1 Claims, Liabilities, Trends and Solutions: Will new Government policies be good for you? Workshop A6, Monday 15 June, Airmic Conference 2015
2 BLM EXPERTS Nick Pargeter Terry Renouf @blm_law
3 JACKSON OBJECTIVES a coherent package of interlocking reforms, designed to control costs and promote access to justice. Jackson LJ - 21 December 2009
4 PRESS COMMENT
5 900, , , , , , , , , , , , ,000 50,000 PORTAL EXTENSION & CLAIMANT BEHAVIOUR What has happened to motor premiums and claims since the LASPO Act of 2012? Insurers cut premiums by 14% after LASPO was introduced 100,000 90,000 80,000 70,000 60,000 50,000 40, ,000 10,000 0 May 10 Jul March 2013 = pre-jackson spike 2. April 2013 = spike before MoJ staged fees cut 3. July 2013 = spike before MoJ protocol extended 4. Sept 2014 = spike before whiplash reforms? Note the 136m windfall announced by Burford Capital that results from the peak of activity in March 2013 announced Law Society Gazette Sep 10 Nov 10 Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 Sep 14 The history of whiplash and its role as a driving force at the centre of the UK s compensation culture is a complex one. During the period from , the number of road traffc accidents on UK roads fell by 30%. However, safer roads and safer cars have not translated into fewer injury claims. Just the opposite: insurers witnessed a rapid increase in the number of bodily injury claims made, accompanied by an increase in the cost per claim of 73%. This has been driven, in part, by a growth in the number of people who make an injury claim stemming from a single accident. From 2007 to 2014, Aviva witnessed an 11% increase in the number of injury claims arising from a single accident. In fact, from , the number of bodily injury claims submitted to motor insurers increased by 80%. This tapered over the next two years as the Government began to address the issue of whiplash, including the banning of referral fees which encouraged claims and the introduction of LASPO. Still, from claims grew by 62% - while road traffc accidents fell by nearly one-third. Insurers, for their part, did not immediately recognise this counterintuitive set of events. From motor insurance premiums in the UK actually marginally declined. But then from , insurers were forced to implement a steep rise in insurance premiums, which grew by 80% during this three year period. However when the Government introduced changes to curb this infation in (LASPO), insurers were very quick to respond and premiums have since dropped by around 14%. However, as the number and cost of injury claims continue to climb, the premium benefts driven by the LASPO reforms are being eroded. The ABI Motor Premium Index showed that motor premiums rose in Q by 5% over the previous quarter. Compared with other European countries looked at in this study such as France and Norway, it is clear the UK is alone facing the whiplash challenge. In our study of motor insurance premiums since 2005, and in spite of the cuts in premium from , the UK has risen far more than other major European countries. But this increase in the cost of motor insurance did not result in proft taking. In fact, the direct motor insurance industry did not make an underwriting proft from 1994 until years. Few industries have ever had to endure such a prolonged period of lack of proftability. Aviva s Road to Reform 4 Between the UK motor insurance market witnessed a paradox: Road traffc accidents fell by 30% What makes the UK unique in its susceptibility to whiplash claims? Conclusions from Frontier Economics Whiplash Report Aviva commissioned a report by Frontier Economics to understand what the UK can learn from injury compensation systems abroad that would help to address the growing number of bodily injury claims and the high incidence of fraud in the UK. Aviva does not agree with the oft-stated allegation that UK motorists have the weakest necks in Europe. It is our view that the UK system has been exploited and new guidance or legislation to address the issues we highlight is needed to restore the balance and stop the have a go claim culture. As a society, the UK must now address the question at the heart of its compensation culture by learning from the experiences of other countries: do we want to continue to compensate every minor knock or bruise at the expense of ever-increasing premiums? Or should we alter our system and if so how could we do so fairly? We have already seen that increasing claims costs and frequency are directly linked to increased premiums. In fact, claims costs make up the great majority (76%) of motor insurance premiums. Worryingly, the frequency of bodily injury claims have returned to their pre-laspo levels. In 2011, prior to the introduction of LASPO, Aviva reported that third party personal injury claims accounted for 52% of its motor claims costs. As recently as April 2014 this fgure had dropped to 49%, thanks to the LASPO reforms. Yet less than one year later the increased number of bodily injury claims has