My Lords, this is a step back from the legal intricacies of the Bill to reflect on a wider issue. The problem that the Government identify is the high number and cost of RTA whiplash claims. Their policy objective and intended effect are to disincentivise minor exaggerated and fraudulent claims—that is, to bear down on costs by reducing compensation levels for all, and requiring medical evidence before claims are settled. The impact assessment records that the volume of RTA-related PI claims has remained fairly static over the last three years, with rising volumes of traffic, meaning that there are proportionately fewer fatal or serious accidents. It attributes this in part to improvement in vehicle design—for example, integrated seats and headrests. Yet the Department for Transport recorded, for the year ended September 2017, 27,000 killed or seriously injured, with 174,000 casualties of all severities.
Although there was a decrease in settled claims, attributable in part to LASPO reforms, financially settled soft tissue claims for that year totalled some 520,000, whether they were from whiplash or as a result of other road traffic accidents. What seems to be missing in this debate is any form of focus on a wider prevention agenda. It should be about not only reducing costs but avoiding the pain and suffering and sometimes life-changing injuries in the first place. Why are we not raging against the scale of all this, as well as chipping away at monetary compensation levels?
I should point out at this juncture my interest, set out in the register, as president of RoSPA, the safety charity, and am grateful to it for the information it provided. I shall instance just two developments which have the potential to make a difference. In-vehicle monitoring—telematics—is increasingly available in the UK. As noble Lords may be aware, these systems essentially monitor how, when and where a vehicle is driven. The system can provide in-vehicle alerts if pre-set parameters are exceeded. There are obvious benefits for crash reduction circumstances. At present, it is understood that take-up of a variety of different systems is ad hoc and the catalyst, particularly for younger drivers, is reduced insurance premiums. Would not a comprehensive national take-up campaign have a beneficial effect on the real reduction of whiplash, reducing not only costs but the actual medical effects and suffering?
It is understood that next week the European Commission will propose new regulations that will focus on the mandatory fitting of autonomous emergency breaking systems. It has been estimated by the EU new car assessment programme that AEB can prevent up to 38% of rear-end crashes and avoid 1,100 fatalities and 120,000 casualties over the next 10 years. Currently, about 21% of new cars fit AEB as standard. I hesitate to move into issues of the European Commission, but will the Government support those regulations, both before and after Brexit, if that is where we end up?
I am aware that this amendment may be seen as a bit away from the mainstream before us today, but I hold to my point that concerns over levels of compensation for whiplash should be about prevention as much as about having a fair and robust system of compensation. I beg to move.
I thank the noble Lord for his contribution to the debate and I acknowledge the importance of looking more widely at issues such as road safety in the context of addressing the very issue that this Bill is intended to deal with.
On the question of the European Union regulations, in so far as they have direct effect before exit day, they will form part of retained EU law, and in so far as they do not have direct effect by that date, they will not form part of retained EU law. Going forward, it will be for our domestic legislatures to consider the appropriate steps to take with regard to such measures, and of course they will be conscious of developments in other jurisdictions when addressing that point. I am sorry to revert to an earlier Bill and its progress through this House, but I thought that I ought to address that point directly.
We recognise that the definition of whiplash injury is complex and that there is a need to reconcile the current legal understanding with an accurate medical definition that covers both injuries and symptoms. That is why we developed the definition of a whiplash injury, and the wider reform proposals, with extensive input from expert stakeholders, including medical experts, in order that we could come to a view about the appropriate definition for these purposes. In developing the whiplash reforms, we have considered the impact of improvements in vehicle safety. Indeed, developments in vehicle safety have been one of the features of the analysis and impact assessment that have been carried out. As the Government have mentioned on several occasions, it is surprising that the number of whiplash claims continues to be so high despite the significant improvements in vehicle safety over recent years, including the development of safe seats and head restraints which have had such a material bearing on safety in road traffic cases.
The amendment would enable the Government to take account of advances in vehicle safety and driving techniques when revising the definition in regulations. The noble Lord did not go so far as to incorporate the possibility of increasing numbers of driverless vehicles—but, looking further ahead, that is an additional development that we may have to take into consideration. It is crucial that we retain the ability to continue to amend the definition of whiplash in order to reflect all these developments, some of which may come along far more rapidly than we presently anticipate. That is why in the first instance we propose that the definition should be set out in regulations that can be amended and, in any event, allowing for the suggestion that there should be a more extensive definition in the Bill, it would be essential that there should be the means to amend that definition rapidly in response to changing conditions, and to do so by way of regulations.
When addressing changes in the definition, the Government would wish to take account of all relevant information, including that pertaining to matters of road safety, vehicle development and safety development—but we are not persuaded that this needs to be in the Bill as it is something that the Government would routinely do when addressing changes to the definition. I am persuaded that being able to amend the definition through regulations is an appropriate and sensible way forward, and I hope that that will give the noble Lord at least some comfort that the issues he raises will not be ignored going forward—and, indeed, could be accommodated by the present provisions of the Bill. I hope the noble Lord will consider it appropriate to withdraw his amendment.
My Lords, I am grateful to the Minister for a very comprehensive reply. I should say that looking to deal with the definition in the amendment was pretty much a peg on which to raise the issue that I did. The Minister prompted me on driverless vehicles. As it happens, I had half an ear to the television set in my office yesterday when I was drafting some of this, so I caught up on that debate. It certainly should feature in the future.
There is a broader issue here—I accept it is not for this Bill—about whether we could make a dramatic improvement to some of the casualty numbers by a comprehensive effort, particularly around some of the black box technologies. The insurance companies bear some of the costs of that at the moment. It may be that they should be asked to do more. What I am looking for here is a thorough, comprehensive focus. If we had the same intensity of focus on dealing with road traffic accidents that we have—dare I say?—on Europe, we might have made a real difference already. Having said that, I am grateful to the Minister for his response and beg leave to withdraw the amendment.
Amendment 6 withdrawn.
Amendment 7 not moved.
Clause 1 agreed.
Clause 2: Damages for whiplash injuries
Amendments 8 to 10 not moved.
Moved by Lord Sharkey
11: Clause 2, page 2, line 35, leave out from “amount” to end of line 13 on page 3 and insert “determined in accordance with the 14th edition of the Judicial College Guidelines for the Assessment of General Damages in Personal Injury Cases or any subsequent revision to these guidelines.”
My Lords, the long string of amendments in my name and that of my noble friend Lord Marks has a very simple purpose: to enable us to debate the proposed tariff and, in particular, two different types of tariff. The first, essentially contained in Amendment 11, is a tariff based on the Judicial College Guidelines. The second is a fixed, specified and structured tariff. This is essentially contained in Amendment 96, where the amounts are place-holders based on the average of awards actually made. Before I discuss either of these variations, I should again mention the Delegated Powers Committee recommendation that,
“it would be an inappropriate delegation of power for damages for whiplash injury to be set in a tariff made by Ministerial regulations rather than on the face of the Bill”, and that the tariff,
“should be set out on the face of the Bill, albeit amendable by affirmative statutory instrument”.
“We consider that being able to regulate the tariff by the affirmative procedure is a more flexible way of being able to respond to changes”.—[Official Report, 24/4/18; col. 1531.]
That is precisely what the DPRRC proposed should happen after first setting out the tariff in the Bill. I hope that when the Minister responds, he will give a fuller answer as to why he believes that the tariff should not be in the Bill but should be fixed by an unamendable statutory instrument.
I turn to the question of the tariff itself. Should damages remain determined by application of the Judicial College Guidelines, or should they be fixed amounts? If fixed amounts, what should those be? These questions go to the heart of the matter. If we stay with the Judicial College Guidelines, the system would be relatively unchanged, although we could reduce awards for injuries of less than three months’ duration if, for example, we thought that that was where fraudulent claims were concentrated. If we move away from the Judicial College Guidelines to the example tariff contained in the impact assessment or to the tariff published yesterday by the Government, there will be very profound changes. The tariff published yesterday is even lower—by about 4.7%—than the example tariff on page 26 of the impact assessment. It would be interesting to know how these tariff levels were arrived at and what objectives were used in deriving them. For example, was there a target reduction in the cost of total damages awarded? If so, on what basis was this target chosen? Can the Minister explain the basis of the construction of the tariff amounts and tell us whether there was indeed a target for overall damage reduction?
Whatever method was used to devise the Government’s proposed tariff levels, in either the example tariff or yesterday’s tariff, both would have a very large effect. These new tariffs would transfer £1 billion away from claimants, via insurers, wholly or partially to motorists in the form of reduced premiums. That is a very large transfer. It is made up of £240 million in claims that would no longer proceed under the new tariff—assumed to be around 133,000—£550 million because of the reduced awards for every successful claimant, and £190 million from insurers no longer picking up legal fees and VAT. On the way, and as a consequence of this transfer, the general taxpayer would be hit for £140 million by reduced revenue from IPT and some loss of revenue to the NHS. If the Government’s tariff levels are applied, there will be, they calculate, a lot fewer claimants and, it is to be hoped, fewer fraudulent claimants, deterred as they might be by the banning of no-med settlements and very low tariff awards. This means that those successful claimants remaining will carry the burden of this transfer. Claimants will be £1 billion worse off; motorists will be £1 billion better off. What is the Government’s justification for such a massive transfer of funds? There are two questions to answer. First, what is the evidence base that justifies any transfer? Secondly, why this amount? Why such a very large reduction in amounts awarded to claimants? Why not a smaller reduction—or, for that matter, a larger one? What is the justification for this level of transfer?
In the impact assessment and in the Minister’s speeches at Second Reading, it was clear that some care had been taken to avoid using fraudulent claims as the main reason for the proposed changes. However, I note that today the Minister seems clear that this is in fact the main driver. As we noted at Second Reading, claims about the incidence of fraud are highly contested. Is there in fact a reasonable and properly evidenced consensus about the extent or cost of fraudulent or exaggerated claims? I worry that there is not.
There are certainly competing claims from all the many vested interests involved, including the insurance industry, but no independent assessment to help us reach an evidenced view. The Government more or less recognised this when they set out in the impact assessment the principal justifications for the proposed changes. They were all economic and based on a need they saw to correct three alleged market failures. The first failure—if you can really call it that—was asymmetric information. Only a victim could really know the extent and duration of the pain and suffering caused by whiplash, and the Government see this as an incentive to fraudulent or exaggerated claims. So it may be, but we do not seem to know how many or to what extent. But punishing all genuine whiplash claimants by hugely reducing their awards is surely not a reasonable remedy. Why punish these people and reward motorists for an unquantifiable, or at least unquantified, number of fraudulent or exaggerated claims?
The second market failure is alleged to be that of perverse incentives. This refers to legal fees. The Government claim that if legal fees were not recoverable or were less recoverable, this would bring down the number of claims. So it might, but would this be reasonable? In any case, this alleged saving is by no means the major element in the transfer of funds away from claimants.
The third alleged market failure is that of insurance companies settling claims without proof of injury. Here, there is obviously a genuine market failure, and I am very glad to see the Bill banning this practice. However, nowhere in the impact assessment’s justifications for action is there any reference to the huge transfer—over £500 million—that is brought about simply by the introduction of much lower awards for all claimants. Again, what is the evidence base for such a reduction?
