DAC BEACHCROFT THOUGHT LEADERSHIP SERIES. RTA process Clear road ahead?

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1 DAC BEACHCROFT THOUGHT LEADERSHIP SERIES RTA process Clear road ahead?

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3 Contents Introduction 06 Executive summary 08 RTA process in figures 10 1: Road to success RTA portal shows its potential 11 Satisfied customers 11 Meeting objectives early indicators 14 Faster settlement of claims, but only time will tell 16 Lower cost to insurers, but litigation rises 18 Drop-out rate cause for concern? 19 ATE premium 20 2: Shaping strategies implications of the portal 21 Changing claims systems 21 Skill sets 23 Low A2A take-up 24 Benefits of A2A 26 Competitive edge 26 Lacking functionality 27 A2A remains goal 27 Management information 28 3: Spirit of co-operation some firms still playing the system 29 Portal improves relations 29 Little appetite for Stage 3 31 Playing the system 33 Apparent breakdown 34 Behaviour Committee 35 4: RTA portal a fraudster s charter? 37 Fraud detection rising 37 Changing fraud strategies 38 A new type of fraud? 39 Credit hire fraud 40 Portal encourages early reporting 41 5: Extending the process insurers give the green light 42 Learning curve 43 Higher-value RTA 43 Employers liability 45 Public liability 47 Anticipating change 48 Contacts

4 Introduction The introduction of the electronic portal and pre-action protocol for low value motor personal injury claims by the Ministry of Justice in April 2010 remains the single most important change to civil legal procedures in over a decade. The process is intended to control escalating legal costs and bring down the time it takes to settle the more straightforward lower-value personal injury claims. Currently it applies only to road traffic accident (RTA) claims valued at between 1,000 and 10,000, but the government may extend the scheme to higher value RTA claims, as well as casualty lines of business. The process fixes claimant solicitors fees, as well as setting a rigid timetable that gives insurers 15 working days in which to decide whether to admit liability or risk litigation. The three stage process which includes the decision on liability, agreeing compensation, and a process to settle disputes over compensation in court is effectively mandatory for those cases in the qualifying value band. Claims subject to this process must adhere to the protocol. Once in the process they can only legitimately exit if certain criteria are, or are not, met. The portal is of huge significance to our insurance client base, as it directly impacts on the vast majority of their volume motor books. But the portal s life did not begin smoothly, with insurers experiencing technical problems and behavioural issues with a small number of claimant solicitors. There has also been a relative lack of statistical management information from the RTA Portal Co, which runs the electronic portal. However, the process has now had time to bed down, and with a possible extension of the portal on the horizon, it seemed an opportune time to take stock and assess whether the process is meeting its objectives and see how insurers have reacted. In our discussions with clients we have become aware of differing approaches and claims management strategies in response to the RTA process. Clients have also had varying experiences of the portal, and have approached us for advice on RTA-related issues highlighting a number of common themes. We conducted detailed interviews in late summer of 2011 with 10 leading UK insurance companies (see opposite), including some of the largest personal and commercial motor insurers. All are ranked in the ABI s top 20 Commercial Motor Insurers of 2010 (by GWP), and 9 feature in the top 20 Private Motor insurers. The findings offer a unique insight into insurers perceptions of the portal, which we hope will stimulate and inform debate. David Pollitt Head, Financial Institutions Group Research participants Our thanks go to the following people who kindly offered their valuable time and expert insight during the research: Ageas: Antony Greensweig, Motor PI Controller; Gary Luff, Technical Claims Manager Allianz: Graham Gibson, Director, Claims Aviva: A spokesman AXA Insurance: Chris Voller, Head of Commercial Motor & Liability Claims NFU Mutual: Matthew Scott, Chief Claims Manager QBE European Operations: Tom Helm, Head of Motor Claims RBS Insurance: Geoffrey Leeks, Head of Bodily Injury, Motor Claims Zurich Insurance PLC: Chris Bowers, Motor Technical Claims Manager; Derek McCann, UK Motor Technical Claims Manager Two companies wished to remain anonymous