pushed personal injury costs up again, which now account for 52% of Aviva s total motor claims costs. but claims for personal injury increased by 62% Aviva s Road to Reform 5 This is the proverbial writing on the wall. The reality of a claimant culture, is that insurance becomes so expensive that some people are excluded from being able to obtain it. In the case of motor insurance a legally required form of cover this could have devastating consequences for people relying on their vehicle to commute to work, or sole traders such as plumbers and electricians who rely on their vehicle as an integral part of their trade. It does not need to be like this. Not all countries have a compensation culture. This is particularly true in France, where the incidence of whiplash claims is around 3% of personal injury claims. Aviva welcomes the introduction of independent medical panels later this year. As Frontier s report shows, the most effective compensation systems focus on setting clear thresholds for compensation where the injury is proven to a set level judged by independent medical experts. This ensures that genuine claims are paid while limiting fraud and reducing or removing the fnancial incentives for third parties to unnecessarily attach themselves to a claim. Spain: has seen an increase in whiplash claims over last 10 years; no win no fee and legal fees of 10% compensation paid gives lawyers an incentive to claim, fuelling a growing compensation culture. Aviva s Road to Reform 6 Claims settled Claims data from Datamonitor; accident data from Department for Transport The average cost of a bodily injury claim increased by 73% Last year, Aviva witnessed a 21% increase in organised fraud compared to 2013, which contributed to a record number of fraudulent motor claims. Norway: most of the claims for minor injury are handled without the involvement of a solicitor. France: whiplash claims are 3% of personal injury claims Accidents Sweden: the de minimis threshold means that symptoms must appear and be assessed within 3-4 days of the accident. Germany: the number of bodily injury claims has dropped in line with the fall in road traffc accidents.
6 SURVEY 1. Do you consider that there has been an increase or a decrease in claims volumes since April 2013? Increase 52% Decrease 48%
7 SURVEY 2. Do you consider that there has been an increase or a decrease in the cost of each claim? Increase 31% Decrease 69%
8 SURVEY 3. Do you consider that the extension in the MOJ portal limit (to 25k) and claim type (to EL / PL) has been successful or unsuccessful in promoting settlement and limiting claims cost? Successful 86% Unsuccessful 14%
9 Nik Stott - Partner E: T:
10 PORTAL Claimant Behaviors Exit Exceptions Defendants strategies
11 PART36, QOCS AND FUNDAMENTAL DISHONESTY Claimant Part 36 and the courts Cashman v Mid Essex QOCS: claimant behaviours Full recovery - Fundamental dishonesty Gosling v Screwfix - Obstruction Howarth Defendant strategies
12 Nick Pargeter - Partner E: T:
13 NOISE DAMAGE CLAIMS EPIDEMIC
14 BACKGROUND Due to the reform of the civil justice system, claimant lawyers have jumped from the sinking ship of whiplash claims to the oil tanker of NIHD claims a source of more claims and profit than they could imagine The MOJ felt unable to fix costs for low value disease claims because of insufficient data The Employer s Liability MOJ Portal Protocol, which rewards insurers who make a 30 day admission of liability by fixing claimant costs is nearly wholly dysfunctional for disease claims
15 BACKGROUND The potential reservoir of claimants is very large The MRC in 2001 found that 16% of men reported more than 10 years exposure. According to the Office for National Statistics, there were about 30 million people in the UK workforce in June Applying the MRC 16% to half this figure (to roughly take account of men) yields 2.4 million men who have worked in a noisy environment.
16 BACKGROUND Policy and defence strategies The driver of the increase in NIHD claims is financial - loss of lawyers income The exceptional features of NIHD are being exploited for the economic benefit of claimant solicitors claimant solicitors are avoiding fixed costs in low value injury claims. The costs-saving objective of the Jackson reforms has been frustrated by claimant solicitors drumming-up NIHD business as the new whiplash, and generating disproportionate costs. NIHD claims are the new embodiment of the compensation culture. Claimant solicitors will attract little sympathy from politicians and public opinion (there is not the obvious sympathy that, say, asbestos claims, engender). Therefore seek aggressive strategies to reduce spend both on the legal front and the policy reform front. A typical legal solution is to identify and defend a greater proportion of claims that have no legal merit. The obvious policy reform which will require the approval of Government is to have fixed costs apply to claimant solicitors handling NIHD claims. But there a number of strategies to consider.