The Government’s proposed tariff is significantly lower than the current actual awards in every duration band. For injuries lasting up to three months, current awards average £1,800; the Government propose £225. For injuries lasting between three and six months, current awards average £2,250; the Government propose £450. That carries on all the way up the duration scale. This all looks like an arbitrary and huge transfer of money from claimants to motorists via insurance companies. The Government have given no justification for the scale of this transfer and no explanation why claimants should be so punished and motorists so rewarded. I imagine that we will hear such claims as, “It is generally accepted that claim levels are too high”. This is not a sound basis for policy decisions, certainly not involving huge transfers of funding on this scale, which also create very serious anomalies.
As we pointed out at Second Reading, an injury of 24 months’ duration identical in its effects, if suffered at work, would attract up to £6,500. For whiplash, the Government would restrict you to £3,725. If the Government want a fixed tariff, as they clearly do, then they should put this tariff in the Bill, so that we have the opportunity to amend it. As importantly, they must justify this £1 billion transfer from claimants to motorists. They must explain why all claimants for whiplash should suffer and all motorists benefit.
My Lords, I understand that the clear purpose of Part 1 of the Bill is to discourage false claims for whiplash injuries in road traffic accidents. The proposed method, besides wisely insisting henceforth on medical reports, is essentially by substantially reducing the damages recoverable in such claims to, as the noble Lord, Lord Sharkey, has just explained in some detail, figures well below those that are suggested in the 14th edition of the Judicial College guidelines, based as they are on typical court awards for such injuries.
The real question raised here is whether it is right to create especially low awards and, if so, how much lower than the norm for this particular injury suffered in this particular way specifically because disproportionate numbers of this sort of claims are likely to be false, not least because it is highly subjective and very difficult to establish objectively the reliability of the complaints. These are essentially political questions. It may be addressing the next group of amendments to say that it would make no sense whatever to involve the judiciary in answering these political policy questions. We know what the courts regard as the appropriate levels; we have those from the Judicial College guidelines.
As to what the political answer is to the precise level of damages proposed and whether or not it should be on the face of the Bill, I am essentially agnostic—although if anything I would favour that it should be. What rather surprises me is that, as I understand it, none of the amendments to the Bill is designed to challenge the whole Part 1 approach, which inevitably involves discrimination against those genuinely claiming for whiplash injuries in this context. Is the problem, one may ask, despite a number of improvements in the overall legal landscape over recent years—and indeed, no doubt consequentially, some reduction in the level of these claims—really bad enough to justify that whole approach? That does not seem to be squarely addressed in any of the amendments.
That said, I would add that I am in broad agreement with the whole idea of tariffs for injuries, certainly for lesser injuries, and indeed even of reducing awards in respect of a number of these lesser injuries. When I used to practise in this area decades ago, I used to think even then that lesser injuries were altogether too generously compensated, certainly in comparison to the graver injuries, which were not. Tariffs promote certainty and predictability, although of course always at the cost of some flexibility. That very predictability and certainty cuts down the enormous expense, the worry, the concern, the delay and the hassle of litigating expensively—as it invariably is—in this field. Indeed, that is also the effect of raising the small claims tribunal limits. I therefore also tend to support that to some degree in respect of these lesser injuries.
Overall, one must recognise that this is par excellence a policy issue, and it is for the Crown to justify Part 1 in the way that I have indicated. Part 2 raises very different questions, and to that I give my total support.
The amendment tabled by the noble Lords, Lord Sharkey and Lord Marks, seems at least to question the underlying premise behind these reforms. I respectfully suggest that the Government have established the premise. The Minister set out the Government’s case, as it were, at Second Reading, and the statistics seem to lead ineluctably to the conclusion that there is widespread abuse of the whole whiplash claims system. The solution, though it is inevitably somewhat rough and ready, is that there should in effect be a reduction in what claimants might have been able to claim under the system that currently obtains, although that is in relation only to damages for pain, suffering and loss of amenity and excludes loss of earnings or any other consequential losses. It is a reduction but a fairly modest one and we are speaking of injuries at the lower end of the scale, although I do not downplay the discomfort that can follow from whiplash injuries. However, the purpose behind the reforms is surely, first, to provide certainty and, secondly, to make the awards reasonably modest so as to provide less of an incentive for those who would seek to make fraudulent claims. That, combined with the ban on medical officers, should fulfil what is, as the noble and learned Lord rightly says, essentially a policy decision.
In effect, the losers about whom we should be concerned are those genuine claimants, as opposed to the many who are not genuine, who I accept will get a lesser sum than they would otherwise have obtained. In the round, though, I suggest that this is a sensible policy decision. The House may have in mind that when these reforms were initially trailed by the then Chancellor of the Exchequer George Osborne—and it came from the Treasury rather than the Ministry of Justice—the suggestion was that there would be no damages at all for whiplash injuries. This is a modification of that change, and of course there is the right of the judges to have an uplift in circumstances that we may be exploring later. Still, I suggest that it would be a mistake to pass these matters back to the judges. The Judicial College guidelines are in fact an extrapolation from individual cases decided by judges. They then, as it were, create a form of certainty, although they are variable according to individual cases.
I think the Government have made a case. They have to grasp the nettle, and they have done so in this case.
My Lords, I congratulate the noble Lords, Lord Sharkey and Lord Marks, for framing a good debate in this important area, and I thank the noble Lord, Lord Sharkey, for his very clear opening remarks. There seem to be three issues here: first, who should set the tariff; secondly, where it should be set out; and, thirdly, how it should be amended.
I regard the tariff as being very much a political matter. The problem that we are trying to cope with is a widespread low-level fraud that is afflicting our country. It is easy money offered by the claims industry for people following what are probably genuine motor accidents. I read out earlier a quite shocking quote from one of the leading people in the claims industry:
“Even if you don’t experience any symptoms straightaway, don’t rule out the possibility that you’ve suffered this type of injury”.
I feel that as it is a political and social problem it must have a political solution, and it cannot really have a judicial solution.
I am grateful to the noble and learned Lord, Lord Brown, who has lent me his copy of the Judicial College guidelines. The introduction states:
“Assessing the appropriate level of any award remains the prerogative of the courts, which are not constrained by any range identified in this book, since the figures within any such range are persuasive, not obligatory, and merely represent what other judges have been awarding for similar injuries”.
Therefore, the whole basis on which the Judicial College has been gathering figures and making judgments is not the sort of basis on which in any event one would want to build a tariff construction. It is the wrong starting material, although it is an interesting book. Accordingly, I feel that the Lord Chancellor must be the person who takes a decision about what will be contained in the tariff.
In respect of my other two questions, I return to the 22nd Report of the Delegated Powers and Regulatory Reform Committee, which considered this issue at paragraph 13 and stated:
“In our view it would be an inappropriate delegation of power for damages for whiplash injury to be set in a tariff made by Ministerial regulations rather than on the face of the Bill. The tariff should be set out on the face of the Bill, albeit amendable by affirmative statutory instrument”.
I feel that answers both my questions. I urge the Minister to consider having a tariff on the face of the Bill and to ensure that it is amendable with suitable parliamentary oversight.
My Lords, the amendments are, as has been said, in my name and that of my noble friend Lord Sharkey. I shall first add to the point made about the Delegated Powers and Regulatory Reform Committee by quoting what it said about placing the tariff in the Bill. It said that the second central question—the first being the question that I quoted earlier about what is meant by whiplash injury—is:
“By how much are awards of damages to be reduced?”
The committee said that the Government’s answer was that:
“The reduction in damages will be whatever the Lord Chancellor says it will be, in regulations to be made by him or her at some future date”.
The committee came to the conclusion, as the noble Earl pointed out, that that is an inappropriate delegation of power. I again make the point that it is appropriate for the Government to accept that recommendation. That has always been the way that that committee’s recommendations have been dealt with. Of course, amendment in the future can be made by statutory instrument.
I turn to the important point that was made in different ways by the noble and learned Lord, Lord Brown of Eaton-under-Heywood, the noble Lord, Lord Faulks, and the noble Earl, Lord Kinnoull, which is that the cost paid by society for these reforms in this particular case—that is, the reduction in damages—is a reduction in awards for genuine claimants. It is genuine claimants who are made to suffer. I cannot see the justification for that in any of the evidence that the Government have produced. We accept entirely that there is a problem with fraud. We are fully behind attempts to tackle fraud by eliminating, or at least reducing, fraudulent claims. But to remove the right to fair damages for claimants in these particular types of cases does not seem to be an appropriate response to this problem in a civilised society.
We address this central problem by saying that the Judicial College Guidelines are an appropriate way of coming to a conclusion on appropriate damages. They are a fair and workable way in which to achieve comparability. They avoid the problem that fraud may be positively encouraged by a cliff-edge system that encourages exaggeration. Damages under this proposal double if the claimant can persuade the medic who is preparing his report that an injury will have a duration of three months-plus, rather than just short of three months—doubled from £225 to £450. In that context, I make two points. The first is that it is a little odd that the response—
Does the noble Lord accept the argument that the quantum of damages is essentially a political decision that should be taken and justified in Parliament, not taken by judges in courts? How do aggrieved people achieve change there? We know how they achieve change in a political situation: they can lobby their Member of Parliament and get change. Is the noble Lord saying that this must be left to the judges and that we have no way of obtaining redress for decisions that an individual might feel are unfair or inaccurate?
Absolutely not. The Judicial College can respond, and be required to respond, to political guidance if Parliament chooses to legislate on the level of damages. I do not say that that is what is wrong. My concern is about the fairness and comparability of picking out whiplash injuries in an attack on fraud and reducing the compensation to genuine claimants accordingly. My point about the £225 and £450 figures—
Of course I accept that. It is a question of whether the cost in unfairness is worth paying. It is a dilemma that the noble Lord himself correctly outlined in his speech. We are simply saying that we ought to try every other avenue before trying this drastic avenue of introducing an unfair system for genuine claimants. I will see if I can get beyond the next couple of sentences.
My point about the £225 and £450 figures is that they represent a cliff edge. They compare to £1,800, which is the expected award set out in the Government’s impact statement for such injuries of less than three months’ duration to date. The Government’s response to the outcry that these damages are so low has not been to meet the outcry at all but to reduce them from £235 to £225 and from £470 to £450.
One of our problems with the present proposals is that there is no evidence base for a recent increase in the number of fraudulent claims. We entirely accept the case that the noble and learned Lord, Lord Keen, made both on Second Reading and today that there is a wide prevalence of fraudulent claims that we have to tackle. However, there is not a wide base of evidence for an increase in such claims, nor is there sufficient evidence of how many claims are fraudulent or genuine. There is certainly no evidence that only the fraudulent claims would be deterred and that the genuine claims would continue. That worries me seriously, because the noble and learned Lord suggested earlier today that a genuine claimant might continue whereas a fraudulent one might be deterred. We simply do not accept that. It is just as likely—and I say this also without an evidence base—that genuine claimants would be deterred because the amount at stake had become so low, even though they had a fair claim.
We entirely agree with the Government that the proposal for compulsory medical reports discriminates between genuine and fraudulent claimants. I repeat my declaration at Second Reading that I have just concluded some litigation about compulsory medical reports and the operation of the pre-action protocol. However, there is no corresponding evidence of discrimination in the case of these drastic cuts in damages, which we say are unjust, unfair and fail to give fair compensation to genuine claimants. They discriminate unfairly between injuries sustained in road traffic accidents by drivers and passengers in motor vehicles and those sustained in such accidents by cyclists and pedestrians. Who would receive the traditional level of damages? Passengers and motorists would not, even in genuine cases. They discriminate unfairly between accidents which are covered by the Bill and accidents at work or accidents caused by, for instance, a council’s negligence. Those can also be a source of fraudulent claims.
