This article was first published in Modern Insurance Magazine in May.
Motor legal expenses insurance is an invaluable product for many drivers and provides an attractive supporting income stream for the insurance broker. As the market is about to undergo some radical changes what can brokers do to safeguard themselves and their customers?
The government’s reforms to Personal Injury Claims is about to have a massive, and to some degree, still relatively unknown, impact on the motor and legal expenses insurance market.
For the past 20 years, since the Access to Justice Bill in 1999, customers have been able to benefit from legal expertise to pursue compensation seemingly ‘for free’ when making a personal injury claim, with solicitors being able to recover their costs from the other party when the case is successful. For motor legal expenses insurance this means a relatively low cost product that gives an effective and valuable service.
In these reforms the government wish to make personal injury claims ‘less attractive’ as they seek to remove fraudulent and exaggerated claims. However for all of those people with a legitimate injury claim, getting access to justice will be more difficult.
It will be more difficult for all claimants because one of the key components in the reforms is an increase to the small claims limit, from the current £1,000 level up to £5,000 for injuries as a result of a road traffic accident. This is significant because around 95% of personal injury claims fall under £5,000.
In the small claims track solicitor’s fees are not recoverable so the legal expertise, currently available to all, will need to be provided or funded through another means. This too will necessitate changes to motor legal expenses insurance policies.
For insurance brokers, decisions need to be made quickly if they want to provide an uninterrupted legal expenses service to their customers.
The first consideration is timing.
The Civil Liberties Bill which is the means of bringing the reforms to law, is now in parliament, and although some opposition is anticipated, April 2019 is the expected commencement date. If that is the case then any customer who purchases a 12 month motor legal expenses insurance policy now will be subject to the terms of that policy in the post reforms world.
What will the policy provide for them in that scenario? Every month that passes more and more customer’s renewing or taking out new MLEI insurance that isn’t ‘whiplash ready’ will be subject to terms that may no longer be favourable or perhaps not even suitable for their needs.
Although a clear timeline is still unknown early action in getting suitable MLEI cover in place will offset problems in the future.
Another consideration is that of reputation.
Whilst press coverage has documented the promise of lower premiums if personal injury claims are reduced, any countenance of the downsides has not been discussed. The public are unaware of what the changes will bring and the consequences should they become injured in a road traffic accident.
The risk for brokers lies in the expectation a customer has for legal assistance after an accident. The long established ‘no win, no fee’ option won’t exist, without a motor legal insurance expenses policy which specifically provides legal services in the small claims track the customer will be left without help.
One of the outcomes for Treating Customers Fairly states “Consumers are provided with products that perform as firms have led them to expect…” so it will be vitally important for brokers to be clear of what cover the motor legal expenses insurance will provide, and that could be from April 2019, in affect policies in force now.
Finally commercial considerations are also an area where brokers will need to prepare.
With the legal costs no longer recoverable from the majority of personal injury claims the question becomes one of how to fund this service in the post reforms world.
Controlling claims handling costs is very important in order to mitigate the inevitable increase. Solicitors may therefore cease to be the primary route to legal assistance for RTA personal injury claims.
Keeping operating overheads to a minimum, economies of scale and good technology support will all assist providers in streamlining a lean legal services function. This in turn should allow the continuation of MLEI products that remain in line with current market rates.
However high quality control standards, legal expertise and something is necessary to continue to give value, rather than simply substituting qualified legal expertise with a lesser version.
Ultimately the cost of motor legal expenses insurance will be likely to rise and for brokers a view on what service they wish to provide and at what cost, should be under consideration as soon as possible.
Can brokers continue to build a sustainable business in motor legal expenses insurance?
Whilst the reforms will create disruption early decisive action could see a real opportunity open up in this market.
At Coplus we have invested heavily in product development in order to create a ‘whiplash ready’ motor legal expenses insurance product. We felt action now was so important to protect brokers from having to try to implement changes to a product which may not provide the right level of service in a post reform environment. Our product now available to brokers continues to provide cover in the usual way whilst no legislative change happens, however if, or when, the reforms come into effect within the 12 month after the policy is sold, a new service element ensures legal expertise remains accessible.
This level of forward planning will help to mitigate the risks further down the line. For brokers who gain good understanding around these changes and have the support of a quality product and good sales process there is definitely the opportunity to increase penetration for Motor Legal Expenses Insurance.
Whilst some decisions and actions need to be done now this change will create new opportunities for those willing and able to do things differently.