17 NORMAL HEARING Normal hearing is shown by a relatively flat line with up to 20dB loss over all test frequencies. Regular noise exposure at 85dB(A) LEP,d and above is considered to be potentially injurious but not everyone exposed to noise develops NIHD. Hearing loss (dbhl) Frequency (Hertz)
18 TYPICAL NIHL After 10 years of exposure to 85dB(A) for 40 hours per week about 15% of the population develop measurable NIHD. NIHD is usually bilateral and characterised by high frequency hearing loss which usually occurs first at 4kHz and then progresses into adjacent frequencies. The loss at 4kHz progresses over the first 10 years and then tends to stabilise. NIHD is usually maximal at 4kHz and so there may be a characteristic dip or notch usually at this frequency. Although NIHD is maximal at between 3 and 6kHz it probably affects all frequencies between 1 and 8kHz given sufficient dose/duration of exposure. Hearing loss (dbhl) Frequency (Hertz)
19 AGE ASSOCIATED HEARING LOSS Once exposure to noise ceases the NIHD does not progress further. Any low frequency loss below around 1kHz is generally not related to noise Age-related hearing loss starts from around age 20 and accelerates with age generally affecting all frequencies causing maximal losses above 6kHz Hearing loss (dbhl) Frequency (Hertz)
20 NIHL DIAGNOSIS In many cases diagnosis is far less obvious than these audiograms and the audiometric presence of NIHD may be obscured by age related hearing loss and/or other causes of hearing loss Many experts now follow the Coles Guidelines in determining diagnosis. (Guidelines on the diagnosis of NIHD for medicolegal purposes see Clin. Otolaryngol, 2000, 25, , R Coles et al.) This method compares an individual s hearing levels with typical audiometric data from a population cohort that has not been exposed to noise the differential is the starting point of a complex statistical analysis which diagnoses NIHD.
21 ABI CLAIM DATA Insurers have seen a % increase in NIHD claims over the last 12 months. The ABI noted 26,211 NIHD claims paid in 2013 There were around 7,500 NIHD claims notified in This figure has steadily increased with around 55,000 notifications in There were about 80,000 NIHD claims notifications in settlement data from the ABI showed that average damages paid in NIHD claims was 3,100 ( 3,900 gross damages) and average claimant costs were 10,400 6% 8% 6% 3% 5% 3% 3% 11% 14% 18% 14% 12% Less than More than 28 This marginal disability and diagnosis highlights a significant trend in recent NIHD claims; that the proportion claiming a low level of NIHD (up to 14dB) represent 55% of claims
22 REPEAT AUDIOMETRY A key strategy for identifying claims which have no merit and therefore making no payment; this relatively easy-win approach has already been adopted by many on NIHD claims Audiometry is simply the recording of the claimant s hearing levels at various noise frequencies. These recordings, plotted on an audiogram, are often the totality of the evidence upon which the diagnosis of NIHD is made, and the extent to which noise damage has affected the claimant s hearing If an audiogram is prepared by an audiologist which accords with the standards laid down by the British Society of Audiology then reliable conclusions can be made from those hearing threshold levels. However, audiometric readings performed by claimant firms are often undertaken to an exceptionally low standard by untrained staff
23 REPEAT AUDIOMETRY For this reason, many insurers demand a repeat audiogram before any payment of damages. There is no obligation on a claimant pre-litigation to be tested by a defendant s audiologist, but refusal potentially has both cash flow and costs implications for claimant solicitors BLM s NoiseAssist is a claims handling tool, developed in accordance with the Coles Guidelines. Using hybrid tables of data, the tool calculates the claimant s age associated hearing loss and subtracts this from the total hearing loss, clearly illustrating the claimant s level of noise induced hearing loss. The tool also allows the handler to compare the results with MRC data, test for limitation, and identify any non-organic hearing loss. Handlers familiar with this tool are quick to identify grounds for retesting
24 REPEAT AUDIOMETRY On 42.5% of claims, noise damage is not confirmed by a 2nd audiogram and the claim defended. Although, this scheme is at a relatively early stage, it suggests repeat audiometry is reducing the number of paid claims by up to 40% This clearly justifies a policy (with some exceptions) not to settle any NIHD claim unless there is a reputable audiogram.
25 THE CLAIMANT LAWYERS Walker Prestons Heptonstalls Roberts Jackson Leo Abse & Cohen Asons Roper James MRH Thomas Eggar Hampson Hughes Mercury Legal Irwin Mitchell Michael Lewin Wixted & Co Versus Law Thompsons Chance Hunter Zenith Eatons Joeseph Frasier Imperium Law Quindell Walker Prestons Leo Abse & Cohen Asons Quindell Heptonstalls Roberts Jackson Number of Claims Settling at Nil
26 LEGAL SOLUTIONS De Minimis Otological Norm Loss Restricted To 4khz Or 6khz Additivity of NIHD And AAHD
27 THE DYSFUNCTIONAL SYSTEM FOR NIHL Reform and adaptation of the civil justice process There are two problems: 1. The civil justice system allows claimant lawyers to be paid costs wholly disproportionate to the value of damages. The direct cost is obvious. The indirect costs is that claimant lawyers can afford to make large number of claims which have no merit. And these have to be handled. These claims are generally made out of ignorance. Good claimant firms will have a better filtering process and will have a lower proportion of claims that fail (nil claims) 2. NIHD claims often involve several insurers. The process currently in place to achieve consensus amongst insurers to enable a combined approach for settlement the claim is disproportionate to the sums at stake. The process often involves several insurers separately assessing the value of a claims when some contributions may be worth no more than a few 100s. This causes delay and enables claimant lawyers to build up costs.