If the Government are determined to have a tariff, we are worried about the cliff edge. I see no fundamental reason in principle against a tariff; it is a question of weighing the advantages of certainty outlined by the noble and learned Lord against the fact that you have a cliff edge where those cases that are very close to the three-month level produce very large discrepancies in damages. If we are to have a tariff, let it at least be one that does not penalise genuine claimants by allowing them an award that is far too low. That is the basis for our alternative Amendments 13 and 96. We do not put them forward as a preferred option, but they are more acceptable than the Government’s proposals.
My Lords, I concur with the views expressed and proposals made by the noble Lords, Lord Sharkey and Lord Marks. They are absolutely on the right track, although I do not agree with the provision for the Judicial College Guidelines to be taken into account. It will be seen that in the next group, we have an alternative proposal suggesting that the Civil Justice Council should be involved in making the decisions.
In this group, however, there is an amendment in my name and that of my noble friend Lord McKenzie which would restore a degree of discretion for the court to uplift the amount of damages payable where it deems it just to do so in all the circumstances of the case. That would revive the role of the judiciary in assessing damages, at least to some extent, where it felt that the scale proffered under the legislation was inadequate—as noble Lords have already made clear, that seems likely in many cases.
I broadly support the amendments of the noble Lord, Lord Sharkey and Lord Marks, and will revert to one aspect to which I referred in the next group.
My Lords, I am grateful for the contributions that have been made. It respectfully appears to me that the points made by the noble Lords, Lord Sharkey and Lord Marks, materially bolstered the approach that the Government take in the Bill. Why do I say that? Because it is quite clear that we are addressing a matter of policy and have to do so as such. What ultimately has to be taken here is a political decision, not a judicial determination.
In fairness, I think it was a slip from the noble Lord, Lord Sharkey, but when he talked about the question of whether claims are genuine or not reasonable, he said that it was unquantifiable—and then corrected himself to unquantified. The former is more accurate than the latter.
Let us be clear. More than 80% of road traffic injuries are allegedly whiplash-induced injuries. The vast majority of all personal injury claims are whiplash claims. Over 10 years, the number of whiplash claims has rocketed—yes, it has stabilised a little in the past year or two, but it has still rocketed. At the same time, the number of road traffic accidents reported has dropped by 40%. At the same time, the number of vehicles classified by Thatcham as safe from the perspective of seating and headrests has increased from 18% to 80%.
As some people have said, an industry is going on. As others have suggested, there is a racket. We have a claims culture that has built up—I attribute no blame to any one party; all sides involved have contributed in one way or another to the ballooning of the claims culture. The time has come—indeed, the time may be almost past—when we need to address it as a political issue.
The noble Lord, Lord Sharkey, suggested that somehow we were making a transfer from claimants to motorists. With great respect, a very large proportion of claimants are motorists, so it is not as simple and straightforward as that. Secondly, he talked about the transfer requiring to be justified. The transfer is a consequence of the policy decision we are making to deal with the industry, the claims culture; it is not the purpose of it. It is, as I say, the consequence.
With respect, as I say, the quantum is a consequence of the steps we are taking to address the claims culture. The way in which we are doing it is such that we are confident that the benefits will be passed to consumers in the form of motor insurance premiums.
Yes, I shall come to that. We have had regard to the present level of damages awarded in these cases, we have had regard to expert input about how we can deal with the claims culture that has built up, and we have taken the view on the level of tariff required to implement the policy decision that we have made to deal with this emerging problem.
Does the Minister accept that that is not really an explanation? It is simply a statement that the Government have done something. I was asking for the basis on which they arrived at these numbers. In fact, oddly, the numbers changed between the impact assessment and the SI published yesterday. There must be a reason for that; there must have been some discussion. There must be some basis on which these amounts were constructed, but it is not clear from his answer what they are.
With respect, first, I understand that there was not intended to be a change between the impact assessment and the SI publication. That is why the rather odd difference of 4 point something per cent emerges. I acknowledge that that was not intended.
My Lords, I am very grateful to the Minister for giving way. Perhaps he will confirm to the House that even the Judicial College guidelines or awards of damages by judges for pain, suffering and loss of amenity are not mathematically calculated; they are figures arrived at doing the best that a judge can to represent the nature of the injury by such an award.
I think this is a misunderstanding. I was not trying to imply that there was an element of certainty involved here. I simply wanted to know how the figures had been arrived at. Why not some other figure? Instead of 235, why not 200? Why not 400? How were these figures arrived at?
With respect, a judgment had been made having regard to all the information available as to what level should be set for the tariff to address the very problem that we are attempting to deal with. It is not based on some mathematical formula or percentage.
I refer my noble and learned friend to his previous comment which, fairly, recognises that all parties are to blame, which is something that I think he conceded at Second Reading—that the insurance industry shares part of the blame. May I clarify? When he says that all parties are to blame for this, may I clarify that he was not including the genuine claimants, who have become a focus in this House: that they are not to blame for an industry, a racket or whatever created by others?
Everybody readily acknowledges that point but, with respect, you cannot take 650,000 claims and identify 300,000 that happen to be fraudulent, or 200,000 that happen to be exaggerated. A policy decision has to be made, acknowledging that there are within that very large body of claims perfectly genuine claims, perfectly fraudulent claims, exaggerated claims and minor claims that would never have been brought but for the encouragement of a claims industry that sees the financial benefit of ensuring that people take these claims forward. That is part of the culture that has developed. I noticed that when the noble Lord, Lord Beecham, suffered an unfortunate accident on the Tube and mentioned it in this House, he was asked if he intended to make a claim and said no. One was encouraged by that. People tend to consider that these events can happen; they may be able to point the finger of blame at someone, but they feel that life goes on and it is unnecessary to be distracted by such issues. We have a claims management culture that goes out of its way—many noble Lords have noted it—to encourage people who would otherwise think nothing of a minor injury to come forward and join the bandwagon. Let us emphasise: this is a matter of policy that we are addressing in these circumstances.
On that point, the Minister will be aware that the business model for insurance companies is to assist those who they insure, and to make claims against others when it is appropriate. They are part of that industry, and some of them own claims management companies. Will the Minister explain to the House what he undertook in terms of research to make sure that the figures he is basing his assertions on are correct?
I acknowledge the noble Baroness’s expertise in these areas as a non-executive director of Thompsons Solicitors, and her knowledge of the claims culture that has built up. With respect, in carrying out our work, we looked at the behaviour of the insurance industry in this context. Of course, the insurance industry can operate as an intermediary because, where the claims arise, it passes on the costs to the consumer by way of increased premiums. There have been instances in the past where insurance companies have passed on details of their own insurees’ claims to third parties and that has been exploited. I was quite open earlier in saying that we acknowledge the contribution of a number of different parties to what has developed into an unacceptable claims culture. That is what we are seeking to address in this Bill.
Can I continue just a little further in that context? The first group of amendments from the noble Lords, Lord Sharkey and Lord Marks, proposed that compensation for pain and suffering should be determined by reference to the Judicial College guidelines. Indeed, the second set of amendments proposed to place the tariff amounts into the Bill rather than in regulations made by the Lord Chancellor. All those figures would be significantly higher than those proposed by the Government—indeed, more in line with the amount currently paid out by claim.
I understand that noble Lords feel that the proposed tariff amounts are too low, but we continue to be concerned about the high number and the high cost of these claims in general, and the impact of that on the consumer. Therefore, we have to take a policy view as to how we can disincentivise not just fraudulent claims but what I would call unmeritorious claims—very minor and exaggerated claims. Our view is that it is right to set the tariff through regulations, which will help to control those costs and ensure greater certainty to both claimants and defendants when they come to deal with these claims, remembering that the vast majority of these claims never reach court anyway. They are dealt with before they ever arrive at the door of a court. In addition, we consider that a tariff will provide the flexibility required to change the tariff amounts, in reaction not just to inflation but to changes in the market, if I can gently call them that. We know that we are dealing with a marketplace; it is extremely inventive and can rise again phoenix-like from any statutory provision that we bring forward.
Therefore, we are going to have a tariff of predictable damages, albeit for those who suffer injury with a duration of up to 24 months. That is a relatively minor personal injury, but not one to be dismissed—and we do not seek to dismiss them. The relevant tariff will then be applied. It will be far simpler for someone to take their claim forward and, of course, we then have in place the requirement for an independent medical expert report, albeit in circumstances of dealing with subjective complaints of injury, as the noble Lord, Lord Sharkey, acknowledged. They can be very difficult to determine. If someone comes forward with symptoms, on the basis of a subjective assessment, a report can be made, but it can be very difficult to determine whether those subjective complaints are well based. Indeed, as the noble Earl, Lord Kinnoull, observed, there are claims management companies that would encourage someone to come forward even if he had not suffered any symptoms so far, in the belief that something might emerge in due course. That is why we have taken that approach, albeit we have allowed for the judiciary to have input so that it can, in appropriate or exceptional circumstances, increase the tariff award by up to 20%.
I just wanted to make this point, but because of the noble and learned Lord’s plea I have perhaps left it a little late, as he has left the question of the figures. He made it clear that a political judgment was made in reaching these figures. The noble Lord, Lord Faulks, asked for clarification that the Judicial College guidelines, on which we rely, were merely an extrapolation from judges’ awards. However, as I expect the noble and learned Lord will accept, there is an element of circularity here because the judges reach their decision as to what is appropriate invariably after having the Judicial College guidelines cited to them, so they feed on themselves and are therefore a fairly carefully worked-out set of figures into which there could be political input.
With respect, as the noble Lord outlined, they are self-perpetuating figures. Therefore, although we have regard to those guidelines when coming to a view as to where the tariff should be set, that was only one element in deciding the appropriate levels for the tariff itself.
I shall turn for a moment to the amendment proposed by the noble Lord, Lord Beecham, which would provide the court with complete discretion with regard to any percentage increase of exceptional circumstances. We do not consider that that is an appropriate way forward. It would simply lead to an increase in litigation and in the claims culture, so that is why we feel that there should be an appropriate limit on how any exceptional circumstances can be dealt with by the court.
In that context, I should point out that the tariff system is not entirely a novelty. Other European jurisdictions faced with the same claims culture and the same racket, as some people have called it, have introduced tariffs as well, or tables of predictive damages. That includes Italy, Spain and France. In due course both Houses will have the opportunity to debate the details of any regulations that are introduced to put forward the appropriate figures for the tariff, which at present we consider should be in the regulations, if only for the purposes of flexibility.
Again, I want to emphasise that this is essentially a matter of policy to deal with a very particular problem. It is a political decision; it is not one that we consider is for the judges; it is one that is ultimately for the Lord Chancellor to deal with in his capacity as a Minister. It is in these circumstances that I invite the noble Lord to withdraw the amendment.
I thank the Minister for the long and comprehensive—and occasionally interrupted—answer. There is an issue here. I accept that it is a political decision, of course, and we are all operating on that basis, but I am still worried and puzzled about the way in which this table of tariffs has been devised. I have heard nothing from the Minister to suggest that it is not arbitrary. In particular, he did not answer my question so perhaps he can do it now. Were the figures devised on the basis of some target saving being set and then working backwards to say what the tariff would be to generate that saving? If that is the case, we ought to be told.
Can I be clear to the noble Lord? I am not aware of there having been any target saving. As I sought to indicate earlier, this was rather an approach from the other direction: what policy is required? Effective policy is required to deal with the problem facing us.
