Personal injury claims under the microscope

Well over a year has passed since the Ministry of Justice crafted its radical proposals for the reform of the nation’s creaking personal injury claims process, yet there is little sign of any action. Insurance Times assembled a panel of leading industry lights to discuss some of the burning issues, including referral fees, conditional fee agreements (CFA) – otherwise known as no win, no fee – and rehabilitation.

Is there a compensation culture in Britain?

Given the escalation in the volume of personal injury claims in recent years, the starting point for the discussion, chaired by Harry Brunjes of the Premier Medical group, was the perceived growth of a compensation culture in the UK.

The panel agreed that the use of the term ‘compensation culture’ was not only misplaced, but counterproductive.

Bernie Rowe, head of insurance litigation at Lyons Davidson solicitors, set the tone for the afternoon’s discussion. He said: “If you think people shouldn’t claim compensation, there’s a compensation culture, if you think that they are entitled to it, there’s a compensation culture.

“The whole business of risk and injury compensation actually reflects what is happening in terms of society – how we use and how we see this. And that moves and changes with time.”

Head of indemnity and corporate risk at Hugh James Solicitors, Philip Dicken warned that the rows over the definitions of words risked deflecting attention away from the core issue of helping the claimant. “The debate that is raised around [a compensation culture] actually masks a more significant issue,” he said.

“The cost of compensation is phenomenal in this country. The way that we fund compensation and claims is exceptionally expensive and a whole layer of fat. At the last count I believe it was a £190m a year industry.

“That, to me, is concerning because there’s only one sector of people picking up the tab for that: the UK insurance premium payer.”

“I think it’s probably going to have to be the insurers who gather the data to prove the cost benefit [of rehabilitation].

Simon Margolis, Premex

Justin Jacobs of the ABI urged the audience to consider the numbers. “Government statistics show that the number of people involved in road traffic accidents has fallen by about 20% in the past five years and that the number of people claiming for motor injuries has gone up by about 20% in the last five years,” he said.

“There may be some very good reasons for it, but there may be some more worrying reasons for it.”

Are referral fees a natural and acceptable part of the claims compensation process?

Always a topic of fierce discussion, this occasion proved no different. The panel was refreshingly candid about the practice of, and motives behind, the passing on of personal injury cases for a fee, typically between £600-£900 – although it was divided on what could be done to alleviate the problem.

Rowe argued that the practice of referrals had helped deliver access to justice for claimants, with scarcely more than one in ten potential claimants actually making a claim 30 years ago, and subsequent attempts, including Legal Aid, failing to deliver access to the majority of claimants.

“The system has now produced a much higher proportion of people who are exercising their legal rights to make a claim,” he said. “To see that in any way as a failure or in fact as a retrograde step is wrong.

“The question of whether the system operating now adds any value is really the same sort of vague way of going round in circles as asking whether the broker adds any value.”

Rowe suggested that transparency could be the answer: “Is it actually a more efficient market place if there’s actually a trade where the fees which are visible or are made visible, the market can actually trade them and specialisms can grow to deliver them in a much more organised and efficient way.”

Newly appointed director of claims at Allianz, Graham Gibson, said that referral fees were an important part of the industry’s business model. He said: “The model is the model. Whether it is right or wrong is another debate. So, you can stick to your principles and lose £600-£900 in referral or you can look at your profit and loss – I think it’s as simple as that. Is the model right? I personally believe it’s not.”

“The whole business of risk and injury compensation actually reflects what is happening in terms of society.”

Bernie Rowe, Lyons Davidson

Yvonne MacCullum, operations manager at First Assist added that her company had been approached, but while she understood why the practice persisted, considered it to be unethical.

Jacobs explained that referral fees were driving the wrong type of behaviour, citing evidence of repeat calling from solicitors. He said: “Once you’ve paid the referral fee you know that you’ve lost money unless you make sure that person makes a claim.”

Rowe agreed that such practices were not in the best interests of the consumer, who should receive access to the best advice.

“If you felt that your GP was on a referral fee, or on some sort of commercial arrangement with a local hospital, whether it be private or NHS, you’d be pretty upset by it,” he added.

A member of the audience emphasised the commercial importance of referral fees (citing a study by the Law Society), and drew attention to the funding of the practice. He said: “I think it’s out of all proportion, but it has to be said that insurers are as bad as anybody in driving up referral fees because they’re nearly all charging very high referral fees themselves.”

Gibson responded: “At my last organisation we took a decision not to refer customers with claims because we felt it was an abhorrent practice, but the profit and loss considerations were huge, and we were damaging the bottom line because so many other insurers were and the market as a model was based around referral fees.

“You go knock on a door right now or pull someone off the street and try to explain to them that a vast proportion of their insurance premium is based on this money that’s just sloshing around the system.”

Gibson would not be drawn on whether Allianz accepted referral fees, but instead turned his attention to the credit hire industry: “Having been there all of 13 days I’ve not got that far yet, but it is a profit and loss consideration, no doubt about it.

“But I think there are some things coming out the credit hire market that are beginning to look ugly in terms of what’s actually happening and what behaviours have been driven by that.”

“We need some real data so we can actually produce some cost-benefit analysis to convert those who still need to be convinced that rehabilitation works.”

Yvonne MacCallum, First Assist

Is the recently announced review of CFA, or No Win No fee cases a partial and belated response to the claims consultation process?

The panel was unanimous in its dismissal of the conclusion that, despite the obvious overlap, the government’s review of CFAs was not related to the wider claims consultation process.

