REFORMING THE COMPENSATION SYSTEM A BETTER DEAL FOR CONSUMERS October 2010
REFORMING THE COMPENSATION SYSTEM A BETTER DEAL FOR CONSUMERS 3 This is not access to justice this is incitement to litigate. And it must stop. Lord Young of Graffham, October 2010 Our personal injury system is too slow, too expensive, and fails too many genuine claimants, encouraging many people to believe that there is a compensation culture that they can exploit. Reform is urgently needed to limit unnecessary costs excessive legal costs for claimants and defendants, disproportionate litigation costs for the Government, and inflated insurance premiums for consumers. The way to do this has been identified by Lord Justice Jackson in his review of civil litigation costs and by Lord Young in his review of health and safety legislation. The problem is real and solutions have been proposed. The only task now is for the Government to implement them.
4 REFORMING THE COMPENSATION SYSTEM A BETTER DEAL FOR CONSUMERS The Problem A civil justice system that delivers 2,000 of compensation at a cost of 5,000 is, in one word, dysfunctional. It is well recognised that it is disproportionately expensive to bring a low-value compensation claim. The ABI surveyed over 50,000 low value motor accident claims from September 2009 to March 2010, and found that for every pound paid in compensation, 87p was paid in legal costs. This affects us ALL as consumers. UK consumers are paying 2.7m a day to the legal profession through their motor insurance premiums or 41 per policy. This trend is reflected in employers and public liability claims, especially in claims under 5,000 where 93 pence is paid in legal costs for every 1 recovered. Claimant lawyer costs as a percentage of damages paid in employers' and public liability claims Amount of compensation 1,000-4,999 5,000-9,999 10,000-14,999 15,000-49,999 50,000-99,999 100,000-499,999 > 500,000 7% 13% 20% 31% 45% 57% 93% Source: ABI 0% 20% 40% 60% 80% 100% We believe Lord Justice Jackson s report on civil litigation costs is a comprehensive, evidence-based and objective consideration of our compensation system as a whole. It takes a pragmatic approach to addressing issues for both claimants and defendants. In the current economic climate where government departments are looking to make considerable cost savings, Jackson offers a number of attractive solutions. There are potentially substantial cost savings for the Exchequer from implementing Jackson, notably for the NHS Litigation Authority, the Ministry of Defence and the Home Office. The ABI would like the Government to set an ambitious but realistic target of 31 December 2011 to implement Lord Justice Jackson s recommendations as a package and in full.
REFORMING THE COMPENSATION SYSTEM A BETTER DEAL FOR CONSUMERS 5 The propensity to seek compensation following injury could be affected by a number of specific factors, including the activities of claims management companies, conditional fee arrangements and the lack of financial risk to the claimant, and some insurers more proactive approach to the management of claims. It has also, as noted by Lord Young in his recent review of health and safety legislation, been affected by societal and cultural trends around awareness of rights and eagerness to seek compensation. All this [my health and safety review] is about more than just Health and Safety, important as that is. This is really about getting the economy going. This is about getting rid of unnecessary restrictions, the red tape that harms enterprise and protects no-one. It is about restoring an enterprise economy so we can pay our way in the world again. Lord Young of Graffham, October 2010 This is endorsed by the Government:...people can absolve themselves from any personal responsibility for their own actions, with the spectre of lawyers only too willing to pounce with a claim for damages on the slightest pretext. We simply cannot go on like this. The Rt Hon David Cameron MP, Prime Minister, October 2010 ABI research shows that for personal injury claims lodged in 2002, the insurance industry paid out 7bn in compensation. Current trends indicate that for personal injury claims lodged in 2009, payouts will double to an estimated 14bn. The ABI is of the view that it is important to address the issue of disproportionate legal costs and that costs are appropriate to the issues and sums involved. The ABI is a constructive and engaged partner and we are doing what we can to assist the delivery of Jackson s and Young s recommendations. Implementation of the recommendations should improve the civil litigation system for all involved. It is of vital importance that we continue to consider the questions of health and safety and compensation and recognise the close links between growing claims costs and the business and public experience of health and safety. It is also crucial to remember that insurers indemnify their customers for their civil liabilities liabilities that are determined by civil law. The costs that result from civil claims are the product of a civil justice system that does not perform as it should. Reforms to the system are urgently needed. But Jackson and Young are just the start - reform needs to go further. We would, for example, like to see an early review of the current level of Guideline Hourly Rates for lawyers in civil litigation. This would address one of the direct causes of disproportionate legal costs, especially in personal injury claims where a 30% disparity exists between claimant and defendant lawyer costs.
6 REFORMING THE COMPENSATION SYSTEM A BETTER DEAL FOR CONSUMERS The access to justice smokescreen With claimant lawyers seeking to defend the status quo of disproportionate legal costs and a dysfunctional system, they often argue that reform would inhibit claimants access to justice. There is no evidence whatsoever to support this assertion. Lord Justice Jackson states in his report: the [claimant] lawyers will recover whatever they can from the other side. Of course, this is usually without reference to the client. The first impact of any reduction in the costs recovered from a losing party would be on claimant lawyers, not upon the claimant themselves. The other argument put forward by claimant representatives is that the Jackson proposals would lead to some cases not being taken on by lawyers because the case had a lower prospect of success. If success fees, however, were not recoverable, they would still be payable by clients. If clients are paying, common sense dictates that there would be much more scrutiny of the fees being charged. A competitive market would reduce the level of success fees and the level of hourly rates. An argument that the Jackson reforms would inhibit lawyers taking on some cases is merely an argument in favour of continuing the status quo of a system characterised by perverse incentives, inefficiency and waste. The costs of this system are ultimately borne by taxpayers (through a heavy cost burden on local authorities, the NHS and government departments) and society more generally through higher insurance premiums. Campaigning to reform the compensation system is a priority for the ABI The ABI wants to see the implementation of all of Lord Justice Jackson s recommendations as a package and in full. At the heart of our proposals for reform are the interests of claimants. Insurers are lobbying for a system that delivers fair compensation and early access to rehabilitation while cutting down on legal costs that make the system too slow and expensive. The key is proper, swift and full redress where there has been harm. By implementing Jackson in full, the Government would go a long way to addressing these issues.
For more information, contact: Association of British Insurers 51 Gresham Street London EC2V 7HQ 020 7600 3333 www.abi.org.uk