5 Executive summary After 18 months of operation, and despite early teething problems, the MOJ s electronic RTA portal and pre-action protocol now appear to be working well and are some way towards fulfilling their original objectives of a faster settlement of claims and lower costs. However, it is still early days and premature to judge the process is an outright success. There is plenty of scope to achieve improved outcomes, and for insurers to get more from the portal, such as better management information (MI) and lower costs. The majority of claimant solicitors have responded positively to the process and are on the whole less adversarial in their approach. The process has led many claimant solicitors to adjust their business models and focus on resolving claims as quickly and efficiently as possible. In short, the process does not support time wasting or pointless haggling. However, it would seem that there remains a number of firms intent on engaging in behaviour that could be considered to be outside the spirit in which the process was created, for example, refusing to communicate outside the portal. There are also reports that some claimant practices are aggressively issuing proceedings in claims that fall outside the portal in a bid to recoup fee income lost as a result of the RTA process. Insurers participating in the survey were generally upbeat about the portal, though the impact of the longer tail, more complex claims that remain within the process will not be known for some time yet. All identified a clear need for greater sophistication in MI for cases in the portal. The government s plans to extend the process to higher-value RTA claims, as well as other casualty lines such as employers liability and public liability clearly has the endorsement of the industry in principle. As ever, the devil will be in the detail. Under the current process, 90% of all motor personal injury claims pass through Stage 1 of the process, so extending the scheme to include road traffic claims up to 25,000, or perhaps even 50,000 is unlikely to be troublesome. The vast majority of cases between 10,000 and 50,000 in value are straight forward, with financial losses limited to claims for past loss of earnings and care and assistance. There is a strong argument for extending the process to standard employers liability claims which are, in the same way as attritional motor claims, very much process-driven. Whilst public liability claims will inevitably pose more of a challenge to insurers, there are ways and means of shaping the process so that it is fit for purpose. Frankly, there can be no justification for excluding simple slippers and trippers from a wholesale review of pre-action procedure. Initial concerns that the process increases the industry s exposure to fraud remain, although the fears of a marked increase of fraudulent claims appear not to have been realised. One reason for this might be that both the speed of notification and the increased information required at the start of the process is helping insurers identify potentially fraudulent claims much sooner. Any extension of the process whether it is to higher value claims or other casualty lines must draw on the lessons learnt from the existing rules. The process as it stands offers no route to challenge behavioural issues without removing the claim from the process altogether. The Behaviour Committee, while lacking regulatory teeth, offers one possible solution. It has already issued some guidance and could act as a conduit through which the industry can engage with the claimant community and resolve differences. The spiralling cost of personal injury claims is a critical issue for insurers and government alike. The government is to address disproportionate legal costs through its Legal Aid, Sentencing and Punishment of Offenders Bill, which implements Lord Justice Jackson s recommendations to reform the civil litigation and funding costs, including the banning of referral fees. Alongside the Bill, the government is also considering changes to the rules for fixed legal costs, which could see a welcome reduction in the fixed costs allowed through the portal. Against this backdrop, the portal has demonstrated the potential to settle mainstream personal injury claims in a timely and cost efficient manner. Extension of the process cannot be anything other than good news for insurers and claimants alike though perhaps not their lawyers. Insurers will need to improve their MI if they are to be able to formulate targeted strategies to reduce their indemnity spend and meet the challenge of increasingly savvy and technologically sophisticated claimant solicitors. This challenge may be perpetuated with the arrival of new Alternative Business Structures. Those insurers that are able to link claims management systems to the portal have a proven competitive advantage. 8 9

6 RTA process in figures Road to success RTA portal shows its potential Source 8 Number of months the NHSLA is allowing to introduce a version of the RTA online claims scheme 15 Number of days the defendant has to send its Claims Notification Form (CNF) response under Stage 1 of the protocol 132 Average claims settlement lifecycle (in days) post-protocol 294 Average claims settlement lifecycle (in days) pre-protocol 1,000 Current lower limit (in ) of the estimated value of RTA PI claims covered by the protocol NHS Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents, Ministry of Justice ABI [analysis of 58,557 motor claims of 1K 10K settled between April 2010 & July 2011] ABI [analysis of more than 50,000 motor claims of 1K 10K settled between Sept 2009 & Mar 2010] MOJ 2,097 Average legal cost (in ) per motor claim pre-protocol ABI [analysis of more than 50,000 motor claims of 1K 10K settled between Sept 2009 & Mar 2010] 3,000 Amount (in ) the NHS hopes to save per case by NHS introducing a version of the RTA online claim scheme. 4,066 Average motor claim cost (in ) pre-protocol ABI [analysis of more than 50,000 motor claims of 1K 10K settled between Sept 2009 & Mar 2010] 10,000 Current upper limit (in ) of the estimated value of RTA PI claims covered by the protocol MOJ 12,229 Average cost (in ) of a successful claim against the NHS 25,000 Current Fast Track limit and possible upper limit (in ) of the estimated value of RTA PI claims covered by the protocol National Patient Safety Agency [incidents reported May 2007 April 2010] MOJ 81,470 Annual number of employer's liability claims 2010/11 Compensation Recovery Unit [1 April March 2011] 94,872 Annual number of public liability claims 2010/11 Compensation Recovery Unit [1 April March 2011] 100,000 Maximum value (in ) of specific case types MOJ proposed to be included in a new dispute management process and fixed recoverable costs 401,757 Annual number of motor claims 2000/01 Compensation Recovery Unit [1 April March 2001] 790,999 Annual number of motor claims 2010/11 Compensation Recovery Unit [1 April March 2011] 2,900,000 Number of NHS patient safety incidents reported over 3 years National Patient Safety Agency [incidents reported May 2007 April 2010] Satisfied customers Almost all companies surveyed (90%) were broadly satisfied with the operation and outcomes of the portal and pre-action protocol in its first 18 months of existence. However, there have been glitches and the process has yet to meet its full potential. It was notable that most participants said that the RTA portal and pre-action protocol had met, or even exceeded, their initial expectations especially given the limited time for development and implementation. How satisfied are you with the way the portal is operating? 10% Not at all satisfied Very satisfied 50% 40% Not very satisfied Satisfied Extremely satisfied 10 11

7 The process reduces the time it takes to determine liability and encourages a basicoffer approach. We ultimately spend less time haggling.... We are finding that 50% of claims are settling within 6 months of the notification date which reflects greater levels of cooperation with claimant solicitors and a more efficient process for dealing with claims. However, many respondents highlighted IT teething problems and some game playing by claimant solicitors as reasons for not giving a higher score. Participants described initial problems with the application-to-application (A2A) software, updates and IT systems. They also noted issues early on with some claimant solicitors lack of preparedness and unfamiliarity with the system and protocol. The portal had what I would describe as a troubled birth but it is improving. Building a system in just four months and whilst the protocol rules were being written was never a good place to start. Teething problems in the first few months led to a slow start for the portal. Participants in the survey said that volumes of claims in the first few months were lower than would have been expected. However, issues were mostly ironed out and as claimant solicitors grew familiar with the process, volumes have risen and are now stable. Claims volumes in the portal during the first three months were lower than expected, through a combination of implementation issues on the claimant solicitors side and problems with application-to-application software. However there has since been a rapid acceleration in cases per month, and volumes have now stabilised. Matthew Scott, Chief Claims Manager, NFU Mutual I was generally satisfied with the IT, although it is far from state of the art and has minimal functionality, but in terms of the pre-action protocol, it has performed much better than expected. Derek McCann, UK Motor Technical Claims Manager, Zurich Participants were generally complimentary about the pre-action protocol. However some expressed disappointment with the behaviour of claimant solicitors and their ability to bend the rules or act in a way that was not in the spirit of the process. The behaviour of a minority of claimant firms marred the overall success of the portal for some participants. I am disappointed with some of the behaviours of a small minority of claimant solicitors in neutralising some of the intended benefits of the portal. It is frustrating that a law firm can deliberately use gaps in the portal rules. Geoffrey Leeks, Head of Bodily Injury, Motor Claims, RBS Insurance How are claims volumes at your organisation, following the introduction of the new process? 10% 60% 30% Higher Same Lower Graham Gibson, Director, Claims, Allianz 12 13