28 SOLUTIONS There are four solutions 1. A voluntary handling protocol agreed with the capable claimant firms This solution involves engagement with claimant solicitors. An agreement is made with the leading claimant firms that the MOJ EL Portal stage 1 fixed fee is increased from 300 to say 1,500 (payable if an admission is made within 30 days) provided that the claimant`s solicitor supplies the defendant with a pack of agreed information at the time that the claim is submitted The pack of information would include a witness questionnaire designed by defendant solicitors/insurers; an HMRC schedule, claimant`s medical records and an audiogram. The audiogram would be obtained by an approved audiologist The stage 1 fixed fee to be a scaled depending on the number of defendants
29 SOLUTIONS The scheme will depend on a sound working relationship (i) between insurers and (ii) between insurers and claimants solicitors. A model will need to be devised which shows to claimant s solicitors that there is a net gain (or at least a similar level of profit) when the following are all taken into account: i. The loss of income as a result of more fixed fees ii. Cash flow benefits from fixed costs paid much earlier than conventional claims iii. A reduction in the expenditure of pursing fruitless claims as a result of defendants making early and lasting 30 day admissions/repudiations iv. The inevitable streamlining of the claimant lawyer market those that are outside the scheme with fall behind the market
30 SOLUTIONS 2. An insurance industry protocol for the agreement of contributions and delegating settlement authority for NIHD claims The IDCWP/ABI NIHD Handling Guidelines should help expedite interinsurer agreement on individual claims. But, there is not wholesale agreement from the run-off market and the safeguards surrounding the delegated authority still makes the process complex for the level of handler likely to be involved
31 SOLUTIONS 3 Fixed costs for NIHD claims - the most straightforward policy solution and favoured by the ABI This requires engagement from the Gov t (MOJ). Fixed costs will have to be imposed. It will require gathering data (the ABI has already initiated research) from both the claimant and defendant side. The Gov t will need to resource a consultation process. Unlike whiplash claims, there is very little political capital in the pursuit of lower claimant costs for NIHD claims It had been the intention for fixed costs to apply to disease claims. But the MOJ decided that there was insufficient data on which to base a matrix. It makes sense to attempt a fixed costs matrix for NIHD alone as there is now plenty of data available
32 SOLUTIONS 4 An MOJ EL Portal and Protocol for NIHD claims relatively straightforward for single defendant claims, but complex for the majority of NIHD which are multi-defendant Significantly claims exit the portal because the defendant doesn t have sufficient information to make an informed 30 day stage 1 liability decision. The MOJ portal protocol does not require a claimant to supply: i. the HMRC employment schedule often the only proof of employment ii. Any medical report causation is impossible to assess without this iii. Medical records to determine date of knowledge for limitation iv. Evidence of breach of duty e.g. witness questionnaire
33 A WARNING FROM HISTORY: UK ROAD ACCIDENTS & PERSONAL INJURY CLAIMS, , ,000 Numbers of incidents & traffic miles x 10 tp power 8 (source: DFT) 4,000 3,500 3,000 2,500 2,000 1,500 1, , , , , , , ,000 Numbers of personal injjury claims notified (cource:cru) , EL claims, claendar year (CRU, weighted) PL claims, claendar year (CRU weighted) Killied Seriously injured (x10) Slightly injured (x100) Traffic - vehicle miles x 108 RTA claims, calendar year (CRU, weighted)
34 ABS CHANGING CLAIMANT SECTOR PSD 7% Irwin Mitchell 6% Slater & Gordon 5% Parabis 4% Minister Law 4% Slater & Gordon 12% Irwin Mitchell 6% Parabis 4% Minister Law 4% Current Market Share Market Share Post Acquisition * *Information from Slater & Gordon internal management data. Based on share of Uk personal injury market. *Information originally published by Slater & Gordon for the Australian Stock Exchange
35 ? Any questions?