no mention yet of measures to reverse engineer the discount rate. Perhaps they will be inserted late during the Bill’s passage? I wouldn’t anticipate that it’s a particularly long Bill unless substantive new elements – remember the promised ban on cold calling – are added.

This is the last in the current series of posts for Insurance Times and I hope you’ve enjoyed reading them as much as I’ve enjoyed writing them. They have broadly covered three themes – that the reforms are ill-considered and will have a range of negative consequences, that reform needs to be considered as a package and that several elements are still missing, even with the CMR/FCA transfer, and that a set of more practical solutions could be achieved through some genuine dialogue. I am fully aware that not everyone shares my pessimism about the proposed reforms. Only time, and the future experience of customers and claimants, will judge their outcome.