The introduction of the Compensation Bill in 2006 and the subsequent requirement for accident intermediaries to become authorised will lead to a strong contraction in the number of accident intermediaries in operation, according to a new report from market analyst Datamonitor.
Datamonitor estimates that post regulation, there will be approximately 100 to 150 providers left. This compares to a current level of approximately 400.
Andrew Birkett, financial services analyst at Datamonitor, and author of the report, said: “Many intermediaries are relatively casually run, transitory companies. The administration and cost of becoming authorized will therefore result in many of these companies exiting the market."
In addition the Legal Services Bill, when enacted in 2007, will serve as a catalyst for increased competition in the provision of personal injury services.
Motoring organizations, AA and RAC, have already both publicly expressed their intentions to form legal services businesses.
The total number of personal injury claims registered by the Compensation Recovery Unit fell by almost 2%, to 755,875 in 2004-05 due to a drop in employers' liability cases. The number of accident claims increased in 2004/5 but has not returned to pre-2003 levels.
The number of disease claims is decreasing now that the vast majority of British Coal miners have filed their claims. Motor personal injury claims numbers have risen and now account for the majority of personal injury claims (53.3%).
However, Datamonitor said that in spite of the fact that personal injury claims costs are estimated to decrease marginally in 2005/6, over the medium-term claims costs are expected to increase.
It forecasts that total claims costs will increase steadily up until 2009/10 when the total claims bill will reach £7.5bn.
The main driver of this inflation is expected to be employers' liability claims costs, which are forecast to increase at 10% per annum.
In contrast to previous years, motor personal injury claims costs are forecast to see only a marginal compound average growth between 2005/6 and 2009/10. This is because Datamonitor expects motor personal injury claims costs to dip again in 2006/7, as insurance companies settle a greater proportion of claims relating to the 2004-6 accident years, when the fixed fee system was in place.
Claims costs are then forecast to begin to increase again between 2007/8 and 2009/10 in line with general medical inflation.
Datamonitor also said in its report that since it last reported on the personal injury sector the insurance industry has made progress in lobbying the government to raise the small claims court limit. Currently the limit is £1,000 however, insurers would like to see this increased to £5,000.
According to a December 2004 research paper from Norwich Union, raising the limit to £5,000 would result in £380m of cost reductions.
The argument put forward by insurers is that the majority of work done by solicitors on cases of this value is “claims handling” rather than dispute resolution, and as such the solicitor is bringing little value to the process, other than “hand-holding”. In addition, insurers feel that the fees that the lawyer receives for this work are disproportionate to the settlement value.
After an initial investigation the Constitutional Affairs Committee recommended raising the limit to £2,500 in December 2005.