The Minister will forgive me if I say that that sounds a bit like the back of a political envelope. The question still remains. We are interested in what these figures are, and it would help our discussions if we had a clearer idea of how they were arrived at. I am sure that we will want to pursue that as the Bill makes progress. In the meantime, I beg leave to withdraw the amendment.
Amendment 11 withdrawn.
My Lords, this amendment and Amendment 29 set an alternative method for recommending a tariff, not via the Judicial College but via the Civil Justice Council, and it is suggested that this should be done on an annual basis. The Civil Justice Council is a body established by the Civil Procedure Act 1997, and it acts as an advisory body to the Lord Chancellor, who must then set out the recommended tariff under this amendment, in regulations. That is the substance of Amendment 12.
Amendment 29 makes the necessary changes to the Civil Procedure Act, which then empower the Civil Justice Council to include recommendations on the whiplash injuries damages tariff. In my submission, that is a better way of dealing with matters than either the Lord Chancellor doing it on a political basis or leaving it to the Judicial College. I understand the reservations about them. This is a better way of dealing with the situation, and I commend it to the House. I beg to move.
My Lords, I have Amendment 14 in this group. Much of this ground was covered in the earlier debate, and I anticipate the Minister’s response in that light. I take the point made by my noble friend Lord Beecham that we perhaps need to find another route on this issue, and in a sense that is what Amendment 14 does. It seeks to place a duty on the Lord Chancellor to consult the Lord Chief Justice and obtain the agreement of the Judicial College on the proposed amount for tariffs, before making regulations to set damages tariffs for whiplash.
The Delegated Powers and Regulatory Reform Committee of your Lordships’ House recommended that it is the judiciary, with their experience of personal injury claims, that should determine the provisions for damages or, failing that, the responsibility should be undertaken by independent medical experts. Noble Lords have referred to medical experts in earlier debates and recognise their value. I know that many would prefer the Government to abandon their plan to discard the use of the Judicial College guidelines for general damages claims, but there is value in the current guidance. This is a probing amendment, along with others, to find a way of enabling consultation and constraining the absolute power currently set out for the Lord Chancellor.
One of the worries that feeds this is that genuine cases may be dealt with in a way that leads to undercompensation. We do not know what the scale of the problem is, because the Government have not produced statistics on what they believe to be the level of genuine or, for that matter, fraudulent claiming. While that remains the case, we must surely protect those who have genuinely suffered and need to make a claim for good reasons.
It is worth reminding ourselves that the Bar Council recommended that the Lord Chancellor should be required to have regard to decided cases. That seems a reasonable approach. If the Lord Chancellor is required to consult the Lord Chief Justice before making regulations on the uplift in exceptional circumstances, what justification can there be for him not to consult the Lord Chief Justice on the tariff amounts generally? It may be that, with its experience, the Judicial College guidelines would be an appropriate starting point and basis for consultation.
We recognise the power of the Government’s argument generally to change and make reforms, but it is also important to recognise the value of the judiciary’s knowledge in this field and the importance of consulting them in setting tariffs. After all, they have the experience.
I just wanted to say one thing. First, I am not sure whether I have declared during Committee that I was a Minister in the Ministry of Justice when the subject of whiplash reform was frequently discussed, although the precise shape of that reform did not manifest in the same way that it does in this Bill. I made that clear at Second Reading, but would like to make it clear now.
My Lords, I was rather hoping that my noble friend was going to explain the tariff, but that may be for another day.
If I respond shortly, it is not because I dismiss the importance of the amendments that have been moved but because I have already sought to set out the Government’s approach to the tariff, and I hope that will be appreciated. However, I understand the purpose of these probing amendments, in particular the amendment moved by the noble Lord, Lord Bassam, which reflects some recommendations from the Bar Council. I will add two short points.
First, as I mentioned before, we allow for the 20% uplift for exceptional circumstances to be placed in the hands of the judiciary. Secondly, in setting the tariff, the Lord Chancellor is going to consult widely and take into account the views of a wide spectrum of interested parties in order to arrive at what is considered, for policy purposes, to be the appropriate levels, both now and in the future. However, we do not consider that it is appropriate to formalise any part of that consultation, for example by reference to consulting the Lord Chief Justice.
I have heard what has been said; it is essentially a development of the previous group of amendments. I appreciate why these additional amendments have been moved, but invite noble Lords to withdraw.
My Lords, I beg leave to withdraw the amendment.
Amendment 12 withdrawn.
Amendments 13 to 22 not moved.
Moved by Lord Young of Norwood Green
23: Clause 2, page 3, line 13, at end insert—“(7A) Regulations under subsection (7) may not increase amounts in relation to claims by vulnerable road users unless the increase is to reflect increases in the retail prices index or the consumer prices index.(7B) In subsection (7A), “vulnerable road user” means any person other than a person—(a) using a motor vehicle other than a motor cycle on a road or other public place in England or Wales, or(b) being carried in or on a motor vehicle other than a motor cycle while another uses the vehicle on a road or other public place in England or Wales.”
My Lords, with the leave of the House I will move this amendment on behalf of my noble friend Lord Berkeley, who is unable to attend this afternoon due to personal circumstances. This amendment addresses a slightly different issue from those that I have heard today. If the Bill is enacted, the Government also propose to increase the small claims track limit for personal injury cases from £1,000 to £5,000 for all road traffic accident claims and to £2,000 for all other personal injury claims. The Ministry of Justice’s impact assessment makes it clear that the small claims limit increase is part of a broader reform package, although the small claims limit proposals do not appear in the Bill, as they can be implemented through secondary legislation via an amendment to the Civil Procedure Rules.
When the Ministry of Justice published its consultation on reforming the soft tissue whiplash claims process, Cycling UK—to which I must pay tribute for providing the briefing—realised that the stated proposal to increase the small claims limit to £5,000 extended far beyond whiplash claims by car occupants. In partnership with RoadPeace, the national charity for road crash victims, and Living Streets, the national charity for everyday walking, Cycling UK launched its Road Victims are Real Victims campaign, the catalyst for which was the shared concern that the consultation ignored the interests of road crash victims, particularly pedestrians, cyclists and motorcyclists—generically vulnerable road users.
Within the consultation, no reference was made to vulnerable road users. The focus was on whiplash, fraudulent claims and motorists, without consideration of the complexity of vulnerable road user personal injury claims, the different nature of the injuries typically sustained and claimed for or their vulnerable status. More than 6,000 people responded to the Road Victims are Real Victims campaign, writing to the Ministry of Justice in support of Cycling UK’s submissions and outlining their opposition to the proposed small claims limit increase, which disproportionately affects vulnerable road users. The MoJ’s consultation response failed to address any of the arguments raised on behalf of vulnerable road users, including the complexity of their claims or the nature of their injuries, save for one sentence in paragraph 86 acknowledging that certain points had been made but not responding to them.
The Government’s proposal to increase the small claims limit to £5,000 for all road traffic accident-related claims will affect 70% of cyclist personal injury claims and a similar percentage of motorcyclist personal injury claims, where the general damages for pain, suffering and loss of amenity are under £5,000. Cycling UK met with officials at the MoJ following publication of the consultation response, and explained why vulnerable road user personal injury claims should be excluded from the small claims limit increase to £5,000 and how that could be achieved simply through adopting the same definition of a road traffic accident claim for the purposes of the small claims limit, as the Government propose to adopt in Clause 1 of the Bill, which defines whiplash injury and refers to whiplash injury suffered due to driver negligence when someone is,
“using a motor vehicle other than a motor cycle”.
The Bill excludes vulnerable road users from the definition of whiplash and the whiplash reforms in the Bill. The changes to the small claims limit catch all road traffic accident personal injury claims, including those by vulnerable road users.
The consultation document made it abundantly clear that the Government’s main aim was to tackle what they perceived to be the “compensation culture” and both fraudulent and exaggerated whiplash claims. Whatever the extent of these problems, the purpose of the amendment is to ensure that vulnerable road users should not be penalised as a consequence of measures the Government implement to address them. I do not think that we are trying to say that this is a perfect amendment. I hope the Minister will understand that this is a probing amendment; we are seeking an assurance from him that he would be open to a consultation process. Before I end my contribution I suppose that I should declare an interest as a regular cyclist and a member of the All-Party Parliamentary Cycling Group. I beg to move.
Talking about vulnerable road users, I was reading Tuesday’s edition of Insurance Times, and the opening sentence was:
It went on to say:
“Lord Keen sent a letter to peers this morning, and in it, he made his first real concession regarding the Bill”— and it then went on to quote the Minister at some length.
I looked on the Bills in progress website and could not find any letter. I searched through my emails and could not find any letter; I searched through my junk mail and still could not find any letter from the Minister. I wonder whether he will simply tell me that I should not believe everything I read in Insurance Times, or whether there is some letter that he would like to draw our attention to.
My Lords, I support this amendment. I, too, declare an interest as a regular cyclist and a member of the APPG on cycling. As has been made clear at all stages, the Government’s main aim in this Bill is to tackle what they perceive as the compensation culture, and in particular fraudulent and exaggerated whiplash claims. It should not be a by-product of that that vehicle road users, including cyclists, are penalised by measures designed for a completely different purpose.
Whiplash claims are brought by motor vehicle occupants, not by people riding bicycles or motorcycles or crossing the road. Nobody makes a fraudulent claim by throwing themselves off a bicycle or a motorbike or by jumping in front of a car. The point has been made to the MoJ that there is no evidence to suggest that fraudulent claims by vulnerable road users are an issue of concern—and, as far as I am aware, no evidence to the contrary has been provided by the Ministry of Justice.
Whiplash claims from cycle and motorcycle collisions are almost entirely unheard of. The mechanism of the typical injury sustained is, of course, different. People on bicycles tend to be injured by hitting hard surfaces—car bonnets or the road. They sustain fractures and injuries from those impacts. It is not at all likely that they would be making a fraudulent claim. Indeed, I think it is impossible to imagine that they would.
I support this amendment. I think that a Bill designed for whiplash claims should not accidentally spread its effect to vulnerable road users whose injuries are likely to be of a completely different nature.
I am sorry. I will speak to Amendment 23 only to congratulate my noble friend for stepping into the breach. I thank him and the noble Lord, Lord Butler, for speaking in support of cyclists. We are very happy to support their proposition.
I am obliged to the noble Lord for supporting their proposition rather than their amendment—which, I venture, is entirely appropriate in the circumstances. Clause 1 goes out of its way to ensure that vulnerable road users such as cyclists or motorcyclists are not encompassed within the ambit of the provisions in Part 1 of the Bill. That has to be made absolutely clear. I entirely endorse the views expressed by the noble Lord, Lord Butler, as to the types of injury normally suffered by cyclists or motorcyclists. It does not tend to be of the whiplash variety, which is why we have ensured that they are not included in the terms of the Bill. In particular, as I say, Clause 1 expressly serves to exclude vulnerable road users of that type.
However, the point that the noble Lord made was more to do with a matter outwith the present Bill, which is the proposal to increase the small claims limit to £5,000 for road traffic cases. That is being mooted. Indeed, that increase was a factor in our approach to the whole issue of whiplash injury—but it was not limited to that. The proposed increase in the small claims limit will apply to all road users, including cyclists and motorcyclists. The Government’s reasons for seeking that increase are not simply limited to whiplash claims and the claims culture that has developed there but reflect the fact that, in our view, low-value road traffic accident claims—whether whiplash or otherwise—are appropriate for the small claims track and are capable of being dealt with in that track, whether they be for whiplash or other forms of road traffic injury.
