The relationship between the insurance industry and government has hit the headlines in recent weeks, with justice minister Jonathan Djanogly facing claims that his personal insurance investments could lead him to profit from the government’s own legislation implementing the Jackson reforms. The minister pointed out that he published the investments in the ministerial declaration of interests and has placed them in a blind trust; and cabinet secretary Gus O’Donnell found no evidence that he acted other than in the public interest.

Meanwhile, freedom of information documents obtained by shadow justice minister Andy Slaughter revealed meetings between insurers and the Ministry of Justice, in which insurers were allegedly told they were ‘pushing at an open door’ over civil justice reforms. The MoJ insists there was nothing untoward, and adds that it also met claimant groups as part of its consultation.

But for claimant representatives, the national media is merely picking up on concerns they have held for a long time. They are increasingly restive about the pervasive influence of the insurance industry, which has spread its tentacles well beyond the Jackson reforms into many other aspects of the claims process and civil justice system.

The government’s concerted push for ‘industry-led’ solutions to deal with claims, for example, will place more responsibility on both insurers and claimant representatives to ensure justice, away from the courts. The new road traffic accident portal, funded and managed by insurers, is only the beginning, with the MoJ already consulting on raising the value of RTA claims passing through the system, and extending the approach to clinical negligence and employers’ and public liability claims. The MoJ believes this will bring down costs significantly, and the extension is supported in principle by the Association of British Insurers

(ABI), though claimant groups are more wary. Claimant lawyers also worry that a growing number of claims are escaping the justice system altogether, as insurers step up the practice of dealing directly with those who might have a claim against policyholders, settling the matter before claimant lawyers get involved. For the regulation of this sensitive area, government has once again opted for an industry-led approach, with insurers signing up to a voluntary code.

Meanwhile, some predict that alternative business structures will see defendant insurers setting up their own claimant arms, as a means of recouping the loss of referral income when a referral fee ban - now supported by the insurance industry - is introduced.

Greater involvement by insurers can undoubtedly lead to claims being resolved more quickly and at lower cost, which could be good news for claimants. But are there adequate safeguards in place?

RTA sets direction of travel

The RTA portal was introduced by the MoJ last year in a bid to speed up and slash the cost of low-value RTA claims. The secure web portal, which allows the whole process to be done electronically, is funded and managed by the Motor Insurers Bureau (MIB).

Claimant lawyers are paid fixed fees under the scheme, which, teething problems aside, has generally been considered a success by both sides. Statistics on the level of compensation paid through the portal will be available soon, but are not expected to show any fall from the anticipated levels.

Nevertheless, concerns remain over the operation of the scheme, and these are particularly important given that the MoJ is currently considering raising the threshold for portal claims from £10,000 to £25,000, and also extending the process to other areas of personal injury.

One point of contention is the fact that the portal is funded by the insurance industry. ‘He who pays the piper calls the tune,’ as claimant solicitor Nicholas Bevan puts it, though he does support the scheme, and there is no evidence so far of any bias towards insurers in the process.

John Spencer is a prominent claimant lawyer and member of the portal company’s carefully balanced board. He says the board accepts that a ‘user pays’ principle for funding the scheme, which would require claimants to make a minimal payment to fund the portal costs rather than insurers meeting the whole amount, would be more appropriate.

But this is being hampered by the MoJ’s determination not to get involved. He says: ‘Everyone on the board accepts that moving to "user pays" is the desirable outcome. But the issue is how to fund it.’ Spencer says the move would probably have to involve a change in the Civil Procedure Rules, ‘which the MoJ would not support, because they want this to be an industry-led solution without interference from government’.

He adds: ‘I have said all along that [treating it as a purely industry-led project] is not right; it’s an abrogation by the MoJ of its duty to ensure the administration of justice for RTA victims. The MoJ should not just be leaving it all to the industry.

‘That is even more so with the government’s plan to extend the scheme across to other areas.’

Spencer is not the only one who feels the MoJ has gone too far in leaving claimants and insurers to resolve any problems with the portal. Matthew Currie, head of RTA claims at national firm Irwin Mitchell, says that while the portal has been a good example of how claimants and defendants can work together, both sides feel let down by the MoJ’s lack of support when the portal experienced its initial, well-documented IT problems. This was compounded by its failure to ensure that judges were trained on their role in the process when claims do not reach a settlement, and have to be looked at by a district judge.

‘The industry has shown some good results from the portal, but it’s a shame that, with it being one of the biggest changes [to the claims process], the MoJ did just walk away and has not supported it.’

Having overcome its IT problems, the portal now faces a new challenge, as insurers are already seeking to lower the fixed fees for claimant lawyers that were hammered out in a deal between the two sides when the project was set up. Insurers now argue that the forthcoming ban on referral fees should lead to a drop in rates.

As Tim Oliver, president of the Forum of Insurance Lawyers, says: ‘There is going to be a ban, and that’s fine, but that means that fixed costs need to come down to reflect the fact that solicitors will not be paying these fees.’

