Five questions with DAS's Paul Asplin

How long does the add-on market have, and do you think that the UK and Irish markets will accept standalones?

In the last few years the level of awareness, particularly of family cover, has increased rapidly. At the same time the number of employment-related claims has soared, both due to the recession and to new laws. Insurers’ costs have risen still further because of freely chosen lawyers who tend to charge higher fees and lose more cases.

The inevitable outcome has been that pricing corrections have been required, especially for family business. There is no sign that the number of employment cases is likely to fall (tribunal cases increased by about 14% last year, after excluding multiple claims by airline cabin crew staff).

As add-on premiums increase due to higher claims costs, there will be a point where they are not much different to standalone premiums, and the market will start to move towards standalone. This could take up to 10 years but could be sooner if consumers demand the wider legal expenses insurance often seen in standalone markets.

What do you think of Lord Jackson’s recommendations?

Lord Jackson was asked to find ways to reduce civil litigation costs but what he has recommended is shifting that cost from unsuccessful defendant to injured claimant. His proposal to increase damages by 10% to allow for this has not been justified and is obviously not enough to protect innocent victims from his proposal that they should have both conditional fee agreement (CFA) success fees and after-the-event (ATE) premiums deducted from awards.

Perhaps even worse is his idea that we should introduce (via one-way costs shifting and contingency fees) the American system in which a claimant cannot have costs awarded against them. Such a system would dramatically increase have-a-go claims: it would be far cheaper for defendants (or insurers) to settle such nuisance claims rather than try to defend them with no chance of recovering costs.

Lord Jackson also seems to have overlooked the fact that ATE insurers play a vital role in ensuring that claims lacking merit are filtered out – and that defendants’ costs are paid. Any small savings envisaged by not requiring unsuccessful defendants to pay ATE premiums will be wiped out by the increase in claims frequency. The costs to society through higher liability premiums and more cases being brought against the NHS and local authorities (especially for judicial review) will be enormous.

Is there anything you can do to mitigate the effects?

It is clear that if Jackson was fully implemented, or even if his idea that ATE premiums would not be recoverable was introduced, then the ATE insurance market would, sooner or later, cease to exist. Therefore, not only would LEI insurers be affected, but society would have to carry the burden of increased claims and higher damages awards as courts compensated claimants for having to pay their own success fees or lawyers’ fees.

Lord Jackson seems to think that somehow traditional before-the-event (BTE) legal expenses insurance could fill the void, but there is no evidence that governments have been able to encourage wider BTE take-up. In any case, Lord Jackson’s proposals on free choice of lawyer, referral fees and CFAs would all increase BTE insurers’ costs – and therefore premiums. It is impossible to see any positive aspects from Jackson in respect of access to justice generally or LEI in particular.

What advantages would owning your own law firm bring?

In about a year from now, it should be possible for legal expenses insurers (LEIs) to own law firms. This will be positive for consumers as, for the first time, LEIs will have control over the quality of legal service. At the same time, LEIs will bring new skills to law firms’ management and ensure delivery of more efficient services often at lower cost.

I also expect that LEIs will find new ways to deliver legal services in a cost-efficient and convenient way. For consumers and policyholders, the Legal Services Act is good news indeed.

You have extended into Canada. Are there any other virgin territories out there?

Traditionally, legal expenses insurance has only been available in Europe and South Africa. In the US, the market is for prepaid legal fees products, which are quite different from European LEI. It is only in the last couple of years that the DAS Group has taken LEI outside Europe, firstly to South Korea and now Canada.

For DAS UK, our priority is to ensure the success of DAS Canada, in which we have invested about $30m (£189m). We have no short-term plans for any other countries, even those that are similar to the UK in insurance terms. From a wider group perspective and having stepped into the exciting Asian market, opportunities there could be interesting.