In that context, I also note that we are developing, with expert input, the claims portal for these small claims so that claimants will find the system far more accessible. I simply seek to emphasise that the Bill does not embrace vulnerable road users such as cyclists. However, our reason for increasing the small claims limit for road traffic accidents in general is not limited simply to the view that that is a means of dealing with the whiplash claims culture; it reflects a wider view that low-value road traffic accident claims can appropriately be dealt with in the small claims track. Of course, where those claims are perceived to be complex, they can be moved from that track into the next track of judicial determination. In these circumstances, I invite the noble Lord to withdraw the amendment—albeit he acknowledges that it was tabled for probing purposes.
I welcome what the noble and learned Lord said—I have found it constructive and helpful. Nevertheless, I still think that there is some concern and, rather than having to return to this on Report, it would be useful if we could meet him for further consultation.
I am perfectly content to meet the noble Lord. As I return to my feet, I am reminded of the regular reading material of the noble Lord, Lord Sharkey, which includes the Insurance Times. I circulated a letter to Peers following Second Reading and it may be referring to that, but I do not recollect having made the sort of concession reported in that material. Unless the noble Lord feels that he can correct me, I am certainly not aware of it. Our position has always been that the original draft of the Bill specifically excluded vulnerable road users. I suspect that it is a case not of journalistic licence but of journalistic error.
Moved by Lord McKenzie of Luton
26: Clause 2, page 3, line 18, at the end insert—“( ) Nothing in this section, or in any amendments to the Civil Procedure Rules which increase the Small Claims Track Limit, prevents a court, in a case where a person suffers a whiplash injury, making an award of costs in respect of the provision of a medical report in support of that person’s claim.”
My Lords, this is a very straightforward amendment. We know that legal costs are unrecoverable in the small claims court, and the increase in the small claims limit creates real problems. The amendment would at least provide for the courts to allow an award of costs in respect of the provision of a medical report. That is important, because whiplash claims cannot be processed until a medical report is available, and the amendment would facilitate that in circumstances where it would otherwise be difficult for claimants to obtain one.
My Lords, I have three amendments in this group: Amendments 27, 47 and 52. Amendment 27 seeks a review of the small claims limit. We say that the provisions of the Bill cannot be satisfactorily considered unless at the same time the Government are prepared to discuss what will happen with the small claims limit.
The proposal is that the small claims limit will rise to £10,000 and to £5,000 in these cases, and that will effectively exclude all the whiplash claims on this tariff, with the claimants being unable to recover costs, apart from the very limited fixed costs. If that goes ahead, there will be no legal representation in respect of nearly all whiplash claims. Of course, that will not be limited to fraudulent claims; it will penalise genuine claimants as well.
The reason why there will be no legal representation is that, essentially, the vast majority of these claims are dealt with on conditional fee agreements whereby no fee is paid unless there is recovery. If there can be no costs recovery, even the fixed costs allowable under the protocol, there will be no legal representation. It looks very much, therefore, as if the purpose of the damages sections of this legislation is to wipe out these claims indiscriminately—fraudulent or genuine. There are two swipes. We dealt with the last swipe—cutting the damages to a level whereby, in many cases, it is simply not worth claiming—and changes in the small claims limit would effectively remove the chance of getting a lawyer to work on a conditional fee agreement. We believe that there should be a review of the small claims limit, and we said in our Amendment 27 that the provision may not be brought into force until the Civil Procedure Rule Committee has reviewed the limit of the small claims track for personal injury whiplash claims and published its decision.
Amendment 47 comes back to the question of recoverability of medical reports. It ought to be perfectly obvious that a successful claimant can recover the cost of securing a compulsory medical report or what is termed in the Bill,
“other appropriate evidence of an injury”, even in the absence of a rule that the claimant can recover other fixed costs. When I raised this point at Second Reading, the Minister said that there would be such recovery. I quoted the impact statement showing that all successful claimants would have to pay the £216 for the medical report. The Minister said no, that was not right and the savings calculated that formed the basis of what I alleged were calculated on the basis of claims avoided, not of all claims. The Government were assuming that a successful claimant would recover the £216—which is £180 plus VAT—in respect of medical reports. At the moment, I can see no provision for that. The Civil Procedure Rules relating to small-claims track cases restrict awards of costs, but by exception they permit, at the discretion of the court, an award of limited costs for experts; but that does not make such costs payable as a matter of course, only as a matter of concession. We seek to have this matter made clear and Amendment 47 is a simple and secure way of ensuring that.
Amendment 52 is a further probing amendment: probing in the sense that, at Second Reading, the Minister expressed considerable sympathy with the idea of having a new protocol for small claims. The existing pre-action protocol for low-value personal injury claims in road traffic accidents came into force in 2010, and it has been kept up to date since. It introduced a simple low-cost way of pursuing claims, generally through lawyers acting on conditional fee agreements—often “CFA lite”, as they are called—whereby lawyers effectively guarantee that there will be no liability on their clients at all to pay fees, because under the existing protocol they will recover the fixed costs from the defendant’s insurers, which they are able to do. The protocol has its faults, not least—some would argue—that the protocol has of itself increased the number of whiplash claims, including the number of fraudulent claims. That is partly because it is very computer-based. It works on the basis of the portal: generally speaking, everyone has to use the portal; the claims are notified and the insurers respond through the portal. There is very little personal checking of what is in fact happening to such claims.
It is also suggested that, arguably, the number of claims settled by insurers without proper investigation has increased. That is for the simple commercial reason that insurers prefer to pay small claims and fixed costs rather than contest cases outside the protocol. That is a danger in relation to all of these proposals. The Government have not sufficiently considered that insurers will find it easier to settle smaller claims under the tariff than to settle larger claims under the Judicial College Guidelines, as they do now, a point made by the noble Baroness, Lady Berridge.
However, for all its faults, the protocol has increased access to justice for genuine claimants. The concern that this amendment is designed to address is that because the protocol does not apply below the small claims limit and the small claims limit is going to rise, there has to be a parallel protocol for unrepresented claimants that is easy to navigate. Our amendment describes that as having,
“the objective of ensuring that the procedures for claimants pursuing such claims are simple and readily understandable for claimants who are not in receipt of legal advice and representation”.
That is the purpose to which the amendment is directed.
My Lords, I have added my name to Amendments 27, 47 and 52, to which the noble Lord, Lord Marks, has referred, which relate to some of the most fundamental points in the reforms. They involve the procedure which will exist for genuine claimants through the small claims track and/or the portal.
I am saddened but grateful to my noble and learned friend the Minister to learn that it is not an unintended consequence of the Bill that genuine claimants will be caught. It is an intended consequence of the Bill, so there is a high onus to ensure that access to justice is ensured for genuine claimants.
The noble Lord, Lord Marks, referred to no legal representation but, having worked in what was then called small claims arbitration I know that defendants are usually legally represented. In Scotland personal injury claims, which are generally more complex, are outside its equivalent of the small claims procedure because of the asymmetry of the relationship in the small claims track between the claimant and the defendant. Having represented defendants in those circumstances more times than I care to remember, I know that although district judges go out of their way to try to ensure that there is fair procedure, they cannot step outside the boundary of their judicial role. Invariably, therefore, as the legal representative of the defendant, you know that you are at an advantage.
It is important to remember that, on the figures I have been given, 40% of people who buy fully comprehensive insurance do not also buy legal expenses insurance. Therefore, in order to recover their personal injury losses, their uninsured losses, and their often considerable excess losses—which can be about £500—genuine claimants pursuing personal injury losses, more often than not, will be litigants in person using the small claims track or the portal.
On the claims portal which has been mentioned, I know that a working group at the Ministry of Justice is looking at the new portal which will ensure that litigants in person have access to a streamlined procedure.
At the moment, however, you are within the claims portal only if liability is admitted. Some 75% of insurers have apparently signed up to pass on premiums so, like claims management companies and lawyers, we have good, exemplary and not-so-good companies. Unfortunately, with unrepresented claimants, there is now an incentive for certain insurers to deny liability because once they do so, the case comes out of the portal. It is then for a defendant insurance company to deal with a claimant—precisely the asymmetry of the Scottish situation. We have talked a lot about cold calling. Imagine being in that situation as a claimant trying to recover personal injury losses and an excess. You are busy, you are working and nobody is there to advocate between you and the defendant insurance company. That is a worry in relation to how the current portal operates.
As I understand the Ministry of Justice proposal, this will be a kind of gateway portal that can be accessed and which brings at least six other portals together. It is for litigants in person, dealing not only with the defendant but with the MI database, the current claims portal, the MIB database, MedCo and askCUE, the fraud database. As I understand it from claimants’ solicitors, the current claims portal is not even accessed directly by trainees or fee owners. Such solicitor firms—I am looking to the noble Baroness, Lady Primarolo—have an IT set-up that they have either designed or purchased, and that IT software system engages with the claims portal. It is not the trainees; they are all trained on the IT system to access it. It is not like a conveyancer dealing directly with, say, Companies House or the Land Registry doing a search. Even the existing portal is not accessed by litigants in person or solicitors directly. They have spent resources to ensure that they have an easy point of access to the existing claims portal, which is one of the six portals that the new gateway for litigants in person will create to make it easy for unrepresented people to deal with defendant insurers and get back their personal injury tariff amount and excess—a considerable amount of money.
We are in a situation that we increasingly encounter: we cannot know whether the Bill will work, do justice and achieve something unless we know a considerable amount about a piece of tech that the MoJ suggests will make things easy for litigants in person to deal with. I know that your Lordships may think that when it comes to IT, I have an advantage because I am relatively young, but I glazed over when I was presented with the electronic way to upload my amendments. I ended up doing it the traditional way because I had not had the training and could not do it electronically. I cannot imagine what we expect of litigants in person with busy lives. Claims will start, then stop, and the insurance companies will start talking about suspected fraud. Apparently, if a claim starts but you get busy or your mum falls ill or you get a medical condition and stop the claim, the insurance companies now rely on suspected fraud.
We need to know an awful lot more from the Minister about the progress in creating this portal before we can be satisfied that the tariff and the other sections of the Bill will achieve what the Bill wants. I am concerned about the prospect of unscrupulous insurance companies denying liability to get it out of the portal so that they are then dealing directly with claimants, as well as the issue raised in the amendments of suspending matters until we have seen what the small claims situation will be for personal injury claims.
My Lords, I am much heartened by what the noble Baroness, Lady Berridge, said because my Amendment 30 tries to take us to the same range of issues. It states:
The rest of the amendment addresses the whiplash issue.
Why is the amendment here? It is here because there is no other way in which we can address the personal injury limit. It seems to us to bring in an element of manifest unfairness. This piece of legislation will impact on small claims made by employees. By raising the threshold to £2,000 for those personal injury cases the Government are creating a particular difficulty. Claimants in the small claims court, because they cannot reclaim the cost of legal support, will have to represent themselves as litigants in person—and that brings a number of difficulties.
These cases can be very complicated, and they impact adversely on those who have suffered an accident at work, or the early onset of an industrial disease. USDAW has produced a very good briefing on this, citing a vast array of cases in which it represented members and which would be caught by this uplift. Vulnerable employees can be quite seriously injured. They are often unable to work for weeks or months and suffer considerable financial detriment and loss. With no legal assistance available to them, they will be opposing an employer—who will invariably be represented at court—without the expert advice that their injury and its implications merit.
