Why after-the-event insurance is here to stay

A great deal has appeared in the press lately predicting the end of the after-the-event (ATE) insurance market. Such predictions are premature and inaccurate – they merely fuel uncertainty and are unhelpful for those working in the industry who are doing their best to advise claimants.

Questions surrounding the future of ATE cover began following proposals from the Ministry of Justice. These were first announced in April 2007 in its consultation paper, Case Track Limits and the Claims Process for Personal Injury Claims.

Taken at face value, these proposals would mean that ATE would no longer be relevant for certain motor and employers’ and public liability cases where insurers accepted responsibility. They would also mean that claimant lawyers would no longer be able to claw back any premiums or referral fees – legal payment would be reliant on an agreed success fee.

Complex cases

These changes would mean that insurers would need to tailor their ATE offerings so that these were aimed at more complex cases and where liability was disputed. In this respect, it is wholly wrong to surmise that the whole ATE market is doomed.

Indeed, there has been no formal announcement from the Ministry of Justice and no date has been given when this will take place.

We do know that in excess of 300 responses have been received and the consultation is now closed. But, we are none the wiser as to what, if any, changes will occur, meaning continued uncertainty is unavoidable.

It was reported recently in Insurance Times that further delay is anticipated before an announcement is made. We do not know exactly why this is occurring although it is understood that behind the scenes, unions have been lobbying hard for the proposals to be watered down.

Unions – and claimants’ solicitors – have argued that the proposed timescales were too tight and that accident victims could be denied access to justice. Insurers too may have pointed out that cases cannot always be cut and dried and it may be too simplistic to say that ATE cover is often unnecessary.

If a new regime is introduced where clearly specified cases can be settled quickly, then ATE insurers will quite rightly not need to offer cover. But, as things stand, we do not know what responses are being taken on board and it could be that the status quo will remain unchanged for some time.

But suppose they do, even in part, go ahead – where would this leave ATE? According to the proposals, ATE would only be deemed necessary for cases with a value above £2,500 and where there is a dispute on liability or quantum, or a failure to respond by the defendant.

This is still likely to encompass a sufficient number of claims for business to be viable. It is also worth remembering that somewhere down the line, change is likely.

Proposals to the existing compensation model are nothing new. The Clementi Review from a few years ago kick-started this and after all, there is broad agreement among both insurers and legal expenses insurers that some reform is needed.

It is easy to forget that the Woolf reforms, which sought to cut back substantially on legal aid, are only eight years old and so it is time to review how the market is working. We should not be seeing cases where lawyers earn more in payment than is paid out in damages to claimants.

Quicker decisions

“The government should look at increasing take-up of before-the-event cover and look at ways to grow consumer awareness of the product

The rationale behind these proposals is to cut legal costs, substantially reduce referral fees, speed up processing and push both claimants and insurers into making quicker decisions.

The key reforms include a new fast track limit of between £1,000 and £25,000 – up from the current £15,000 – and, in particular, put forward tighter timescales.

Solicitors will have five working days to supply claims to the defendant. Insurers will then have 15 days for motor and 30 days for liability cases to decide if they accept liability.

During this period, the claimant’s solicitor sits tight and does no further work. If liability is admitted, this is binding and the claim valued and resolved – for this procedure, fixed costs operate. During this time, there will be no need to buy ATE.

If liability is not admitted, there is a short timetable for defendant counter offers – 10 days – and a maximum period of 20 days for negotiations.

There is no doubt that these timescales will cause problems in terms of finding evidence and indeed pressure for claimants and their solicitors. Not least, insurers and their lawyers will also need extremely efficient systems to meet them.

Because simple, high volume claims will no longer require ATE, the argument from some insurers in this sector is that the market will be tipped out of kilter.

The principle of the many paying for the few would be abandoned, it is argued, and instead, insurance would only be there for high risk cases which would lead to potentially prohibitive premiums and insurers pulling out of the sector.

At Allianz Legal Protection we do not see the end of the ATE market even if these proposals are enacted. There are many cases where liability is disputed and where negotiations are more protracted. Insurers will however need to be more specialist and use underwriters with experience in more complex risks. In particular, we see greater use of staged premiums which are more flexible and make it clearer for claimants – and judges – to understand underwriting criteria.

There is also an ongoing responsibility on all sides to increase take-up of before-the-event insurance – a product which is low cost and which provides access in eligible cases to quality solicitors operating at fixed costs.

As well as looking to rule out bad practice in the market, the government should also look at increasing take-up of before-the-event cover and look at ways to grow consumer awareness of the product.

There has to be concern that the growth of aggregator websites and the constant focus on lowest price are leading to more ‘stripped out’ products which may exclude legal expenses.

Beyond this, we also believe that there is a greater role for mediation, rather than litigation, and that there is more scope to include this option within insurance cover.

Right now, there is nothing for anyone to do but wait. Knee- jerk reactions have become a feature of the market when discussing ATE and the Ministry of Justice proposals. The ATE industry may have to adapt, but insurance is going to remain in some form and above all, let’s hear the evidence first