Like any risk taking market, there are a lot of things which get up the insurance industry’s nose; young irresponsible drivers, everyone paving over their front drives, burglars tripping over a fold in the carpet at the end of a heist and suing the homeowner – you name it, there’s been a campaign to fight every scurge.
But few have been faught with the collective vehemence of the battle against the payment of referral fees by personal injury lawyers in exchange for a case. Since their introduction in 2004, the claimant legal sector has built up a thriving industry on payment of these charges to accident management companies, insurance brokers and insurers. On the basis that when an individual is innocently injured by a negligent third party (rear-end shunt, slip, trip fall etc) they are entitled to compensation from the latter, this has burnt a halo onto the heads of innocents everywhere in the now familiar; “oh you’ve been injured, we can help you” sent by text or advertised on TV.
Because costs are recoverable from the third party at the point of settlement, it’s been worth pursuing claims in the knowledge that liability is rarely questioned. Secondly, with solicitors willing to pay between £600-£1000 per case, the justification for ‘farming’ these injuries and selling them on has been fairly obvious for some time.
However, in recent months and despite its complicity in this marketplace almost all insurance industry trade groups have called for a ban; The Association of British Insurers, British Insurance Brokers Association, the Lloyd’s Market Association; all have said this cannot continue. For example in April, Nick Starling, ABI director of general insurance and health, told Post Magazine: “Enough is enough. Putting the brake on ambulance-chasing lawyers and claims management firms cannot come a moment too soon. Motorists have rightly had enough of paying for excessive legal costs, which add an extra 10% to the cost of motor insurance.
“It cannot be right that for every £1 motor insurers pay out in compensation; an extra 87p is paid out in legal costs.”
However, the legal sector remains steadfastly of the view that access to justice is at stake and these payments are not detrimental to clients. On May 27th, the Legal Services Board dropped plans to force its membership to publish their payment of the fees through their own web sites, whilst promising to ‘shine the light of transparency’ on them to ‘manage their impact’.
Understandably the insurance industry reacted negatively to the news, but in the end cold, hard cash did the talking some days later. on 31st May, stock market analyst Collins Stewart was bullish about the prospects of FTSE 100 darling Admiral Insurance precisely because of the LSB’s protectionist stance. Referral fees are to continue and Admiral will carry on earning a tidy sum from them; a fact that won’t have gone unnoticed by the many pension funds with holdings in the motor insurer.
The insurance industry has secured a number of significant victories in recent months, not least the likelihood that the loser pays business model will be removed in favour of a contingent fees structure for most types of civil litigation. It has also rightly complained that inflation was rising much too quickly within the area of personal injury, which was backed up by the industry’s most recent Bodily Injury Awards Study published in 2007.
Insurers can also take comfort in the fact that claims inflation is expected to rise further but the level of increase may be about to plateau with datamonitor revising its prediction of 2010-14 growth in claims costs down from 5.45 to 3.7% – a more comfortable figure given current levels of inflation around the general economy.
Once all’s been said and done, personal injury claims will remain big business. Those earning money from their persuit will alter business models based on a low cost up front model that promises to generate compensation cheaply and simply. Insurers will just keep having to work hard to pay the genuine claims and bat away the chancers.
This article was written by freelance business journalist and PR consultant Ralph Savage.