8 Meeting objectives early indicators Responses were mixed when participants were asked whether the portal had resulted in faster settlement of claims and lower legal costs. However, the majority of participating insurers said that the portal was, on balance, meeting its objectives. Has the process achieved a lower cost of settlement to insurers? Yes Several participants qualified their responses, highlighting the relative infancy of the portal. More complex and higher value claims which have a life cycle of up to three years or more have yet to work their way through the process. Most survey participants (80%) said that claims settlement times had reduced as a result of the MOJ process, with the remaining 20% saying it was too early to say. When it came to costs they were more cautious almost two thirds (60%) said that legal costs were lower under the process. This reflected concern over rising litigation for claims that fall outside the portal, as well as a general lack of adequate data and management information (MI) spanning the range of claims values. 30% 60% No 10% Too early Overall indemnity spend is slightly lower, and it comes back to the fact that the predictable costs are lower. The average saving we are seeing is around 220 per claim the fixed costs in the process are 1,200 compared with the average market cost outside the portal of 1,420. Graham Gibson, Director, Claims, Allianz This led many participants to warn against concluding prematurely that the portal and pre-action protocol had resulted in faster payment of claims and at a lower cost to insurers overall. However, they said that the portal had demonstrated the potential to achieve faster settlement of claims and lower costs, but only time will tell if this becomes reality

9 Faster settlement of claims, but only time will tell Although still early days, participants found that claims that stayed in the process were being settled faster. The pre-action protocol was said to help both parties focus on settling claims within the strict and challenging deadlines. The process, which sees claimant solicitors earn fixed fees at pre-agreed stages, was also encouraging firms to bring cases to settlement as quickly as possible. Some participants said that claimant solicitors were incentivised to resolve cases quickly in order to earn fees, and this had resulted in earlier claims notification, as well as timely production of medical reports and settlement packs. However, participants said that it would take several years to conclude settlement times were shorter, at least until a greater volume of higher-value claims had been processed. Some participants also noted that the reduction in settlement times was offset to some degree by claims stuck between Stage 1 and Stage 2. A significant number of claims failed to proceed after insurers had agreed liability and paid Stage 1 fees. Do you see cases stuck between Stage 1 and Stage 2? 10% 90% Yes No Fixed costs under the pre-action protocol were reducing the claims lifecycle, but also because solicitors now appear to be more willing and reasonable in their expectations. A spokesman, Aviva Smaller claims of up to 2,500 that stay in the process are settling quicker, but when we have three years worth of data, I suspect we may find that the overall lifecycle is not that much shorter than pre-moj. The timescales inherent in the protocols drive the expedient turnaround of claims while the cash flow from Stage 1 payments is an incentive for law firms to notify claims very quickly. Geoffrey Leeks, Head of Bodily Injury, Motor Claims, RBS Insurance Inside the portal, the process is driving the right behaviours. The incentive is now to find the middle ground and settle quickly. Claimant lawyers simply won t get paid for dragging out the process. In spite of the introduction of the Civil Procedure Rules (CPR) in 1999, costs have remained wholly disproportionate to damages in low-value attritional claims, says Peter Allchorne, National Head of Motor claims at DAC Beachcroft. Predictable costs in low-value motor claims went some way to redress that, but the spoils of standard basis costs still remained for those who pressed on to litigation. The RTA process removes that incentive