I do not understand, therefore, why the Government are so keen on this £2,000 limit. It seems both unfair and lacking in rationale. The Government have not set out any reasons for including employee injuries in what was billed as a reform of whiplash claims—which, as we have said, we have no argument with. There is no suggestion anywhere that there have been fraudulent claims by injured employees. Claimants in this process will be vulnerable. There should be, as the noble Baroness, Lady Berridge, said, an equality of arms. That principle, which is fairly fundamental to the way our system of justice works, is undermined by this change, and the uplift to £2,000, when employers will be able to rely on full legal advice and support.
Cases are complex, injuries can be significant and victims can suffer considerable financial loss. Furthermore—an important point—the increase is far in excess of inflation. In 2009 Lord Justice Jackson suggested that there should be no increase to £1,500 until inflation justified it. Well, the figure of £2,000, to which the Government are wedded, cannot be justified on an inflationary basis: in terms of Lord Justice Jackson’s proposals, no increase is currently justified.
Small claims courts are not suitable for personal injury claims. We invite the Government to seriously reconsider the way they have set about this. We have already heard that cyclists will be swept up in the whiplash issue. Whether or not the Government seriously thought that they would be involving quite badly injured claimants by raising the limit to £2,000, that would be the effect of the proposed change. I have tried to find a way to bring an amendment to the Bill that would capture this issue, but have not so far succeeded. That worries me, because the Government seem to have found a way around a problem to the benefit of employers. I hope that that is not the case.
The Minister has a gap between Committee and Report, and I hope that he will meet me and others—particularly those who represent trade union members and are involved day in and day out with small claims personal injury issues—to benefit from our experience and knowledge of this field. I hope that he will then reconsider what is a very unfortunate policy, and one that will not be welcome in the workplace.
There are two other points here that are of value to consider. There will be an increase in the undersettlement of claims as a product of this; and I suspect that there will also be an increase in the number of claimants with highly unrealistic expectations of the value of their claim, thus removing the possibility of early settlement and placing increased pressure on the courts system. I hope that the Minister has some reassurance for us on this, because it is a very serious issue. It undermines some of the other, perhaps gentler, words that the Government have used in trying to understand the problems and complexities that people confront in the workplace, which was one of the Government’s earlier ambitions. That is the purpose behind our Amendment 30 and I hope that the Committee will see the strength of the case that has been put.
When the Minister considers in the round the comments made by other noble Lords, will he undertake to go away and look specifically at the way in which Scotland has approached this important question of asymmetry in the process? Will he look at whether there is a way of incorporating or dealing with claims in a similar way, without clearly undermining what he has identified as the Government’s policy principles in simply reducing tariffs?
My Lords, perhaps I may begin with Amendment 26, as put forward by the noble Lord, Lord Beecham, and Amendment 47, put forward by the noble Lords, Lord Marks and Lord Sharkey, and my noble friend Lady Berridge. These amendments seek to secure assurances as to the recoverable cost of a medical report in respect of whiplash injury claims, notwithstanding the increase in the small claims track limit.
The cost of medical reports is currently recoverable in personal injury claims where the defendant insurer has admitted any part of liability. It is intended that these costs will continue to be recoverable following these reforms, including the proposed reform in the small claims track, which is not part of the Bill. I seek to reassure the noble Lord, Lord Marks, in particular that it is intended that that cost will be a recoverable element in each and every case where liability is accepted. My understanding is that the civil procedure rules currently permit the recovery of such a cost; if there is any issue with that, I would be perfectly happy to look at it again to ensure that the rules reflect that position, because that is certainly our intention.
The effect of Amendment 27 would be to require the Civil Procedure Rule Committee to undertake both a review and a consultation in respect of the proposed increase to the small claims track limit for whiplash claims before publishing its decision. I appreciate that the noble Lord, Lord Bassam, is taking us beyond the realms of whiplash claims and I will comment upon his observations in a moment. The Government have already undertaken a consultation on this issue and our policy changed as a result of that consultation. Originally, we proposed raising the small claims track limit to £5,000 for all personal injury claims but, after consultation, we proposed that the track limit should be raised to £5,000 for road traffic accident-related personal injury claims but only to £2,000 for all other personal injury claims, including employer/employee claims. We do not believe that a further consultation on this issue is required, nor that such a requirement should be placed into the Bill.
I observe in passing that the small claims limit for non-personal injury claims is now, I believe, £10,000 and it operates adequately. In respect of the personal injury limit of £1,000, that was set about 10 years ago so even if we were to apply various inflation-linked multipliers, it would be in the region of £1,700 to £2,000, depending upon what index was taken in respect of inflation. As regards personal injury claims in general, it is not going much beyond that.
The proposal in the amendment tabled by the noble Lord, Lord Bassam, is that the increase should be to a maximum of £1,500, as opposed to the increase to £5,000 for road traffic accidents and £2,000 for personal injury claims. In that context, the noble Lord observed that these cases—I believe he was referring to non-road traffic accident cases in particular—can be very complicated. I acknowledge that, but if such a claim is complex, that is a ground for removing it from the small claims process to the fast track. There is already provision for that very situation, so we do not consider that further steps need to be taken.
As for the reference to the pre-action protocol and the portal, we are developing a portal for the small claims limit, because the existing portal is designed for insurers and lawyers to access; we fully acknowledge that. Work is already under way on a portal accessible to litigants in person where the small claims limit applies. If there is such a portal, it will be appropriate to look at the development of a pre-action protocol for personal injury claims as well. Again, that will be covered as we go forward. We are looking into it, and consulting with various interested parties and groups so as to develop fully both the pre-action protocol and the portal.
Trades unions’ experience is, essentially, filtered through claimant solicitors such as Thompsons, and those being consulted include representatives of both claimant and defendant groups—so that is being done. However, I would be perfectly happy to meet the noble Lord, and such representative groups as he may wish to bring to a meeting, to discuss the proposed increase in the limits on small claims. If he wishes to do that, I shall be perfectly content for him to contact my private office, and we can make suitable arrangements. At this time, however, I invite noble Lords not to press their amendments.
My Lords, at this stage in proceedings on the Bill most of the ground has been pretty extensively ploughed, and I shall endeavour not to till it longer than I have to. We had a long discussion about the setting of the rate on the group taken with Amendment 11, and the noble Lord, Lord Beecham, got even closer to the matters I have in mind with his Amendment 38. However, Amendment 35 is concerned with the provisions of Clause 3, which, as the title suggests, permits uplift in exceptional circumstances.
The question I wish to discuss is whether there should be any limit on the amount by which these exceptional awards can exceed the basic tariff, and if so, whether that limit should be in the Bill. I think there is a strong argument for limiting the exceptional awards, and for putting that into the Bill; the noble Lord, Lord Marks of Henley-on-Thames, was kind enough to take my intervention in an earlier debate. I wish to see judicial discretion limited because I think this is a political matter, not a matter for judicial discussion and discretion. Therefore the limit should appear in the Bill—as a percentage, not as an absolute amount, because if the tariff goes up, obviously the amount of an exceptional award should also eventually increase.
My noble and learned friend referred to this matter in the letter he sent to those of us who participated in the Second Reading debate about the need for a degree of judicial discretion. He suggested that the uplift should be capped at 20% and he has already referred to that this afternoon. I do not disagree with any aspect of his remarks, except that I think it is important that the percentage should appear in the Bill. This is in the interests of stability and clarity—stability because if the exceptional amount could be increased by the court without limit the temptation for claimants to game the system would be greatly increased, and clarity because such a limit would facilitate the setting of the rates of motor insurance and reduce the volatility in the amount of such rates year by year. That is an important distinction to remove absolute discretion from the courts, to bring it into the political arena and to set that percentage in the Bill so it is clearly a political, parliamentary decision. I beg to move.
My Lords, I am a little concerned at the degree to which political considerations are supposed override our system of justice. This is not the first time it has been mentioned. However, the latest case is perhaps the least acceptable of the recommendations of this kind. Why on earth should Parliament decide on the so-called exceptional circumstances—undefined, of course, for the purposes this debate—on what are already constrained sums to be awarded in damages? It is trespassing too much on the rights of the citizen and the role of the judiciary. I hope that the Minister will concur with that, given his enormous experience of these matters, and, I apprehend, a real interest in justice being effective and available. With all due respect, the amendment moved by the noble Lord undermines both.
My Lords, I am obliged to my noble friend Lord Hodgson for his amendment. I understand the intent when we are seeking to address a very particular problem. However, I cannot concur with the proposal that we should set in the Bill some limit to the judicial discretion that will be exercised in exceptional circumstances. We have yet to see how exceptional circumstances will develop once the Bill comes into effect. We therefore consider it more appropriate that the percentage increase in tariff should be determined by regulation by the Lord Chancellor in order that he may, from time to time, have regard to developments once the Act is in force. We do not consider it appropriate to constrain that exercise by setting a ceiling in the Bill. For these reasons, I invite my noble friend to withdraw his amendment.
I thank my noble and learned friend for that reply. It was not entirely unexpected. I say to the noble Lord, Lord Beecham, that it is nothing to do with access to justice, it is merely limiting judicial discretion. Indeed, the noble Lord accepts that judicial discretion is going to be limited because he is quite happy to have this percentage in regulations which can subsequently be altered one way or another without much parliamentary scrutiny for all the reasons we know. I note the points my noble and learned friend has made, and I beg leave to withdraw the amendment.
Amendment 35 withdrawn.
Amendments 36 to 38 not moved.
Clause 3 agreed.
Clause 4: Rules against settlement before medical report
My Lords, the amendments in this group pray in aid, as it were, for the work of MedCo, a body set up by the Government, I believe in 2015, to facilitate the sourcing of medical reports on injuries of the kind that we are debating under the terms of the Bill. The Ministry of Justice produced a pre-action protocol for what it calls low-value personal injury claims in road traffic accidents. Before that, there was no system at all to effectively source reports, and apparently a practice was developing of some claimant representatives—not necessarily solicitors—and insurers using what are described as “tame” doctors to produce medical reports for the purposes of securing compensation.
The Government set up the MedCo organisation to provide claimants with access to independent medical reporting facilities from reputable sources, which are themselves subject to regulation and control by the MedCo board. Apparently MedCo had a bit of an uneasy period in its early days and there have been a number of reviews, but the principle remains valid. I understand that it is now working better and that there is no channelling of medical reports to, as it were, sympathetic doctors who might be relied on to back up claims that are less than valid. To that extent, the Government’s original idea has proved right.
In relation to the Bill, it appears that there will be a necessity to reconstruct the portal so that litigants in person can access and use the portal themselves. Therefore, it is all the more necessary to ensure that the MedCo system is available and as user-friendly as possible. I hope that the Minister will acknowledge that I am taking the unusual stance of having supported a decision made by the Government some time ago and seeking that it should continue to flourish. I look forward to his acknowledging that this is a good way of serving justice for both sides in such cases, by having thoroughly professional, independent people providing the necessary political evidence, not being paid for a particular kind of evidence—which one suspects can happen and perhaps has happened hitherto, producing some decisions that were, frankly, unjustified. I hope that the noble and learned Lord will build on the position created originally in 2015 by the Government and ensure that it remains applicable and useful under the new regime being developed.
There are indeed, and that was why I wondered at the noble Lord’s reticence. If the noble Lord wishes to speak to them, I am not the person to stand between him and the remainder of the Committee.