But claimant lawyers are adamant that the fees should not go down. Spencer, who took part in the original fee negotiations, says: ‘Portal fees were fixed without any reference to referral fees; no allowance was made for them.’ David Bott, president of the Association of Personal Injury Lawyers (APIL), agrees, and adds that a further reduction in claimant fees under the portal will drive smaller firms out of that field of work - leaving the larger firms that sit on the insurers’ claimant panels as the only ones standing.

‘There will be 30 firms on one side or the other, and they’ll all be the same law firms,’ he predicts. If the two sides cannot agree on the fees - and the smart money says that they will not - the MoJ has said it will step in to ‘facilitate’ a deal. Recent comments by Djanogly indicate that he seems more persuaded by the insurers’ arguments than the assertions made by claimant lawyers. He told the Transport Committee that he believes there is in fact a ‘notional amount’ for referral fees within the fixed costs, adding that it is ‘not the government’s intention to stop referral fees going to claims management companies, just so that lawyers can take those referral fees in effect for themselves’.

It looks like the insurers are set to win that argument - which could have implications for the extension of the portal model to other areas. As the chief executive of APIL, Deborah Evans, says: ‘Portal fees are already being unpicked by insurers. That gives me no faith to move forward into other areas.’

In its consultation on extending the portal system to clinical negligence and employers’ and public liability, the MoJ suggests that the move would reduce costs and provide a clear and user-friendly scheme that would minimise the time people spend off work and in receipt of benefits while they await their damages. The ABI is generally supportive of the move, but claimant lawyers urge a more cautious approach, with more time to see how the RTA process develops before moving on to other more complex areas, where there is less early admission of liability.

Policy tension

When it comes to the government’s increasing focus on industry-led initiatives, Bevan says important lessons can be learned from the way that the MIB, which is funded through a levy on insurers, handles the system of compensation for uninsured drivers. Bevan claims that the MIB, which administers the Uninsured Drivers Agreement (UDA), is under-compensating accident victims - an assertion that MIB does not accept.

The solicitor says: ‘The MIB serves as a very good illustration of how there is tension between the social policy aims of government, and a body that is essentially run by insurers, which must look after the interests of their shareholders.

‘The UDA is the best example you can think of, of the fact that government’s over-reliance on the insurance industry is not working… The present agreement [which is meant to be accessible to lay claimants] is a travesty, hedged as it is by obscure jargon… It’s so byzantine in its detail and so excessive in its procedural requirements as to fail comprehensively as a fair or just compensatory system. How could such a disgraceful state of affairs be allowed to subsist for so long - who benefits?’

A MIB spokesman said it did not accept Bevan’s criticisms, which were not backed by examples, as being ‘in any way reflected in the day-to-day practice of handling claims by MIB’, and added that complaints to MIB had fallen and were now at a level of one for every 3,000 claims.

Bevan argues that while a healthy insurance industry is essential, given that it funds the tort system by meeting the court fees and legal costs of successful parties, it should be more transparent. He says: ‘The insurance industry is not as parlous or vulnerable as some would have us believe. [Motor] insurers enjoy a rare boon which most commercial enterprises do not have: a captive market. If their customers drive without the statutory motor insurance they provide, they are guilty of an offence. Better still, the insurers are free to set the price of their premiums.

‘Because, by collecting compulsory motor insurance premiums, they are in effect acting as an agent of the government… they should be held properly to account for these revenues. We need a full understanding of their complete accounts and investments, subject to protecting their legitimate commercial interests.’

Bevan bemoans the insurers’ failure to keep basic, centrally accessible records when employers’ liability was made compulsory. This had the consequence that, years later, claimants are often unable to obtain compensation because they cannot trace their insurance - even though huge sums were collected in compulsory premiums - which he says demonstrates the industry’s lack of accountability. The ABI set up a tracing service to find employers, but Bevan says this has proved ineffective. He suggests government should ask the industry to contribute to a central fund to meet legitimate insurance claims, as it did for MIB.

Bevan adds: ‘At the moment, the laissez-faire attitude of successive governments is resulting in the tort law compensatory regime becoming less and less healthy. The insurance industry’s uniquely privileged position can only be justified if it serves our social policy requirements efficiently. The insurance industry should serve our needs and not vice versa.’

Capturing claims

Another key area of concern for claimant lawyers is the growing practice of ‘third-party capture’, or as insurers prefer to call it, ‘third-party claims assistance’. This refers to the situation where an insurer contacts an individual who has a potential claim against their policyholder, and negotiates a settlement with them directly. Claimant lawyers argue that, without independent advice, the person has no idea whether they are getting a good deal; though of course one might expect them to argue against a process that cuts them out of the picture.

Third-party capture was initially going to be regulated by the MoJ’s claims regulator when it was set up, but late in the day the Financial Services Authority concluded that it already regulated the practice, and so it was not included in the Compensation Act 2006, to avoid double-regulation. In keeping with the current trend towards industry-led solutions, the FSA then agreed to allow self-regulation of third-party capture by insurers through a voluntary code - something that claimants say is far too weak given the potential conflict of interest.

ABI spokesman Malcolm Tarling insists that the code is working and points out that the FSA has found no evidence that it is not. He adds that ‘central to the code is the proviso that claimants are made aware of their legal rights at every stage’.