10 Lower cost to insurers, but litigation rises Drop-out rate cause for concern? The fixed cost structure and potentially faster settlement of claims were said to be driving down legal costs, at least for the more straightforward cases. However, some participants said that savings were offset by increasing litigation outside the portal. A number of participants said that they were seeing the cost of claims outside the portal rising. Speculation was that claimant firms were looking to recoup revenues lost to the portal through a more aggressive approach to claims that predated the portal or that had exited the process. For claims that are kept within the process, we have seen a reduction in lifecycle and therefore indemnity spends. However that reduction appears to have been almost eliminated with increased costs of claims that fall outside the process. A spokesman, Aviva We initially saw an overall drop in litigation at our own company, but we now seem to be seeing litigation picking up for those claims that fall outside of the portal. That could see us back to where we were before the protocols were introduced. Tom Helm, Head of Motor Claims, QBE Allchorne believes that the big players in the claimant personal injury market are inevitably working two separate business models: one designed for RTA portal claims which, as you would expect, is very lean and involves the least number of possible touch points; and the traditional costs building model for everything that falls outside of the process. The challenge for insurers, says Allchorne, is to keep as many claims as possible within the process and where they legitimately fall outside, to make an early Part 36 offer where appropriate. Participants also noted that more complex higher value claims had yet to pass through the system in significant volumes so cost trends were not yet representative of the overall picture. Until we can look at the whole three-stage process and say we ve got a fairly mature set of stats, it would not be wise to say the portal has lowered costs for insurers. My worry is that all we have seen so far is the settlement of easy cheaper claims, and therefore whilst that looks like the costs are coming down, we may not be comparing like with like at an industry level. Early indications were that as many as one third of cases that entered the portal left the process during Stage 1. Almost all the survey participants (80%) said that this was indeed the experience of their company, and most said that it was to be expected. The one-in-three drop-out rate was generally down to insurers making a conscious decision to remove a claim from the process because of a dispute over liability or an indication of potential fraud. Participants said that relatively few claims left the portal because of a failing on their part such as a missed deadline. The proportion of claims where liability was disputed by the insurer were said to be largely in line with pre-portal trends, although some participants noted an increasing number of claims leaving the process because of fraud indicators and better data. The proportion of our claims that exit the portal for an accidental reason is less than 2%. The rest is deliberate, and the vast proportion is because we have detected the potential for fraud. Graham Gibson, Director, Claims, Allianz The drop-out rate reflects a conscious decision on our part. There is usually something about the circumstances of the accident that will lead us to believe that it isn t straightforward enough to be able to make an admission of liability. Matthew Scott, Chief Claims Manager, NFU Mutual Fraud indicators and liability disputes are the main reasons we see cases leave the MOJ process at Stage 1. We are seeing the same number of liability disputes, but we now see a higher proportion with fraud indicators. Most of the reasons why a claim would leave the process at Stage 1 are legitimate the process is not all-encompassing. However, some 10% of all claims that we receive through the portal are sent to us in error, misdirected by the claimant solicitor. Matthew Scott, Chief Claims Manager, NFU Mutual 18 19

11 Shaping strategies Implications of the portal ATE premium Changing claims systems One side-effect of the portal and pre-action protocol may be lower costs for insurers through lower after-the-event (ATE) premiums insurance some claimants take out to cover legal costs should they lose a legal action. At present, ATE premiums can be recovered from the defendant. One participant in the survey said that by insurers admitting liability at an early stage in a claim, much of the risk was removed for ATE insurance removing the need for ATE insurance in many cases. The process is looking very positive from a legal costs point of view, compared with what we previously were seeing, and we have seen a very dramatic fall off in the number of claims for ATE insurance premium. Where there were a lot of cases with claims of 400 for ATE in the old regime, now we are seeing a lot of our cases come through with no ATE premium at all, or for just a 100 or so. Chris Voller, Head of Commercial Motor & Liability Claims, AXA Insurance Another participant said that ATE premium claims were still too high, given the low risk to claimants. In some cases, this was causing a delay in the settlement of claims. We are still seeing what I regard to be utterly inappropriate after-the-event insurance premiums. It is a minority, but we have got a body of cases where we are not able to fully finalise our settlement because we have not agreed to what we regard as unreasonable ATE premium of over 400. Given the admission of liability at Stage 1, the premium is just irreconcilable with the level of risk. In these cases we have paid the agreed damages and other legal costs within the required timescales, and a level of ATE premium we feel is commensurate with the risk involved. Matthew Scott, Chief Claims Manager, NFU Mutual While there have been some unfavourable reported decisions at first instance, those providers still seeking premiums in the region of 400 are few and far between. With the momentum in government for implementation of the Jackson reforms, this is unlikely to cause insurers a headache moving forwards. Inevitably a minority of ATE providers still seek to make hay while the sun shines, says Andrew Parker, Partner and Head of DAC Beachcroft s Strategic Litigation Unit. Implementation of Lord Justice Jackson s report will soon see an end to that. Most participating insurers (70%) used the introduction of the portal and pre-action protocol to update their claims handling strategies, although this ranged from a complete overhaul of processes to slight adjustments to parts of the business, such as investigations, fraud detection etc. All insurers interviewed said they were increasingly capturing early accident information from insureds. The driving force behind this is the need to reduce exposure to fraud. Generally, insurers developed their own claims strategies, with the portal and pre-action protocol being just one influencing factor. A few participating insurers set up specific teams to handle claims in the portal including teams to cover each of the three stages. However, at least one large insurer had since absorbed them back into wider claims management as part of strategic restructuring. We now have to take a more pragmatic view. For example, where historically we may have carried out investigations that have a small percentage result, the MOJ process has forced us to re-consider the way we make our liability decisions and investigations because of the fairly limited timescale for admitting liability. A spokesman, Aviva We had anticipated the MOJ developments and put together a process for all of our personal injury claims, and this by and large fitted very neatly with the portal process. No specific restructuring was required as a result of the arrival of the MOJ process