I am extraordinarily grateful to the noble and learned Lord for his prompt rising, as it were, from a sedentary position. My Amendment 42A is in this group. On the Bill as a whole, in Clause 4 the Government seem to recognise the problem of what are called “pre-med offers”, yet fail to ensure that they are sufficiently discouraged. We are in the same territory here but perhaps not seeking to approach it in the same way. My understanding is that such offers are made to people sometimes at a point of vulnerability following injury and sometimes, it has to be said, in the most cynical of circumstances—when sick pay runs out and after putting in a denial, which, although clearly weak, sometimes worries people.
Lawyers for claimants have a professional duty to put an offer to their client. There are many circumstances in which desperate people ignore the advice to reject that comes with that offer and accept what is offered, however inappropriate the sum is to the injuries that they have suffered. Pre-med offers are not made to be fair or reasonable. The offers are often made by defending insurers to get rid of a case cheaply, and I quite accept that the Government are right to seek to prohibit them. The consequence of acceptance in the absence of a medical report is that if the injured person later develops conditions arising from the accident, they will of course fall back on the NHS to support them. They will have no compensation to get treatment and the cost will fall more widely on society and the taxpayer. Meanwhile, the insurer for the guilty party who caused the injury will have walked away having saved money.
Everything is left to regulation. My amendment suggests that what has been raised in this House today should have consequences in the Bill for those who exploit the vulnerable and continue to make pre-med offers. Quite simply, the amendment says that those who flout the intention of the clause should face the consequences. Any agreement to settle a personal injury claim without a medical report should be void, and any payment made should be treated as an interim payment towards what they should properly have received had they not been conned—I use that word as we have heard a lot about scamming today—into undersettling their claim. I have added the words,
“except that the court may not order the claimant to repay”, to avoid interminable litigation, as it has been suggested that there is a problem with loose wording. If the court cannot order repayment, insurers and their lawyers will not bother litigating on the issue.
The Government want to take away free legal help from, we think, about 90% of people injured on the roads and at work. That is a terrible situation and we ought to act as best we can against the insurers. I hope that the Minister will take this issue seriously. It is clearly on the Government’s radar, but we do not think they are approaching it in quite the right way.
I am obliged to noble Lords. The amendments from the noble Lord, Lord Beecham, would place the requirements for medical reports to be provided by an accredited medical expert selected via the MedCo portal or other experts specified by the Lord Chancellor in regulations. Currently, the Civil Procedure Rules require any initial medical report in support of a whiplash claim to be sought through the MedCo IT portal, which is established and proves, as the noble Lord indicated, the independence and quality of these medical reports. The Civil Procedure Rules also require that all MedCo medical reports must be provided by an accredited medical expert. I am therefore uncertain what additional benefit the amendments would add to that process, because we already have in place the requirement that it should be a MedCo report that is obtained.
Indeed, the amendments could have a negative impact on the success of MedCo as, on one view, it would widen the pool of medical experts to any person with medical qualifications rather than someone who has been accredited specifically for these types of report by MedCo. I may have misunderstood Amendment 41, but that appears to be what its result would be, although that may be unintended. I emphasise that we consider that the creation of MedCo, as adjusted recently, has been a success and will continue to be so. We require that parties should have to go through the MedCo portal for an appropriate independent expert report before these claims are settled.
So I ask the noble Lord to reconsider the terms of the amendment because we do not feel that it adds anything to the Bill. I believe we have a common intention here and it may be that I have misunderstood what lies behind Amendment 41, but at present we believe the present structure of MedCo reports and the portal is appropriate as it stands, and at this stage we would not be prepared to contemplate the amendments that have been moved. If the noble Lord wishes to discuss this matter further with me, I will be content to do so because it may be that I have somehow misunderstood the intent of Amendment 41 in that regard.
I turn to the point raised by the noble Lord, Lord Bassam. We looked at the whole question of how it would be most appropriate to deal with claims that were settled without a MedCo report. That would place the insurer or relevant party settling the claim in breach of their own regulatory requirements, and appropriate steps would be taken. In due course, as we know under the financial regulation Bill that is currently going through, that would be the FCA in respect of claims management companies.
I draw attention to Clause 5(6), which states:
“A breach of section 4 does not make an agreement to settle the whiplash claim in question void or unenforceable”.
We adopted that approach to ensure that the claimant should not suffer at all in circumstances where the person making the settlement did so without the report. In other words, the claimant would be entitled to retain all sums paid in those circumstances. If we make the agreement void, the sector would potentially seek recovery of the sums passed in respect of a void transaction. I appreciate that the noble Lord seeks to qualify that, but it raises complex issues over contract liability. We believe that we have taken the correct approach by ensuring that the person making the settlement, who is a regulated party, will be in breach of their regulatory regime if they do so without a MedCo report, while equally ensuring that the claimant should not suffer because of that misfeasance, and should be able to retain the settlement sum.
We do not believe that there is a major issue in this context with regard to those who are persuaded to settle early but, if that is an issue, it is more widely encountered across personal injury claims as a whole, and we do not see any basis for taking an exceptional route in regard to whiplash injury claims. I hope that that reassures the noble Lord that there is a mechanism to protect the claimant and enforce the requirements of Clause 4 against those who are settling claims.
I am grateful to the noble and learned Lord for his attempt at reassurance. I will reflect on his words, but I may come back with something on Report because I want to ensure that we have that protection there.
I quite understand the noble Lord’s concern, and I would be willing to consider any further amendment that he puts forward on this in due course. At this stage, I invite the noble Lord to withdraw the amendment.
I am obliged to the Minister for his invitation, which I will certainly take up. The intention of the amendments is to fill out, as it were, the provisions in Clause 4 relating to regulations to be made by the Lord Chancellor about the appropriate evidence of an injury for the purposes of this clause. It may be that both of us are replicating something that already exists, but we can have a look at it and I am sure it is a matter on which we can reach agreement one way or another. I beg leave to withdraw the amendment.
Amendment 39 withdrawn.
Amendments 40 to 42 not moved.
Clause 4 agreed.
Clause 5: Effect of rules against settlement before medical report
Amendment 42A not moved.
Clause 5 agreed.
Clause 6: Regulation by the Financial Conduct Authority
Moved by Lord McKenzie of Luton
43: Clause 6, page 5, line 31, at end insert—“( ) The Treasury must make regulations requiring the Financial Conduct Authority, where it is the relevant regulator, to prohibit a regulated person, in the course of providing any claims management services (within the meaning of section 419A of the Financial Services and Markets Act 2000), from doing, or arranging or advising the doing of, an act mentioned in section 4(2).”
My Lords, I shall also speak to our other amendments in this group. Amendment 43 requires that regulation made by the Treasury must require the FCA, when it is the regulator, to prohibit regulated persons from providing claims management services in advising, doing or arranging any of the acts prohibited by Clause 4 as regards settlement of a claim before a medical report is available. Many have spoken on this Bill and elsewhere about the conduct of claims management companies and how fleet of foot they can be in exploiting opportunities. These activities have been constrained by recent legislation. The FCA is to become a tougher regulator, transitional arrangements have been put in place and a charge cap has been enabled. However, we use this opportunity to get a comprehensive update on where regulation is or what is yet to be put in place for CMCs.
Amendment 44 refers to cold calling. We know that cold calling is often a prelude to some scam or nefarious activity, and there has been a range of activity to restrict such operations. The Financial Guidance and Claims Bill provides for a ban on cold calling for pensions, enables the introduction of a ban on other financial products and makes provision in respect of certain CMC activity but, for the avoidance of doubt, can the Minister tell us where these things stand across the board?
In our debates on the financial guidance body, exchanges took place about no cold calling in respect of personal injury claims by virtue of the involvement of solicitors in that activity. However, it was further suggested that people were finding a way around that. This is by way of a probe. Is all cold calling in respect of personal injury claims—be it by CMCs or otherwise—now prohibited?
Amendment 44 is one of several in this group which require a review of the activities of Part 1: in particular to ensure that savings arising to insurers are passed on to consumers—motorists. We know that this is particularly difficult. The accounts and activities of general insurers can be complicated and it is very difficult to identify a fixed starting point from which to do the analysis. A whole host of questions arise about how the distribution of any savings made should accrue across the range of consumers that face insurers.
There are questions about who might be the person in a particular organisation to have to certify annually that savings have been secured. Experience shows that if you simply have a process whereby someone has to sign off for the company that savings have been passed on and the policy complied with, it could well be delegated to someone who does not necessarily know exactly what has gone on. In all the variations trying to substantiate that savings are made and that what is promised under the legislation is being delivered, we may seriously think about regulation which requires the chief executive of each of the insurers to be the person held to account for the statement about the extent to which compliance with the requirement has been made.
I may return in a moment to speak to some of the other amendments in the group, but for the time being, I beg to move.
My Lords, my own solution to the problem of the promise that the insurance industry has given is contained in Amendment 46. I am very grateful for the support and advice that the noble Lord, Lord Hodgson, has given me in considering this problem. The promise made by the insurers—percentages are a dangerous game, as there is a question of whether you are counting numbers, premium volume or whatever; but in premium volume terms—represent 90% of the market. The promise says that,
“the signatories to this letter today publicly commit to passing on to customers cost benefits arising from Government action to tackle the extent of exaggerated low value personal injury claims”.
In considering how one should attack that problem, I ask myself two simple questions. First, does the person who accepts the data understand it? Having spent a lifetime in the insurance industry, I can say that claims presentations are phenomenally complicated. I will not even start to use some of the jargon. It is extremely complicated to know whether you are talking about an accident year or the date year, as it were, and to understand certain things such as how the claims coding works, loss triangles, reinsurance effects and so on. But a regulator is someone who can do that.
The second question I ask myself is: will the person who has it have a mechanism for ensuring compliance? Are they good policemen? That is why I have centred on the FCA. I have criticised the FCA in the past but I have never criticised its competence. I have only ever said that it has been heavy handed. It will certainly have people who understand the approximately 250 returns that come in from the participant companies that have motor insurance licences in Britain. We can see who they are on the Bank of England website, and they certainly have the power, not least under the regime of treating customers fairly, but they also have plenty of other soft power. The chief executives of insurers have to be approved, as does the chief risk officer. I seem to recall that even the chairman of our audit committee ended up having to be approved. An insurer cannot afford not to have a good relationship with the regulator, because the insurance industry is much more scared of the regulator getting annoyed than of the court. The regulator can move overnight and do something to your business, whereas a court will take a period of time to do that.
Accordingly, I advance my structure for solving the problem, which I think is proportionate. It would be possible for the FCA to report on it in some way—I had not really considered that part. I am asking for the trigger to be fired twice because, by the end of 2020, this legislation will either have been a terrific success, and we will be absolved of this particular problem with the claims industry, or it will have not been a great success; they will have found a way around it, so we would not need to have the report rolling on for ever. On that basis, I ask for my amendment and that of the noble Lord, Lord Hodgson, to be considered.
I rise briefly to speak to the amendments I have in this group, which refer to a report by the FCA as well as a report being laid before Parliament.
It is important in this context to look back at Second Reading and the Government’s confession that the insurance industry had not done all it could to get on top of the issue of fraud. In some respects, on Second Reading one could have been forgiven for thinking that the problem of fraud was so great for the insurance companies that they were teetering on the brink of bankruptcy as it was such an urgent issue. Nothing could be further from the truth. A report from Direct Line Group, which is the largest insurance group that we have, shows profits for financial year 2017 of £610.9 million—a leap of 51.4% on 2016. Dividends were up 40.2%. In its interim report in 2017, one of the reasons it gave for that was fewer than expected bodily injury claims. We might argue for a long time about CRU figures, but Direct Line attributes its increase in profits to a decline in personal injury claims.
