British Insurers, Business Heavyweights Support UK Legal Reform Bill

A number of British retailers and business groups have joined forces with the Association of British Insurers (ABI) in support of an omnibus bill, introduced in Parliament in July. The legislation, entitled the “Legal Aid, Sentencing and Punishment of Offenders Bill, – shortened to LASPO – is currently in committee in the House of Commons, which hopes to get the measure out by mid October.

The part which interests the ABI has the potential to curtail referral fees in legal cases, as well as scaling down fixed fees and costs incident to personal injury actions. A bulletin on the ABI’s web site describes its support for LASPO as calling “for an end to ‘have a go’ compensation culture.”

However, it’s by no means certain those provisions the ABI and the business interests want will remain part of the bill, as there are a number of groups, led by the Access to Justice Action Group (AJAG) who oppose reforming current UK law, governing personal injury actions. (See following article)

The coalition in support of changing the laws is a powerful one. The ABI notes that it is making common cause with, “some of the leading high street retailers, including Argos, ASDA, Ford, and Whitbread PLC, Lloyd’s, business organizations, and risk management bodies.”

The initiative coincides with the ABI’s publication of a report “highlighting how the compensation system is failing too many genuine claimants, and the high price being paid by consumers, taxpayers and businesses.”

The coalition points out that in its collective opinion the “growth in spurious and exaggerated personal injury claims and excessive legal costs has resulted in higher costs for consumers, local authorities and the NHS [National Health Service], as well as making it harder for genuine claimants to get compensation.

“The number of personal injury claims received by insurers leapt 72 percent between 2002 and 2010. Figures show that people get more compensation, typically an extra £289, [$468] quicker if they deal with an insurer and not a lawyer.”

The ABI notes that the “UK’s broken compensation system heaps costs onto consumers, taxpayers and businesses,” which it detailed as follows:
• Higher insurance premiums for UK consumers, who pay £2.7 million [$4.353 million] a day to claimant lawyers through their motor insurance premiums.
• All taxpayers are affected through the heavy cost burden on local authorities and the NHS. In 2010/2011 alone, the NHS paid out over £257 million [$414 million] in lawyers’ fees as a result of claims.
• Higher business costs include one national supermarket whose personal injury claims costs is the equivalent of the annual turnover of five of its stores.

In support of its position the ABI also noted that “Canada, Australia, Germany and Ireland have acted to reform their compensation systems. In Ireland, the cost of motor insurance fell by 16 percent following reform, while in Germany legal fees average €300 [$423] compared to £1200 [$1935] in the UK.”

The ABI report in turn cites the following “offenses” as the most serious, and the ones needing to be curtailed:
• Aggressive activities of some claims management firms that lead to the public receiving unsolicited texts and cold calls encouraging them to claim.
• The ease by which fraudulent and exaggerated whiplash claims can be made.
• Excessive legal costs, sometimes exceeding the level of damages. Legal costs for small value claims in the UK can be up to double those elsewhere in Europe.
• The lack of any financial incentive for claimants in ensuring costs in bringing a claim are reasonable.
• The selling of personal information of potential personal injury cases (referral fees) that increase costs without adding any value.

ABI Director General Otto Thoresen commented: “Our current civil litigation system is failing too many genuine claimants – the very people it should be protecting. Compensators, such as insurers, retailers and local authorities, are committed to paying genuine claimants as quickly as possible. But too often this happens despite the system, not because of it. People can get more money quicker by claiming directly from insurers, but ambulance chasing lawyers can still manipulate the system.

‘The position is not irreversible. Other countries have taken action and we must do the same. Excessive legal costs must be reduced. The Legal Aid, Sentencing and Punishment of Offenders Bill provides a much-needed opportunity to mend our broken compensation system to ensure a better deal for genuine claimants, taxpayers, local authorities, the NHS and businesses alike’

In a separate bulletin Sean McGovern, Lloyd’s General Counsel, explained: “Insurers are committed to paying valid claims, but steps need to be taken to stop the further growth of a compensation culture in the UK.

“The costs of a litigious culture aren’t just borne by insurers but are a cost to society as a whole. We don’t want to see Britain follow the same path as the US, in which excessive litigation costs are excessive and act as a brake on enterprise and economic growth. In particular, referral fees should be banned and the recommendations of the Jackson Review should be implemented in full.”

Sources: Association of British Insurers and Lloyd’s of London