12 Skill sets A number of participants (30%) had also changed how they handled claims outside the portal. One large insurer was concerned with how claims outside the portal were developing and was looking to put in place a new process to help keep increasing costs under control. We are in the process of reviewing cases outside the MOJ process. If they have fallen outside the process the likelihood of litigation increases quite dramatically and the view is that we feel we need to be more proactive in handling these cases. A spokesman, Aviva Most firms had made changes to their claims management, although strategies were dictated by wider trends in the main, rather than a direct response to the portal. Generally, the portal and pre-action protocol was just one consideration for a wider claims strategy. We are introducing a whole new claims system and operating model as part of a far broader strategy, and as a consequence we will no longer differentiate MOJ from non-moj cases. Unlike 18 months ago, the portal is not influencing our overall strategy. Geoffrey Leeks, Head of Bodily Injury, Motor Claims, RBS Insurance We are maintaining the same proactive approach for the management of claims that fall outside the scheme. We have tried to apply the same principle of early liability decisions, and press forward to agree as many components of the claims as possible quickly. Matthew Scott, Chief Claims Manager, NFU Mutual Participants were unanimous in their views that there had been no reduction in skill at their companies as a result of the portal and pre-action protocol. None of the participants reported a reduction in staff levels, and several said that they had increased resources. Common areas for additional resource were fraud and administrative functions to manage workflow and bridge the gap between the portal and in-house claims management systems. The process does produce more standardisation, but we are not employing less skilled resource to do the work. We have carried out minor re-organisation as part of the implementation and have created MOJ specific teams that are familiar with the processes and all the potential complexities of the interpretation of the new laws. Matthew Scott, Chief Claims Manager, NFU Mutual We have restructured specifically to deal with the Stage 1 process. Nobody on that team has any personal injury claims handling experience. The skill set has changed completely. Quantum assessment is still important, but decisions now have to be made quickly. The speed at which you make the right decision is an economic, rather than technical one. You now need decision makers at an earlier stage of the claim. We have actually increased our resources our claims handlers are now handling far fewer claimants than they would have done in the past. We want to maximise the skill and resource aligned to a claim it will cost more operationally but it will save on indemnity spend. Geoffrey Leeks, Head of Bodily Injury, Motor Claims, RBS Insurance All insurers confirmed an increase in training, but this was limited to the workings of the RTA portal and process. We established new MOJ teams and processes as well as intensive training some 16,000 hours of training in preparation for the technical elements and the MOJ process. Chris Bowers, Motor Technical Claims Manager, Zurich Most participants in the survey said that the portal and pre-action protocol did not require new skills, although a couple of insurers highlighted the need for strong negotiation and telephone skills. We have the same claims team with the same skills profile. The workflow and timeline has changed, but it is still the same skills from a technical point of view a decision on liability, valuing damages, negotiating the settlement those are still the same. Chris Voller, Head of Commercial Motor & Liability Claims, AXA Insurance 22 23

13 Low A2A take-up There are two methods of accessing the portal through a secure web-browser or using applicationto-application (A2A) software. Despite the promise of greater efficiency and accuracy, as well as access to MI, few insurers have opted for A2A. Many participants that chose not to invest in A2A said they had wanted to wait to see how the portal and pre-action protocol panned out. They also noted the considerable cost of investing in A2A, both in terms of funds and IT resources. Has your organisation embraced A2A software? If not, does your organisation expect to introduce it in the future? 20% 80% 20% 30% Yes No N/A No We decided not to embrace A2A on day one because the portal system was still being built as the rules were going live. But we are aiming for a much more efficient process. At the moment we do everything twice we take the information from the portal and move it onto our system, make a decision and then manually move it onto the portal. Graham Gibson, Director, Claims, Allianz We knew there had been some wrinkles in the technology, so we thought we would be better off running it separately to start with. So if there are any major changes in the system we don t have to make a load of system changes ourselves. Chris Voller, Head of Commercial Motor & Liability Claims, AXA Insurance 50% Yes If not, does it remain a future possibility? N/A 50% 50% No Yes 24 25

14 Benefits of A2A Competitive edge Lacking functionality A2A remains goal A2A enables the claims management and workflow systems of insurers and claimant law firms to communicate directly through the portal, allowing them to organise and monitor the progress of claims in the portal, as well as gather MI. By contrast, the MOJ s web browser is limited to delivering messages, with no data repository, audit or MI functions. The portal was not given sufficient time to develop, so it is far from easy to navigate and it doesn t have any search functionality. It just does not replicate my idea of a modern day internet portal. Tom Helm, Head of Motor Claims, QBE The portal works just like a post box. Once you have gone to the post box and collected the mail, it is gone from the system, so you can t go back to the portal a few weeks later and expect to find the document or an audit trail. Only two insurers participating in the survey opted for A2A software from the outset. Both firms said they were pleased with the benefits of A2A, noting the competitive advantages of better workflow management and MI. One firm believed, given the large size of its motor portfolio, it would have struggled to cope without A2A. We think that adopting A2A at the start was competitive advantage. It has given us better management information and the functionality has given us a more efficient process with greater accuracy. We could not have operated without A2A it would have severely impacted our ability to function. It has reduced duplicative keying and data entry and we have got better management information there are huge benefits from the availability of the MI on our case management system. Geoffrey Leeks, Head of Bodily Injury, Motor Claims, RBS Insurance Participants that used the MOJ web-browser expressed disappointment at the lack of functionality, which in some instances led to inaccuracies, missed deadlines, and therefore additional costs. Several insurers said that they had had to resource administrative functions to allocate and track claims from the portal. I know from bitter talks with handlers that the portal was time consuming it was slow and caused a lot of mistakes. It caused us to miss deadlines. We only missed 1% of claims in terms of responding, but in a non-a2a environment that probably would be 3-4% higher. Other insurers that decided not to use the A2A functionality would probably regret that decision. However, most of the insurers that did not pursue the A2A route did invest in bolt-on IT systems to interact with the portal namely to aid workflow, track claims and gather some MI. Even with such adaptations to in-house claims management systems, none of the participating insurers said they had closed the door on the future adoption of A2A software. Some 30% of insurers that had not already done so, said that they were looking to use A2A in the near future. The remainder of participants said that they were waiting for the portal and IT updates to settle down, as well as intending to carry out cost benefit analysis. A2A would reduce the amount of re-keying and it will help us with our management information. It makes the collection of data a lot more robust and less time consuming because it is automated, as opposed to having been mainly captured on a spreadsheet. Chris Voller, Head of Commercial Motor & Liability Claims, AXA Insurance We are undecided and are waiting for the process to settle down, when we will look to see if it is cost effective. We have coped well without it so far and we made changes to our own system