It is disappointing to those of us who are saddened and troubled by the effect on genuine claimants that there is no proper mechanism in the Bill to ensure that the £1 billion of savings from claimant payments will actually go to the motorists. The Government are saying that that is the Bill’s overall intention. In light of the scale of the fraud that the insurance industry would like us to believe, it is disappointing that it has not invested more of its resources into controlling this fraud because it is a societal issue that affects culture, as opposed to the profits that I have just outlined.
There is a particular legal problem, though, on which I hope the Minister can help us. Many insurance companies are no longer mutuals; they are listed on the stock exchange, with all its reporting requirements and requirements for directors to take into account their shareholders in the payment of dividends. How is that circle going to be squared? You have directors with an obligation to shareholders. They make cost-benefit savings, but they are under pressure either to pay down debt, as some have with some of their profits, or to pay out dividends rather than decrease the premiums they are charging to motorists.
There is a further issue with insurance companies, which is that they have enjoyed bumper savings from the implementation of the Jackson fixed-cost reductions and the LASPO changes that were introduced in April 2013. I am grateful to a fee earner from the Vale of Catmose—and to Thompsons Solicitors—who pointed out to me that insurers have saved at least £8 billion in claims costs between 2010 and 2016; the figure to date is around £11 billion. In spite of this, premiums have continued to increase relentlessly. She said the average premium has gone up from around £385 in the second quarter of 2013 to £493 in the last quarter of last year, according to the ABI’s own premium tracker—an increase of 28% since the LASPO changes.
There have been inordinate savings before that insurers have not passed on as reduced premiums. It may be as a result of being legal entities, as I have described, that they are under pressure from their shareholders to pay out bumper dividends instead of reducing premiums. There needs to be something more effective in the Bill to ensure that, after the Government introduce these changes, insurance companies will be held strictly to account and will pass on the savings they will undoubtedly make.
There is a laissez-faire attitude that, as half the market uses price-comparison websites, these savings will be passed on, but it does not always come to pass. It is ironic that, after the Second Reading of this Bill, we received the message that the Commons had passed the Domestic Gas and Electricity (Tariff Cap) Bill for meters. That clearly shows that, in some circumstances, the market does not provide the savings to consumers that we envisage. The Government need to ensure that savings are passed on and there is a strict mechanism in the Bill to that effect.
My Lords, I first speak to Amendment 53 in this group, which deals with passing savings to insurers on to the public. Our amendment seeks an annual review by the Lord Chancellor of the extent to which insurers are passing on those savings to their policyholders. It is common ground that the purpose of this part of the Bill is to reduce fraudulent claims and to reduce the cost of all claims. This has become particularly apparent here, for claims both fraudulent and genuine. Savings are to be passed on to insurers that will pass those savings to their policyholders. The Government rely on the letter written to the Lord Chancellor in March, in which the insurers said that they would,
“publicly commit to passing on to customers cost benefits arising from Government action to tackle the extent of exaggerated low value personal injury claims”.
We want to see that all savings are in fact passed on. Our amendment is intended to ensure that the Government do better than simply relying on that letter. Far be it for me generally to accuse the Government of naivety but, generally speaking, a letter of intent in that form would not convince many in commerce that the intent was in fact going to be carried out. I believe that a review by the Lord Chancellor and an obligation to report to Parliament would increase greatly our chances of having that stated intent carried out. The reason that we press for the involvement of the Lord Chancellor is that this is a political decision and political action and it seems to me that a political response is required. The purpose of this group of amendments—and ours is consonant with that purpose—is to encourage the insurance industry to stick to its promise, and indeed to do better, to make sure that all savings are passed on; and, because of the report to Parliament, to enable the Government and Parliament to consider reviewing the legislation and/or penalising the insurance industry by imposing some kind of levy, tax or other measures if it fails to keep up to the mark on this.
I will also speak to Amendment 54 in this group, which is directed at cold calling. If the real mischief at which this part of the Bill is directed is fraudulent and exaggerated claims, then cold calling is undoubtedly the chief instrument by which that mischief is done. Sometimes, in discussing this, we have not looked at the fact that these fraudulent and exaggerated claims in fact come at three levels. At its worst, perhaps, it involves faked or staged accidents. These calls that say, “We understand that you have had an accident that was not your fault”, when no such accident has ever happened, are an invitation to the practice that is most invidious, and which we know happens, of accidents being deliberately staged, sometimes by people who develop a real accident involving innocent motorists crashing with them in order to mount claims. The second is fake injuries, where there is a real accident but the injury is faked altogether and a claim is made. The third is exaggerated injuries. The practice of cold calling makes all three types of dishonesty worse and we really have to get on top of it.
The first part of our amendment would mandate the Lord Chancellor to carry out an annual assessment of the effect of cold calling on the prevalence of fraudulent whiplash claims. The second part would compel the Lord Chancellor, if he were satisfied that it would significantly reduce such claims, to ban cold calling and to ban the commercial use of any data obtained by cold calling. That second part is directed at the fact that it is very difficult to legislate against cold calling from abroad but that, if you legislate against the commercial use of data, you do catch UK corporations or individuals who are using such data to pursue these fraudulent claims. The amendment is not specific to claims management companies. I mentioned earlier the interest that car hire companies and car repair companies have in pursuing these claims. They can offer to pursue personal injury whiplash claims as an add-on to sell their other services.
This is a probing amendment in a sense in that the Financial Guidance and Claims Bill, as mentioned by the noble Lord, Lord McKenzie, covered claims managers and defined claims management services quite widely. However, we are not convinced that that would achieve our object of banning the use of cold calling for other purposes or by other outside companies or that it would cover the use of cold calling in its widest sense.
My Lords, my name is down to Amendment 46, moved by the noble Earl. I entirely support what was said by my noble friend Lady Berridge and the noble Lord, Lord Marks of Henley-on-Thames. It is not good enough just to say, “We are going to make sure it is competitive”. There will have to be some demonstration of returns and the improvement from this.
Therefore, who invigilates and who enforces? The noble Lord, Lord Marks, suggested a review by the Lord Chancellor. The noble Earl pointed out quite graphically the complexity of unpicking insurance claims and returns. I urge the Government, if they are minded to move in this direction, to think about the FCA as the invigilator and the enforcer. It has exceptionally wide powers.
The noble Earl referred to treating customers fairly but there is a thing called Section 166, which is an investigation by skilled persons. This puts the fear of God into people because the FCA can choose to have anything investigated and the cost is charged to the company being investigated. That sort of power is extremely valuable in unpicking the very detailed information that the noble Earl referred to. I fear that the Lord Chancellor’s Department would not be as well equipped to do it as the FCA. I hope the FCA will be uppermost in the Government’s mind if they are minded to have somebody keep an eye on and verify and show beyond peradventure what savings are being made and how they are being distributed.
My Lords, clearly these amendments are directed primarily at two areas: first, the review or regulation of the effectiveness of these reforms and the supporting regulations and, secondly, the issue of cold calling. I will deal with each in turn. I am not going to go through the detail of each set because I understand that the force of the amendments is all in one direction on the first point. The amendments as drafted would require reports on these reforms to be published shortly after their implementation. Although I understand the reasoning behind them, I question how effective they would be in their current form. I appreciate, nevertheless, that these are essentially probing amendments and it is in that spirit that I address them.
As has been observed, the insurance sector has made it clear and very public that it has a commitment to pass on savings. Having made that commitment, insurers will be accountable for it in a highly competitive market. Insurers have pointed out how they have passed on to customers the benefits of previous government action to cut the cost of civil litigation without the need for regulation. The Government, of course, are intent on monitoring the reaction of the insurance sector to these reforms and will engage with it in that regard. If the industry as a whole sought to avoid passing on these savings, that would signal that the competitive nature of the market had changed. If that were to happen, I have no doubt that the Financial Conduct Authority and, indeed, the Competition and Markets Authority would wish to investigate.
Nevertheless, I hear the message from around the Committee about the need to put further discipline in place with regard to these savings, and that is a matter that we will consider. As I say, I appreciate what is intended here. The question is how we can effectively bring that about. We have to remember that the insurers are regulated by the FCA already. Oversight is in place with regard to their conduct. With all due respect, I take issue with my noble friend Lady Berridge about there being some conflict between shareholder interest and the interest of customers.
An insurance company requires to rely on its integrity in order to maintain its resilience as an insurer. Any board of directors that abandoned integrity in favour of a larger dividend would find itself not only in conflict with its regulator but, no doubt, in conflict with its own shareholders, who would not appreciate that sort of conduct either, given that it would simply undermine the capital value of their investment. Therefore, I do not believe that there is that conflict of interest at all.
The amendment put forward by the noble Lords, Lord Beecham and Lord McKenzie of Luton, would introduce a formal requirement for Her Majesty’s Treasury to keep under review the ban on cold calling, and the amendment in the names of the noble Lords, Lord Marks and Lord Sharkey, would introduce a formal requirement for the Lord Chancellor to review the effect of cold calling and the ability to introduce regulations for a ban on cold calling. Of course, a ban on cold calling in relation to claims management was introduced in the Financial Guidance and Claims Bill and was agreed by this House quite recently. As noble Lords will be aware, the Bill inserts a provision into the privacy and electronic communications regulations, which govern unsolicited direct marketing calls, to ban such calls in relation to claims management services unless prior consent has been given. The Government consider these to be robust proposals which will add to the package of measures in place for tackling unsolicited marketing calls.
With regard to the use of the material that is obtained, there is of course provision for regulation of the legal profession. The SRA has regulations in place for the acquisition and use of such data, so that matter is already regulated. However, I acknowledge the point made by the noble Lord, Lord Marks, about the difficulty of what I would term “regulating the unregulated”, where cold calling centres are based outside the United Kingdom. I am advised that it is possible to trace more than half the cold calls received in the United Kingdom to one place—essentially a factory—based in Pakistan. But it is fleet of foot: it changes its name and location on a regular basis. That is a formidable challenge and we are seeking to approach it by means of regulating, apart from anything else, the use of the material gleaned by those means.
The amendment put forward by the noble Lord, Lord Beecham, would introduce a formal requirement for the Treasury to make regulations requiring the FCA also to prohibit certain pre-medical offers—I think that that is also in the amendment. Again, we are of the opinion that the Bill deals sufficiently with that issue as well.
As I indicated, I have heard what has been said around the Chamber about the consideration of further measures to ensure that savings are passed on to consumers, and I will give that further consideration before Report. On that basis, I invite the noble Lord to withdraw the amendment.
My Lords, I thank the Minister for that detailed reply. I am sure that these are matters to which we will need to return at a later stage. One of the things that we were seeking to be sure about—and this is, perhaps, an issue that we share with the Lib Dems—is how extensive and how robust across the board are the prohibitions around cold calling. The noble and learned Lord mentioned the SRA. As I recall, when we were debating the financial guidance Bill at Second Reading, the SRA and its activities were held out as being a reason to ban cold calling for personal injury claims. But then one noble Lord in the debate said, “No, there are people getting round that by a number of means”. It is those sorts of issues that we want to be sure about, so that we can look across the piece and see that cold calling—so far as it can possibly be legally achieved within the UK—is dealt with. Having said that, I beg leave to withdraw the amendment.
Amendment 43 withdrawn.
Amendments 44 to 46 not moved.
Clause 6 agreed.
Amendments 47 to 49A not moved.
Clause 7: Interpretation
Amendments 50 and 51 not moved.
Clause 7 agreed.
House adjourned at 5.25 pm.