Personal Injury Reforms
Coplus has been working for several years on responding to the personal injury reforms from both a claimant and defendant perspective. The reforms are a major disruption in the motor legal expenses and personal injury markets.
What are ‘the reforms’?
The changes have been made law through the Civil Liabilities Act.
What are the timings?
The date for implementation of the changes is April 2021.
Impacts on Motor Legal Market
Cover needs to be modified to give real customer benefits in the new legal rules.
Impacts on Brokers & Insurers
There are reputational and financial consequences for insurance retailers.
Impacts on Customers
There is little or no consumer awareness of the changes.
Impacts for 3rd Party Insurers
Potential impacts include increased claims volumes and operating costs to handle these.
Exemptions & Exclusions
Vulnerable road users are exempt as are minors and non soft tissue injuries.
The purpose of the changes which have been made law through the Civil Liabilities Act is to ‘‘disincentivise minor, exaggerated and fraudulent road traffic accident (RTA) related whiplash claims”.
Through the Civil Liabilities Act and secondary legislation the following changes will be made:
The use of a fixed tariff of compensation for soft-tissue (whiplash) injuries which is set by the government and is based on the duration of the injury. The amount of compensation an injured person could receive starts at £235 for an injury lasting up to 3 months, rising to £3,910 for an injury lasting two years. On average the compensation which may be paid is around 50% lower than the current level.
The small claims track limit for road traffic accident claims will be raised. The current level is £1,000 and the new legislation will raise this to £5,000. This means any claim valued below £5,000 will go through the small claims track where solicitor’s fees are not recoverable.
A whiplash claim will not be able to be settled without a medical assessment.
All RTA small claims will go through a portal – Official Injury Claim (OIC). OIC can be used directly by the injured party as a Litigant in Person (LiP) so they can run the claim themselves without any representation. Organisations can also provide assistance to claimants and use OIC on their behalf to manage the claim.
The date for implementation of the personal injury reform changes is April 2021. However speculation continues that this could be subject to change. The date has been moved previously due to Brexit, delays in agreeing the final civil procedure rules and due to the Covid-19 pandemic.
Motor Legal Expenses Insurance (MLEI) is a popular add on which ensures a policyholder will have their legal costs paid to the limit of the policy if suffer losses or injury in an accident that was not their fault. By taking out a policy ‘Before the Event’ (BTE) they will receive all of the compensation if the legal case is successful. Under the current legal rules an injured party can refer to a solicitor for help with a claim even if they don’t have insurance. If the case is successful the solicitor can recover their costs from the at fault party, meaning the claimant is essentially getting a free service – minus the commission fee which is normally 25% of the compensation.
When the small claims limit increases to £5,000 around 90% of all RTA personal injury claims will take this route where solicitor’s fees are not recoverable, thereby removing the mechanism that pays for the legal representation. The premium paid for a motor legal expenses policy must fund the cost of any help or representation provided to the claimant. It also means that without a policy a claimant will either have to pay a solicitor for legal help or run the claim as a LiP.
Motor Legal protection premiums will rise in order to provide the funds for claims handling but it should also represent greater value to the policyholder as they will have already paid for assistance should they need to make an injury compensation claim.
It is important that the MLEI cover provided has been modified to give real customer benefits in the new legal rules. Cover which excludes small claims or requires extra fees at the point of claim will erode value and could be seen as not in line with the FCA treating customers fairly principles. Read our MLEI checklist for more information on the features to look for in a ‘Reforms Ready’ policy.
Insurance retailers, be those brokers, direct insurers or affinity schemes, face a challenge from customer expectations. The current legal rules have been in place for over 20 years and the ‘no win no fee’ model is well known. Policyholders have an expectation of assistance and will look to their insurer to provide it. There is a reputational risk here as the broker or insurer could be criticised by their customers if the cover they have purchased doesn’t give them help getting compensation and this could result in complaints and ombudsman fines.
There are financial impacts too. Firstly from solicitors being effectively removed from PI claims handling and the loss of commission incomes that these claims can carry. Secondly from having to pay an increased premium for MLEI. As discussed above a ‘reforms ready ‘MLEI policy is even more valuable to the customer post reforms so it may be possible to increase MLEI penetration to mitigate some of the financial impacts.
The Coplus MLEI policy operates now in the current legal rules and post reforms, removing the need to ‘time’ the implementation and the subsequent operational challenges should there be another delay. Consideration should also be given to how to handle on risk policyholders in the 12 months leading up to April 2021 and how these can be transitioned to suitable cover or their claims managed under the new rules.
The government’s aim by these measures is to make personal injury claims less attractive to consumers; to reduce fraud and exaggerated cases. Therefore reducing claims costs for insurers which can be passed on in lower premiums to consumers. Lower premiums catch the headlines but the long roll out of these measures, coupled with a lack of media attention on the downsides means there is no public attention.
With such a lack of awareness it seems likely that consumers will be surprised and confused by the new rules, and by having to run the claim themselves. In fact it seems likely that many will not wish to do so and be quick to take up an offer of help, as we’ve seen with PPI claims where consumers readily sacrifice 25% of money owed in order to get a claims management company (CMC) to do the work for them. In particular consideration needs to be given to vulnerable customers to ensure there is appropriate support available if making a personal injury small claim. An online only route via OIC will not be suitable for all customers.
A better option for motorists is to take out BTE cover that will give a cost effective claims handling solution so they don’t need to run the claim on their own, or fend off CMCs looking to drive new business.
Cost control in claims handling for PI small claims is very important, but without detriment to customer service. Coplus is quite unique in this regard as we are not solicitors and have a lower operational cost base, but with a high degree of experience in managing legal claims through Uninsured Loss Recovery. Our capabilities in understanding customers, managing expectations and working efficiently has helped us create an in house small claims service where we will run claims on behalf of policyholders through the OIC.
As stated above the purpose of these measures is to dis-incentivise whiplash claims which were seen as exaggerated or fraudulent, and subsequently therefore reduce consumer premiums.
However, although this is the aim, concerns exist regarding the behaviour that will occur by LiPs and Claims Management Companies under the new rules. Whilst the compensation amounts will be much lower there could potentially be more claims due to dishonest and exaggerated claims still going through the system. In addition insurers will need to have the resources and planning in place to deal directly with LiPs which for most will be a new requirement.
Our Cobalt brand specialises in driving efficiencies in motor claims handling to reduce insurers indemnity spend. Our team has a number of solutions to assist insurers in managing the defence of small claims through the Official Injury Claim portal.
The personal injury reforms target ‘low value claims’ and those for whiplash injuries. Claims which due to the long duration or severity are valued above £5,000, or those cases which include injuries not exclusively soft tissue, e.g. broken bones or cuts, will remain in the fast track using the legal rules which operate currently.
Vulnerable road users; cyclist, motorcyclist, horse riders and pedestrians, or anyone without the protection of a vehicle, are also exempt from the £5,000 small claims limit. This is also the case for minors.