15 Management information Spirit of co-operation Some firms still playing the system Understandably, the market was waiting with bated breath for the release of statistical MI from the RTA Portal Co about the performance of the new process: that MI has never materialised, and insurers have only had their own, often limited MI to work with. Insurers with better MI should have a competitive advantage over their peers, suggests Allchorne, and will be better equipped to deal with claimant solicitors. The portal is an effective conduit through which to communicate, but it is basic and without bells and whistles. Only by investing in a bolt-on system or A2A software will insurers realise the full benefit of the process the eradication of duplicate keying will provide operational efficiency savings, and better data analytics will provide a strategic advantage. The limited functionality of the portal and the general lack of management information has been a real disappointment. However, progress has been made, and we now have a massive opportunity to take it forward and build from this position. To get a really high-quality portal that is very user-friendly and produces management information, we would need to address that as a market or invest in application-to-application software as an individual firm which we are currently considering at the moment. Tom Helm, Head of Motor Claims, QBE I can tell you everything about every single claim we have had because we ve have the MI built into our system. It is ours and we control it, and it is a big advantage for us we ve got all that information. Some solicitors are known to be using management information gathered from their claims management systems to tailor their strategies and offers to specific insurers. Some of the participants noted that some claimant solicitors were already using intelligent MI to approach different insurers with different strategies. The big firms with large volumes the savvy ones are using better analysis in how they make offers. They will be looking at it and working out how to get the best out of different insurers based on the evidence they have got on how those cases have progressed. Some claimant lawyers can monitor how many offers each insurer makes on the claim notified on the portal and that would vary from 0.2 to 3.4. So for every claim notified some insurers are clearly accepting the offer put in by the lawyers, others are arguing 3 or 4 times before it gets resolved. I think the lawyers will use that information for their advantage. Chris Voller, Head of Commercial Motor & Liability Claims, AXA Insurance Portal improves relations Most participants in the survey said that the portal had generally led to a better working relationship between claimant solicitors and insurers, with 70% seeing greater levels of co-operation. However, most (80%) said that co-operation was only slightly better or the same as pre-portal. There were few specific examples of greater cooperation, although some participants suggested that initial problems with the portal, plus the creation of the Behaviour Committee, have brought the two sides closer together. At a strategic level there has been a lot more co-operation between insurers and claimant solicitors, especially for those using A2A software from day one. Teething problems with the portal provided a common focus that helped form a few good relationships with claimant firms. As those problems have ironed themselves out I have had less contact but I still would be comfortable picking up the phone to sort out issues. The interaction between claimants and defendants who jointly administer the portal is now significantly better than it has been historically. We have had to work as one and get agreement on some pretty tricky subjects, and we have had to forget about our own stakeholders and do what is right for the portal. Graham Gibson, Director, Claims, Allianz While we did not initially go for A2A, we did add front end systems to pick up the portal deficiencies in management information and claims tracking. The lack of management information from the portal was a real disappointment for us. Derek McCann, UK Motor Technical Claims Manager, Zurich 28 29

16 Little appetite for Stage 3 Over time we would expect costs to be lower, mainly because the process lends itself to less interaction between the parties to get a claim settled. It is the interactions that really add to the costs from an expense point of view. Chris Voller, Head of Commercial Motor & Liability Claims, AXA Insurance There is some evidence of more co-operation. For example, where a claim falls out of the scheme because of contributory negligence, some claimant lawyers will rush to litigation. But with some others we have managed to keep the consensual dialogue going to produce an effective settlement in the predictive costs regime rather than just going back into our adversarial trenches. Matthew Scott, Chief Claims Manager, NFU Mutual Participants also noted that the portal and preaction protocol, by their nature, were encouraging a less adversarial approach. In particular, it seems that both parties have a shared interest in resolving claims as quickly and efficiently as possible, without resorting to litigation. Those that have embraced the process have changed their strategy and now focus on volume and turnover rather than on the litigation. But not all firms have changed their spots and continue to litigate. As the process beds down, so claimant solicitors will increasingly look to find ways of stripping back their processes to increase margins as against the fixed fees available. The likely reduction in portal fees will only accelerate this trend. This won t impact directly upon the issue of co-operation, but is likely to reduce communication outside of the portal. The volume of cases proceeding to Stage 3 (litigation) is much lower than anticipated. Whether or not this will change as both claimant solicitors and insurers build up more MI remains to be seen, but this seems unlikely, particularly if fixed costs within the process are reduced. One has to ask the question, is it worth the effort in proceeding to litigation for the sake of a couple of hundred pounds in damages? says Allchorne. From the claimant s point of view the answer has always been no. But until now it s not been about the claimant s damages, but rather his solicitor s costs. MOJ quite rightly puts the claimant back at the heart of the process. The majority of participants (70%) said that they had noticed a shift in claimant solicitors strategies as a result of the introduction of the portal and preaction protocol. For simple low-value claims, most claimant solicitors had embraced the portal and pre-action protocol. In particular, business models at most firms are now focussing on generating revenues from fees earned from the process, which lends itself to a speedy resolution of claims within Stage 2, and without the need to litigate at Stage 3 From a claimant solicitor s perspective, the last thing you want to do is get embroiled in a complex court case for this type of work. It is better to get a quick decision on liability, get it settled, get your fee, and move on to the next one. Graham Gibson, Director, Claims, Allianz The settlement pack creates a cards on the table approach rather than the old horse-trading scenario. That has created a more open approach. In our view, it all comes down to cost. There is no mileage in claimant solicitors dragging things out. A spokesman, Aviva We are not seeing the volume of litigation (Stage 3) that we saw pre-moj. We are better able to determine the right value and offer the right amount so that solicitors not choosing to litigate. There is also less incentive to litigate because the returns that can be had are so much smaller. Geoffrey Leeks, Head of Bodily Injury, Motor Claims, RBS Insurance 30 31