Dicken said that the move was merely a response to the Better Regulation Task Force’s 2004 paper analysing the adoption of contingency rather than conditional fees, which led to a simplification of the CFA rules, which would be reviewed in three years.

Jacobs, who used to work for the Treasury, downplayed the relationship between the two developments. He said: “I would never overestimate the ability of government. I’m not sure that they would have drawn a link between research into CFAs and the claims process reform, I think that they are two separate parts of a rather large forest.”

He added that he saw the move as a sensible and timely evaluation of the system that might draw some insightful conclusions, such as comparing the claims performance of standard before the event (BTE) versus CFA cover, but given the time it will take to draw worthwhile conclusions, this must not distract from the need to implement change in the short term.

He concluded that BTE was the most efficient way of providing access to justice and that the industry should be doing more to promote it.

While Rowe suggested that the timing of the review was related to the introduction of CFAs in 1995, and the need to evaluate its success after a decade, he hinted at it being part of a broader approach: “It is possible that someone is joining all these bits together. I think we can safely say that whenever you get close to the personal injury system, the costs system and access to justice, those responsible for making decisions think it’s easy but when they look at it they end up being confused.”

Bearing in mind the high degree of conflicting research on its cost effectiveness, does rehabilitation work?

The panel agreed that rehabilitation had a place, but felt it lacked credibility given the lack of data. Consequently, it called for a definitive study to be undertaken to assess the benefits of an approach that has received mixed reviews in recent years. The problem was, no one could agree on who should take the lead.

“Perhaps the industry needs to think about what it wants to achieve globally. Perhaps the ABI can get some insurers to work more in concert.

Rehab expert

MacCallum, citing data from Norwich Union and QBE detailing substantial cost savings, insisted that the question was not whether rehab works, but how to make it work. She said: “I think that there’s a lot of conflicting information out there at the moment.

“Certainly something that I’d like to see going forward is for perhaps the ABI to work together with rehabilitation providers and insurers to get some real data so we can actually produce some cost-benefit analysis to convert those who still need to be convinced that rehabilitation works.”

Her views were seconded by Simon Margolis, chief executive of Premex and Janet Tilly of the Civil Justice Council, who warned that insurers were going lukewarm on the subject. Tilly said: “At the moment the feeling is very much that it’s become very monetary dependent and not really looking at the needs of the claimant any more and that’s quite sad to see.”

Margolis added that insurers needed to take the lead. “Where the volume is, which is the lower end of the market, there are some insurers who are completely bought into the idea; they presumably have some sort of evidence,” he said.

“And then there are others who feel exactly the opposite. I think it’s probably going to have to be the insurers who gather the data to prove the cost benefit. There are plenty of rehab providers which I’m sure could provide some of the data but ultimately they’re not going to be able to demonstrate a reduction in general damages.”

Brunjes said that the work should not be carried out by insurers or solicitors, but by the medical profession. He added that such a study would take between four and five years to complete. He said: “There’s bits of papers flying around all over the place but the big joined up writing work has yet to be done.”

A member of the audience agreed that only the medical professional could carry out such a study, but warned: “If you have two groups, one of which you give treatment to, the other you don’t, how do you make people stick within those groups? Inevitably, if someone is in a group where they’ve elected not to be treated and they find their symptoms are not responding, they’re likely to migrate and seek treatment elsewhere. “

Rowe agreed that existing studies were inadequate, and suggested that any research should be funded either publicly or by an insurance body; the most obvious of which, he said was the Motor Insurance Bureau (MIB).

“We have to look at whether it makes a difference if early intervention is delivered and then you can start teasing out which intervention should it be, and start development treatment models where really the work is yet to start.”

“Should rehab be available to everyone who’s been involved in an accident? I think we’d all agree that the answer to that is yes.

Graham Gibson, Allianz

He added: “The question has got to be who does rehab work for? If you just move the question slightly and ask the insurer whether the credit hire industry works for it or if it worked for the business models in the mid 90s, you would say no.

“It’s a bit like the compensation culture again: it’s an entirely self-defined statement. The question needs to be ‘Did this care and support and recovery system we’re talking about work in relation to that particular person who suffered an injury?’”

A rehab expert in the audience added that data sharing was slowed because it was commercially sensitive for insurers, leaving rehab providers in something of a Catch-22.

He said: “Certainly from our perspective there is a need for the insurance industry to accept that it needs to act more in concert. Sometimes we’re told to keep it quiet as it’s a competitive advantage. But competitive advantage lasts for six months top.”

“We can provide information about the outcomes, what the experience of the injured party has been, but what we can’t control is information on cost control, cost of claims, time to settle.

“Perhaps the industry needs to think about what it wants to achieve globally. Perhaps the ABI can get some insurers to work more in concert.”

Gibson, whose employer Allianz has conducted extensive physiotherapy studies relating to whiplash, concluded that the best option was to use referral fees to pay for rehab.

“At the risk of being flayed alive by some of my colleagues in the insurance market, I agree with [the other panellists].

“To my mind, the question is whether, in a modern society, rehabilitation should be available to everyone who’s been involved in an accident? And I think we’d all agree that the answer to that is yes.”

“The debate is about how it’s going to get paid for. And in my own mind I’ve got a very simple model and the model is to take some of the referral fee money out of the system and use it to pay for rehab. Now, it sounds simplistic, but if you think about it it’s just cutting the same cake in a different way which would benefit the claimant.

“And we’ve talked a lot about models and about what’s happening to the money but at the end of the day it is the injured claimant who counts.”