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My Lords, we welcome Amendment 164 in the name of the noble Lord, Lord Thomas of Gresford, and Amendment 164ZA in the name of my noble friend Lord Dubs. I also welcome the remarks of the noble Lord, Lord Neill of Bladen.
Amendment 164 is really about motor insurance and motor accidents. All Members of the Committee will agree that motor insurance is a social good. It is unique among financial service products in that it is not just necessary but carries with it the coercive powers of the law. As we all know, failure to insure a motor vehicle is a criminal offence with a fixed penalty of having the vehicle wheel-clamped, impounded or destroyed or facing a court prosecution and the imposition of a maximum fine.
That is all well and good and we all agree with that philosophy, but the private industry that delivers this social good is, as has already been said in this short debate, frankly deeply dysfunctional at present. That is perhaps an understatement. Its protagonist, the road traffic personal injuries sector, which comprises 75 per cent of all litigation, has developed deeply dysfunctional behaviours too. The arms race between road traffic personal injury lawyers and the insurance industry is completely dysfunctional.
The Transport Select Committee in another place has studied this twice in the past year. My right honourable friend Jack Straw has led a campaign to fix these structural issues in a market that is very flawed. We have seen the rise of an industrialised road traffic accident personal injury market, aggressively marketed as though it were a consumer good and operated a bit like a sweatshop, with non-lawyers hired at cheap rates to process hundreds of thousands of claims a year. This number is still growing at a startling rate.
Success fees, much criticised in our debates, are not to blame for the rise in the case load. We introduced an RTA portal that has operated for nearly two years. It compresses timelines, fixes costs and increases efficiency. It has done well. No less a figure than the Prime Minister commended it and wants to expand it to other areas of low-value claims. The portal has a maximum success fee of 12.5 per cent. The Association of British Insurers and Keogh and Co-well known lawyers in this field-told me and my colleagues in a recent meeting that ATE insurance is very low in this field: well below £100. However, the burden of litigation keeps increasing, despite the fact that the post-1999 regime of success fees and ATE simply does not exist in this area. Why does this happen? It is partly the result of decisions taken by the industries themselves, including the rise of aggressive marketing techniques, which we will debate shortly. The corollary to the personal injury market dysfunction has been the behaviour of the insurance industry itself, as the noble Lord, Lord Thomas of Gresford, said in his opening remarks.
The issue gives rise to the claim, believed by 83.6 per cent of the population, that we live in a compensation culture, when all the reports that have been received, including that of the noble Lord, Lord Young of Graffham, suggest that this is more of a perception than a reality. It gives a bad name to other, legitimate claims. For example, 5 per cent of claims are employers' liability claims, often made by trade unions on behalf of their members. They get a bad name because they are meant to be part of a compensation culture, but they are not; for the most part they are legitimate claims. What are not legitimate are claims that are suggested, recommended and almost forced out of people who have been involved in road traffic accidents.
The insurance industry and those who push claimants toward getting money are colluding-that is not too strong a word-in damaging each other. As the Transport Select Committee in another place found, by loading charges such as expensive car hire and body shop bills on to each other, they try to damage each other's profitability. This mutual sadism would seem almost economically rational if it did not seem so irrational in every other way. The incidence of third-party capture, which we are debating, has risen. It is a technique whereby insurers get referral data, cold-call often genuine victims and try to get them to settle early-and cheaply, as has been said. They claim that they are doing so to lock out personal injury lawyers, and certainly that is the effect. However, people who have been genuinely injured and deserve compensation are often attracted by the thought of a lump sum up-front without knowing their rights to full restitution.
We need to address this all together. No doubt we agree on the basics. I hope that the Government are seriously thinking of putting down on Report the provisions of the Private Member's Bill that my right honourable friend Jack Straw MP introduced. If they do, I suspect that they will have not only our support but that of practically the full House. The insurance industry is trapped in practices that drive up premium costs. I commend the noble Lord, Lord Thomas of Gresford, and my noble friend Lord Dubs on tabling their amendments and starting the debate in this House. The matter was discussed in the other place-perhaps not as well as it should have been-and the discussion must continue. We look forward very much to the Minister's reply.