17 However, a small, but substantial number were not always acting within the spirit of the portal, and were playing the system to their advantage. Some participants also noted that some firms continue to pursue litigation aggressively. There was an improvement in behaviour in the early stages with firms that had previously been adversarial, but we now see a few solicitors refusing to negotiate or communicate over the telephone. Derek McCann, UK Motor Technical Claims Manager, Zurich We were in the honeymoon period where solicitors had been getting to grips with the process and with the rules. Most firms have embraced the rules but some, though less than before, continue to act out with the spirit of the new process. For cases that stay in the MOJ process, claimant solicitors are amenable to what would appear to be a reasonable settlement in a fairly quick timescale. But if it s outside of the process it appears to adopt a more aggressive attitude. A spokesman, Aviva Playing the system Almost all participants (80%) had experienced game playing or unco-operative behaviour by claimant solicitors, but this was said to have been in the minority of cases. However, the activities of some claimant firms and apparent loop-holes in the system were a problem for some insurers. Common problems were a refusal by some claimant solicitors to communicate outside the portal and the unauthorised or duplicate submission of claims. Also of concern, participants are seeing some firms looking to push claims out of the process and into litigation. I do see inefficiency and a general lack of proactivity, although most claimant lawyers are not doing anything consciously to play the system. But there is an unfortunate significant minority who are. And they are at risk of corrupting the perception of the scheme for the majority. I am concerned that some claimant lawyers are just focused on acquiring the Stage 1 fee and are not looking after their clients or indeed following the scheme by pressing on to get the case resolved. Matthew Scott, Chief Claims Manager, NFU Mutual There are a few claimant firms out there who have decided not to communicate outside the portal, possibly because they believe they may be getting a better cost result. The MOJ process is designed to be nonadversarial, but we continue to have daily battles with some of the same firms as before. We will pick up the phone and talk about a claim and try to get it, but a lot of solicitors won t do that. They say you have to talk to us through the portal and they use that as a push back. There are always exceptions. There is one firm that we deal with that insists on sending claims forms by fax. This is certainly not what was intended and it s hard to understand why they would want to deviate from the agreed process on something like this. Chris Voller, Head of Commercial Motor & Liability Claims, AXA Insurance We have seen more than one solicitor become involved a sort of feeding frenzy. There are so many people trying to capture the claimant that the claimant ends up being captured a couple of times and we end up with one or more solicitors purporting to represent the claimant. Graham Gibson, Director, Claims, Allianz 32 33

18 Apparent breakdown Behaviour Committee Almost all participants in the survey (90%) said that a significant number of claims in the portal were getting stuck between Stages 1 and 2. It is said that in a substantial number of cases claimant solicitors are taking the 400 Stage 1 fee, but those cases are not showing any progress six months or even one year later. The exact cause of the breakdown in the process is not known, although participants said there were possible legitimate reasons, such as waiting for medical reports. Participants also expressed suspicions that some solicitors may deliberately submit speculative claims to get the 400 Stage 1 fee with little intention of pursuing the claim further in what is known as the 400 club. Several participants said that they are monitoring claims stuck between Stage 1 and 2, and several were considering whether to take action, such as asking for the fee to be returned. There are claims which are in between Stage 1 and 2, but they are there legitimately in accordance with the rules, whether we like it or not. The evidence that solicitors get in at Stage 1 and deliberately go no further is not really there. We have got cases on our books that are one year old, which is a reasonable time to expect them to progress to Stage 2. We will start to go back to the firms that haven t progressed to Stage 2 and say we haven t got any instructions so we want our 400 back please. Chris Voller, Head of Commercial Motor & Liability Claims, AXA Insurance We are tracking claims stuck between Stages 1 and 2 and look for trends. It has always been a concern that we commit to pay a 400 fee up front, but then the claim is not followed through. The volume is material, so we are watching the situation very closely. There is no mechanism within the process itself to address behavioural issues or settle disputes. However, the RTA Portal Company, the collaboration of representatives from the insurance and legal industries that oversee the portal, launched a Behaviour Committee to provide guidance and mediate in instances where the portal is being used inappropriately. The Committee has no true regulatory powers and its guidance is non-binding, although the Committee can refer issues to relevant regulators, including the Solicitors Regulation Authority (SRA) and the Financial Services Authority (FSA). It also has the option to name and shame companies. The Committee does not have any power, but it will publish guidance. It is hoped that the Solicitors Regulation Authority or the relevant regulator will pay attention to its view. Graham Gibson, Director, Claims, Allianz and member of the Behaviour Committee The objective of the Behaviour Committee is to assist, in a non-partisan way, in the resolution of behavioural issues arising from the use of the portal. The Committee, which is comprised of claimant and compensator representation, meets on a monthly basis to review behavioural issues. At its own discretion, it will issue guidance on what it considers the appropriate behaviour for users. All participating insurers say that they were aware of the Committee, but few had any first-hand experience of the body, which was piloted from March to April 2011 and has since gone live. The Behaviour Committee is a formal mechanism to resolve behavioural issues, or at least understand why these things are happening. If nothing else it will out firms in public that are not doing the right thing and bring pressure to bear. Chris Voller, Head of Commercial Motor & Liability Claims, AXA Insurance Tom Helm, Head of Motor Claims, QBE To what extent the 400 club is just an urban myth remains to be seen, says Parker. If it is, the perception is still damaging to the credibility of the process. In the event that it is not, then insurers need to devise strategies to combat such behaviour. Allchorne says, Either way, cogent MI is a prerequisite to resolving the problem