Oliver adds: ‘What do the claimants themselves say - and whose agenda are the claimant lawyers fighting for? There is protection in place, and the ABI is able to produce the statistics to show that the average settled claim for non-represented claimants is higher, because there is more money for them to throw at it if they are not paying for solicitors.’

Claimant lawyers have complained that this research is self-serving and opaque, but Tarling insists that it was based on a large sample, that was made available.

ABS effect

One consequence of the ban on referral fees may be that insurers will seek to recoup lost referral income by setting up as alternative business structures, enabling them to replace their current panel arrangements with ownership of their own claimant legal arm. Spencer believes this development will need to be carefully regulated.

He says: ‘Models have emerged whereby insurers try to control all aspects of the personal injury process, and there are some significant firms of solicitors that do work for them. With referral fees, and with an ABS’s potential ownership of solicitors’ practices and the conduct of defendant claims, insurers’ activity is in every segment of the sector. So they have a very powerful position which is potentially - and I emphasise potentially - abusive, and so has to be really guarded against in terms of introducing legislation.’

But Oliver does not see any difficulty in insurers setting up their own claimant arms, with appropriate controls. He says: ‘ABSs are certainly something that insurance companies are starting to consider, as one way in which they can recover the profit in lieu of referral fees. But an insurer that becomes an ABS will be subject to regulation by the SRA; it will not lead to any lack of transparency.

‘In terms of controlling the whole claim - well, insurers do that anyway, for example through panels… But the claimant is protected by their own solicitor. If they create an ABS [the claimant arm] will be run by a solicitor whose primary task is to protect the client.’ The most high-profile area in which the insurance industry is considered to be influencing civil justice is, of course, the Jackson reforms of the funding of civil litigation. But are the changes really that much more favourable to insurers than claimants?

One of the most controversial elements is a change to the rules on who bears the legal costs in personal injury cases. The government plans to turn the status quo on its head by providing that claimants who have acted reasonably and are not too wealthy to qualify (with many arguments still to be had over how these issues are defined) will not have to pay their legal costs, even if they lose.

But when the claimant wins, their lawyer will no longer be able to recoup a success fee from the defendant, and the claimant will not be able to recover their after-the-event insurance premium. While that might sound like a balanced exchange, because claimants win in most cases, it will actually mean a huge financial boost for defendant insurers.

As Spencer puts it: ‘The Jackson report was very much what the insurers wanted. It is poignant that the ABI is saying "implement the whole of Jackson", with not a modicum of opposition to any of its facets.’ He quips: ‘If a government is getting a policy right, it is healthy that both sides should be a little upset.’

But Oliver maintains that this is the wrong way of looking at the reforms. He says: ‘The starting point should be whether the public have got what is better for them. These reforms are all about improving access to justice, speeding up resolution and taking costs out of the system. To suggest it is an insurance charter is nonsense.’

He says insurers have not, in fact, got everything they wanted.

‘What the insurer wants is less unnecessary solicitor involvement in cases where it really doesn’t need it. If insurers had their way, they would have much greater direct involvement with the claimants. Jackson is about removing wasted costs, and it will put pressure on the insurance industry for better handling of their claims.’

Tarling adds: ‘We have argued, and continue to argue, that reform is needed to ensure a more simple and cost-effective compensation system for genuine claimants and all taxpayers. While there are elements of Jackson that, taken in isolation, we might not support, we believe that taken as a whole and implemented in full, then the Jackson recommendations will benefit genuine claimants and (through lower legal costs) many insurance customers, through lower insurance premiums.’

On the ABI’s influence over government, he adds: ‘Like any other trade organisation, the ABI lobbies government on issues of interest and concern to our members. Of course we want to influence any process, which we seek to do through the persuasiveness of our arguments alone.’ Nonetheless, the insurance industry does pack a powerful punch and - to cite Jackson, portal fees, and regulation of third-party capture as possible examples - it has a habit of getting what it wants. What is behind its success?

One factor is that, whereas the claimant groups tend to be more fragmented - with the Law Society, the Motor Accident Solicitors Society, APIL and the trade unions - insurers have a single representative voice through the ABI. But there’s much more to it than that. Spencer says: ‘The ABI positions itself as a global player, and the insurance industry as incredibly important to the economy. It employs over a quarter of a million people in this country.

‘It’s hard to read the preamble to all their literature without saying, these people need to be listened to if you are a government. They play on that quite heavily - indeed sometimes you almost feel that the whole of the UK is employed by them.’

The current economic climate also makes the public receptive to the ABI’s call for a reduction in the cost of claims. After all, far more people pay motor insurance premiums - currently so high - than will actually make a claim through the system. But as Bevan puts it: ‘The insurance industry has acquired a fundamentally important and central role in our civil tort law system. It is well organised, and it has shown that it is not shy of exerting its considerable influence on government and the public.

‘There are increasing indicators that this industry has been able to shape the social policy of successive governments to suit its own interests. Something needs to be done to curb it.’

Rachel Rothwell is a freelance journalist and former Gazette news editor