Tuesday, 23 May 2017

What the whiplash proposals mean for Legal Expenses Insurance - Paul Hurley, Director & Head of ATE at ARAG plc

Those outside the legal and insurance worlds would be forgiven for knowing nothing about the government’s plans to reform the claims process. Whisked through ‘consultation’ in just a few weeks, the MoJ’s plans went from launch in mid-November to inclusion in the Prison and Courts Bill, published on February 23rd 2017.

The changes will increase the Small Claims Court limit for all motor personal injury claims to £5,000 and double the limit for all other injuries to £2,000, as well as introducing low, fixed payments for all but the most serious ‘whiplash’ injuries. They represent some fundamental changes to the justice system and are likely to have a major impact on injured parties, the courts and some law firms, but what do they mean for the legal expenses sector?

Paul Hurley, Director & Head of ATE

The ATE industry has become so accustomed to perpetual changes to the legal landscape, it’s hard to be surprised by anything the MoJ has come up with in recent years. While the details of this particular reform are important, it’s also worth looking at the wider picture, because it simply isn’t possible to judge what changes may be needed, if we haven’t yet seen the results of the previous reforms.

Almost everyone outside the insurers’ lobby, accepted that the so-called “whiplash culture” was in decline and the Justice Select Committee highlighted this in February, when its chair, Conservative MP Bob Neill, said the MoJ was “firing in entirely the wrong direction”. What was needed, of course, was a more robust approach to genuinely fraudulent claims and some strict policing of the cold-calling industry.

Instead, what we have is yet another huge impediment to accessing the justice system, whipped through a “consultation” that frankly wasn’t worthy of the name. As usual, it is the poorest in our society who will suffer the most. 
£5,000 may seem like a “small” claim to politicians and those who have lobbied so hard for this reform, but it’s almost half the year’s take-home pay for many.
For the self-employed and those in relatively low-paid jobs with few benefits and limited employment protection, a serious whiplash injury isn’t just a painful inconvenience. It could cost them their livelihood and much more. Once again, those people have been forgotten.

The reforms will probably hit their intended target too, but the fraudsters, the cold-callers and the less-scrupled “professionals” who abetted them will move quickly on to greener pastures.
After the Event insurers who write most of their business for motor claims will also feel the impact. Estimates for the proportion of motor claims affected are as high as 90% so, as we’ve seen after previous reforms, providers may exit the market, through choice or otherwise.

Policymakers can sometimes be excused for not fully understanding how insurance markets work, but many of those who have lobbied hard for this legislation are well aware that uncertainty and a diminishing pool of risk are two things guaranteed to increase premiums. As always, ARAG will adapt and deliver products that our solicitor partners can depend on, at least until the next set of reforms. Access to our justice system may be getting harder, but our commitment to enabling it remains as strong as ever.

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