19 RTA portal A fraudster s charter? Fraud detection rising Most participants welcomed a mechanism to settle disputes and provide some clarity to interpreting the rules. The Committee could act as a conduit to raise awareness and propose solutions that regulators such as the SRA could take forward. According to Graham Gibson, Director, Claims at Allianz, and a member of the Behaviour Committee, the two issues that have occupied the Behaviour Committee in its first months were submissions of claims for the same injury from multiple claimant representatives, and insurers contacting claimants directly. It is very apparent that the feeding frenzy of referrals and third-party capture (the concept of trying to get to the claimant first) initially led to instances of solicitors jumping the gun and acting without proper instructions. This led to duplicate claims through the portal. In October the Behaviour Committee published guidance on these, and other, areas. On the issue of insurers directly contacting claimants already represented by solicitors, the Behaviour Committee said it will raise the matter with the appropriate authorities and regulators, including the FSA and the Information Commissioner s Office, unless assurance is received that such activity will cease. The Committee also said that it will consider other actions, such as naming companies. On the issue of multiple solicitors submitting a Claim Notification Form (CNF) via the portal for the same injury, the Committee said that the solicitor who believes that the single contact rests with them should complain to their regulator, as well as seek to resolve the issue with the other solicitor claiming to act. It also said that RTA Portal Co has raised this behaviour with the regulators and the Ministry of Justice, as well as considering other ways to eradicate this problem, which is occurring far too often. According to Gibson the Behaviour Committee has also considered the phenomenon of the so-called 400 club. The Committee has not seen any real evidence that claimant firms were deliberately taking the Stage 1 fee and not pursuing the claim, he says. The majority of participating insurers (70%) said that they were, in general, detecting more fraudulent claims. However, most thought this was as much a reflection of wider trends as a result of the portal, although some suggested that while the portal potentially increases insurers exposure to fraud, it was also helping identify it earlier. What we have seen is a huge increase in fraud claims passed to the fraud team have risen from 7% to 15% and 80% of that 15% immediately walk away at the first serious challenge. Graham Gibson, Director, Claims, Allianz We have been detecting more fraud, but that reflects our improved processes and we can t say if the MOJ process has affected volumes. Geoffrey Leeks, Head of Bodily Injury, Motor Claims, RBS Insurance We already had a good fraud strategy, but the MOJ process highlights potential cases early. We look at fraud indicators from day one, and our management information allows us to be smarter about the claims we query. Derek McCann, UK Motor Technical Claims Manager, Zurich However, according to Lorraine Carolan, Partner and National Head of Claims Validation at DAC Beachcroft, early indications do suggest that the improved Claim Notification Form (CNF) does have a limited benefit in case validation, although the quality and accuracy of CNF completion is patchy at best. We have also seen a mixed reaction to CNFs by the judiciary with many viewing inaccuracies and inconsistencies in the claimant s favour rather than applying an adverse inference

20 Changing fraud strategies A new type of fraud? Most insurers (70%) participating in the survey believe that the sector s exposure to fraud had increased as a result of the portal and pre-action protocol. However, only 20% thought the increased exposure was significant, while the remainder felt it was either the same or only slightly increased. Under the pre-action protocol, insurers have just 15 days to make a decision on liability, which some argue is not enough time to detect some fraud. However, some insurers noted that adequate detection processes and systems should offset an increased exposure to fraud. I don t believe that having less time to investigate liability which is all that s happened has increased our exposure to fraud. It is the same. It just depends whether you are any good at spotting it or not. There is no doubt that the need to make early decisions on liability leads to reduced front-end investigations, according to Carolan, and the risk that fraud leakage will increase. This has not stopped cases from falling out of the portal postadmission, but impacts significantly on the ability to maintain a defence and on overall litigation costs. In reality, however, it is too early to truly assess the impact on fraud capture. Tactically a large percentage of fraud claims are intimated late in an attempt to prejudice meaningful investigations. As such it will take at least three years of comparison data to assess the true effect on fraud. Although the majority of participants said that the portal had increased exposure, only 50% said that they had adjusted their fraud strategy in light of the RTA process. Changes included increased resource, training, as well as work on low impact accidents, investigations and fraud screening. We have changed the triage criteria that we use in new cases and we ve invested more in data analytics to try and identify patterns of fraud involving similar parties. Matthew Scott, Chief Claims Manager, NFU Mutual We have certainly upped our game in terms of training and working with our suppliers to tease out those cases that we want to investigate further such as low-speed-vehicle-impact claims. Tom Helm, Head of Motor Claims, QBE Fraud is such a significant and growing problem for insurers, it appears that the RTA process is just one of many considerations for insurers fraud strategies. We have adjusted our approach to fraud to a degree, but we probably would have done that anyway had it not been for the portal. Chris Voller, Head of Commercial Motor & Liability Claims, AXA Insurance We already had a rigorous strategy in place, so we haven t specifically gone out and designed an anti-fraud process for the MOJ process. Carolan also has a very real concern that the ability to attract fees purely through the acceptance of a case into the portal removes from claimant solicitors the duty to validate their own cases and may result in wholly contrived cases being intimated just to attract Stage 1 fees. Once liability is denied the claim disappears because they either had no intention of litigating or the third party does not exist, she says. Coupled with minimal regulation of alternative business models we run the risk that a new type of fraud will be born stemming from contrived intimation of cases. The portal is also an easy opportunity for fraudsters to push more induced accidents through on the face of it there appears to be a rear end shunt with 100% liability. It takes a clued up insurer or policyholder/broker to pick up on this early enough to take the decision to investigate further within the relevant timescale or let the matter drop out of the portal scheme. The proposed extension of the process to include employers and public liability (EL/PL) insurance reinforces the need for insurers to adopt robust anti-fraud strategies outside of the motor arena. We have definitely seen a migration from motor towards casualty business from a fraud perspective as insurers have become very capable around motor fraud. Especially around PL, it is sometimes very difficult to know where the incident actually took place and what actually happened. Graham Gibson, Director, Claims, Allianz 38 39