Whiplash crackdown faces tough passage

When the Ministry of Justice announced it was introducing the Civil Liability Bill to Parliament, the sigh of relief from the insurance industry was audible.

And it was double relief, as the bill will not only restrict personal injury claims, but it will also include new procedures for setting the Ogden discount rate for setting long term injury compensation.

There had been concern that the government, overwhelmed with the complexity of Brexit, had kicked the bill into the long grass.

But the insurance industry, keen as it is to see this bill come into law next April, cannot now afford to pour itself a gin and tonic and just sit back and watch the legislation’s progress through parliament.

While insurers sighed with relief, the legal profession cried “foul”. Many lawyers claim that, while the new bill might crack down on insurance fraud, both its main measures – the review of the Ogden rate and restrictions on low-value personal injury claims – represent a denial of justice to genuine claimants.

And with the government having lost its overall majority in last June’s snap election, facing an opposition determined to beat them on every vote, the law firms may catch the opposition’s ear, and the bill might not have such a smooth passage into law.

The Ministry of Justice said that the Ogden discount rate on compensation payments for long term injury will be set on the basis of rates of return on a low-risk diversified portfolio of investments.

Until now it has been based on returns on very low-risk investments, a calculation that caused it to be cut from 2.5% to minus 0.75% last year. That change caused insurers to make huge provisions in their accounts against future payouts.

From now on, the Lord Chancellor will consult an independent expert panel chaired by the government actuary, with HM Treasury remaining a statutory consultee; and the discount rate will be reviewed promptly after the legislation comes into force and, thereafter, at least every three years.

For low value personal injury claims, the bill will raise the small claims limit to £5,000, under which threshold litigants will not be able to claim for legal costs. It will also introduce a system of tariffs for injuries.

The whiplash crackdown will save motorists about £35 a year on their premiums, according to Lord Chancellor David Gauke.

Gauke said the new law is part of a wider programme “to tackle the compensation culture which is driving up costs to consumers and taxpayers”.

He said the Ogden changes will bring “certainty and transparency to the system, and savings for the NHS”.

He said the measures follow earlier reforms including the forthcoming ban on cold calling, tougher regulation of claims management companies, and a clampdown on spiralling holiday sickness claims.

“The high number of whiplash claims has contributed to increase insurance premiums but these measures will mean about £1bn in savings which insurers have pledged to pass on to drivers,” he said.

“The number of whiplash claims has been too high for too long, and is symptomatic of a wider compensation culture.

“We are putting this right through this important legislation, ensuring whiplash claims are no longer an easy payday and that money can be put back in the pockets of millions of law-abiding motorists.”

Road traffic accident-related personal injury claims are 50% higher than a decade ago, despite the fall in the number of reported accidents and the UK having some of the safest roads in Europe, according to the Ministry of Justice.

“This rise has been fuelled by predatory parts of the claims industry that encourage minor, exaggerated and fraudulent claims, driving up the costs of insurance premiums for ordinary motorists,” it said.

Ogden reforms welcomed

Motor insurer Ageas welcomed the Ogden announcement. UK chief executive Andy Watson said: “The existing discount rate is having a detrimental effect on taxpayers, consumers, the NHS and the UK insurance industry. Our policy holders have endured over a year of high motor insurance premiums following the decision by a previous Lord Chancellor to set the discount rate unfairly low.

“On behalf of our customers we welcome that the government is now recognising a more accurate level of investment risk meaning that we can still provide a fair level of compensation for claimants, while ensuring the preservation of an insurance sector able to deliver this essential service to customers at a competitive price.

“It is important now that the bill progresses quickly, the panel put in place as outlined in the consultation and the discount rate revised accordingly.”

AXA UK and Ireland chief executive Amanda Blanc said the Ogden plan “strikes the right balance between under and over compensation”.

“Fairness and transparency for personal injury compensation is something that everyone can agree on,” she said. “It is only right that it works in everyone’s best interests.”

She added that the planned whiplash reforms “will drive the worst behaviour out of the market, protect honest motorists, reduce the cost of insurance and we of course commit to pass on savings to every motor customer.”

ABI director general Huw Evans also welcomed the announcement.

“If passed, these proposals would be great news for motorists. People and businesses are paying more for their motor insurance than ever before and we need changes to the law to tackle some of the root causes. Soft tissue injury claims have been rising year on year since 2014 as cold calling claims firms have thrived, driving up the cost of insurance,” he said.

