In this Insights piece, Donna Scully, Founder and CEO AT Carpenters Group, takes a look at the MoJ reforms and the issue of Legal Expenses.
As we begin to see some light at the end of what has been a very long, dark tunnel and at times a difficult year for the insurance industry, there relief that the uncertainty that has been hanging over the industry for five years will come to an end that the reforms, first muted by George Osborne in November 2015, are finally going to happen. Concerns around some of the structural deficiencies remain, many details are still unknown and, although we do not have a precise date yet, there will likely be insufficient time to prepare in the final stage for such major and fundamental changes to the claims process. However, at least the delay and uncertainty that has dogged the claims sector for so long is coming to an end.
There also remains clear and considerable risks that consumers will not receive the professional support post-reforms that they expect to be entitled to. Remarkably, one potential solution to this self-inflicted conundrum has noticeably slipped under the radar – Legal Expenses Insurance.
Early in the debate, LEI providers told MoJ that they need a minimum of 18 months’ notice of the final terms of the new claims process, to ensure that written policies in the marketplace are priced correctly and provide the support that consumers need and expect from such products. It unfortunately fell on deaf ears.
Many existing policies have proportionality exclusions or exclude claims within the small claims limit, which currently represent a small percentage of all claim volumes. Once the reforms are implemented, such clauses would likely exclude many claims. LEI contract terms cannot be changed mid-term and the legal expenses industry is going to have to adapt their policies to cater for this change without sufficient notice.
If the tariff system is introduced at the levels proposed in 2018, they will be insufficient to allow lawyers to provide representation under no-win, no-fee arrangements. Claimants without LEI insurance will simply not be able to afford to instruct a solicitor. There will be some cases that fall outside of the tariff and above the increased small claims limit, but the large majority of claims will not have legal representation.
PUBLIC ARE STILL IN THE DARK
There has been no public information campaign about the pending changes, and so consumers have been deprived of the opportunity to make an informed decision about whether to buy LEI. The result is that many will be left unprotected.
We know that there are many who believe that claims will fall away dramatically. Only time will tell. The new automated process may work flawlessly and may provide enough clarity for consumers to pursue claims themselves, particularly if the claim is uncontested. Of course, the same was said about PPI claims and yet the claims management industry still made hundreds of millions of pounds out of consumers unwilling to go through the process independently. The same goes for claims for ‘late flights’. Despite there being a portal to make a claim for a late flight, the majority of people use a lawyer or CMC to help them do it.
The LEI market has not yet evolved as expected, primarily because it is difficult to make the numbers work based upon the proposed tariff which would make unbundled legal advice uneconomic. LEIs should not be written off yet though as a solution to non-representation after the reforms. They have long been recognised as having a valuable role for consumers and if they can be made affordable, they could yet work to protect the right of consumers to legal protection. It would have the bonus of helping to control the expected wave of claims farmers entering the market seeking to exploit the potentially lucrative credit hire/repair commission available.
We do though need to address the complete lack of information for consumers about LEI as a matter of urgency. LEI needs to form part of the government’s and insurance sector’s consumer messaging both in the run-up and after the reforms as the market transitions to the new OIC portal and process. If LEI can be made to work and consumers are aware that they continue to exist, they might provide an important safeguard in protecting consumers in the new claims