“This bill will ensure people in England and Wales receive fair compensation while reducing excess costs in the system. In a competitive market such cost benefits get passed through to customers, as they did after previous reforms in 2012 when average motor premiums fell by £50 over the next two years.

“The sensible new framework proposed for the personal injury discount rate would also deliver a system that is fair for customers, claimants and taxpayers. It is now important that parliament agrees these proposals swiftly so people across England and Wales can start to see the benefits.”

Steve White, Biba chief executive said: “The bringing forward of this bill covering both whiplash fraud and the way the discount rate is calculated is clear evidence of government listening to the carefully considered concerns from the insurance industry and taking forward recommendations in our Manifesto.”

Graeme Trudgill, Biba executive director said: “Biba welcomes this legislation which aims to bring about fair, 100% compensation for personal injury claims and should help millions of policyholders by reducing the pressure on the cost of insurance. The legislation is also needed to assist with the unintended consequence of underinsurance, created when the discount rate changed so significantly a year ago.”

“Allianz’s objective has always been to compensate genuinely injured people quickly and fairly without influence from disproportionate legal costs, so we welcome the whiplash claims provisions within the bill,” said Simon McGinn, Allianz UK’s general manager commercial and personal.

“The principle of fairness is also embodied in the industry’s position on the discount rate and the measures announced provide a structure around which this can be achieved. We look forward to seeing the bill progress into law and to the benefits that will accrue to customers as a result.”

Lawyers object 

Reaction from the legal profession was far from supportive, giving a flavour of the lobbying battles ahead.

“Injured people will take the biggest hit to their rights in recent memory,” said Brett Dixon, president of the Association of Personal Injury Lawyers (APIL).

“Any concept of fairness or compassion or help for genuinely injured people has been sacrificed in what the government is now openly calling a ‘bill to cut car insurance premiums’,” he said.

“People with catastrophic injury claims will almost certainly return to a situation where their compensation will not meet their needs.

“People with genuine and painful whiplash injuries will have their compensation restricted – just because they have had the temerity to have a ‘whiplash’ claim,” he went on.

Dixon doubted the insurance industry’s commitment to pass on whiplash savings in lower motor premiums.

“There has been a whole raft of reforms to personal injury over recent years, all with promises from the insurance industry that premiums will fall as a result. 

“Well, guess what? Premiums have not fallen, and they will not fall this time either,” he said.

“The fact that the government has been seduced by these empty promises shows a gullibility which is beyond belief.”

James Bell, partner in the clinical negligence department of law firm Hodge Jones Allen, criticised the drive to raise the discount rate: “We need to remember that seriously injured people, many with long term care needs, were undercompensated between 2001-2017 when the discount rate was set at the insurer friendly figure of 2.5%. 

“The insurers made hay while the sun shone for 16 years. So, it is very disappointing to see the government rush through this legislation after only 1 year of the rate being set at minus 0.75%.”

Qamar Anwar, managing director of First4Lawyers, said the bill is “ill-advised”.

He accused the government of “rolling over and taking the insurance industry’s propaganda”, and described the promise that the bill will result in lower motor premiums as “a fallacy”.

Andrew Twambley of Access to Justice (A2J), said the whiplash reform is unnecessary, as the volume of claims is falling.

“The government is seeking to fix a problem that is already being fixed, without the need for legislation. Whiplash claims have fallen sharply in the last 12 months, and the cost of claims has also fallen sharply,” he said.

Using Treasury figures, A2J has calculated that  the savings are likely to total only £18 per motor policy.

 “For the sake of £18, some 600,000 people injured in road traffic accidents each year will be denied access to legal advice if they want to go to court and claim for their injuries,” Twambley said.

He called on MPs and peers to oppose the bill.

“They will see that that there is little substantive reason for reform, beyond keeping the insurance industry happy.

“We believe some reform is needed but that there are better ways to regulate the market without the sledgehammer approach of this flawed and partial legislation. 

“The government has a golden opportunity to work with all sides of the industry to find a solution that protects ordinary people and ensures they continue to have access to justice.”

A more conciliatory tone was adopted by Andrew Parker, partner and head of strategic litigation at international law firm DAC Beachcroft.

“It’s good to see progress on these important themes,” he said.

“Further reforms for whiplash claims are long overdue. We spend far too much time and money arguing about the value of minor injury claims. A tariff is definitely the way forward so there is no mystery about the value of a claim.

“Let’s not forget in all this that we are all defendants: this bill is about addressing the costs incurred by taxpayers, motorists and business.”