Examination of Witnesses

Prisons and Courts Bill – in a Public Bill Committee at 2:00 pm on 28th March 2017.

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James Dalton, Brett Dixon and Rob Townend gave evidence.

I welcome the next panel of witnesses. We will now hear oral evidence from the Association of British Insurers, the Association of Personal Injury Lawyers and Aviva. We have until 4.30 pm for the session. Please will the witnesses introduce themselves for the record?

Brett Dixon:

Hello, I am Brett Dixon. I am the vice-president of the Association of Personal Injury Lawyers. We are a not-for-profit organisation that looks out for the interests of injured people.

Rob Townend:

Hi, I am Rob Townend. I am the UK claims director for Aviva.

James Dalton:

I am James Dalton, the director of general insurance policy for the Association of British Insurers.

Photo of Oliver Heald Oliver Heald The Minister of State, Ministry of Justice

Q Let us start with you, Mr Townend. In recent years, since 2005, we have seen a fall in the number of road accidents, we have seen safer vehicles and we have seen a more than 50% increase in whiplash-related claims. Can you put this in perspective and tell us what you think the problem is and whether you think our tariff system is going any way to solving it?

Rob Townend:

The first part, yes, we have seen a reduction in road traffic accidents and an increase in injury claims. From our perspective, it is the easy access to cash that has created the problem. In terms of your tariff, I think that will go part way with the other parts of the solution to deal with the problem around whiplash in the UK. It is interesting if you look at places such as Germany, where injury claims have fallen in line with a reduction in road traffic accidents.

Photo of Oliver Heald Oliver Heald The Minister of State, Ministry of Justice

Q On what you think the problem is, you said “easy access to cash”. Would you like to explain the whole thing a bit more fully?

Rob Townend:

The insurance industry has been part of this in settling claims too quickly. Some of that has been an attempt to avoid ongoing costs. A whiplash claim can get anything from £1,500 to £4,000. It is quite difficult to diagnose whiplash, so the propensity for claims has increased over the last 10 to 15 years.

Photo of Oliver Heald Oliver Heald The Minister of State, Ministry of Justice

Q What do you put it down to? What is actually going on?

Rob Townend:

I think it is claims farming, nuisance calls and people drawn to easy money. I think it is everything from “cash to crash” gangs to opportunists. Claims management companies are driving up claims and incentivising people to make claims.

Photo of Oliver Heald Oliver Heald The Minister of State, Ministry of Justice

Q What about you, Mr Dalton? Do you agree? Do you think the tariff system will help?

James Dalton:

I think the way Mr Townend has articulated the problem is exactly right. The behaviours that he described are symptomatic of a system that has too much money in it and incentivises lawyers to farm claims and to push claims into the system for insurers to pay, which drives up the cost of car insurance for everyone.

In terms of the Government proposals in the legislation, the tariff system is an important mechanism to provide clarity to claimants about the amount of damages that they will receive. That is an important clear signal to claimants in terms of ensuring that they get some compensation for the injury that they have suffered.

Photo of Oliver Heald Oliver Heald The Minister of State, Ministry of Justice

Q Say that Mr Dixon says in a moment, “No, these are all genuine claims, and anyway they haven’t gone up; they’ve gone down.” That is something I have heard said. What would you say about that?

James Dalton:

I am sure Mr Dixon will say that. He is being selective with the numbers he is using. There is absolutely no doubt that the number of whiplash claims has decreased. That is true—it is what the Compensation Recovery Unit statistics will tell you—but at the same time that the number of whiplash claims has gone down, the number of back injury claims has gone up significantly. Claimant lawyers re-labelling what is essentially the same injury as a back injury rather than a whiplash injury does not mean that the claim has gone away.

Photo of Oliver Heald Oliver Heald The Minister of State, Ministry of Justice

Q The circumstances are the same, are they not? A shunt up the back, and then it is described as a back injury rather than a whiplash injury.

James Dalton:

Correct.

Photo of Oliver Heald Oliver Heald The Minister of State, Ministry of Justice

Q Well, Mr Dixon, are you going to tell us what I predicted, or do you disagree?

Brett Dixon:

No, I was going to start by correcting something Mr Dalton said. It is not the claimant’s lawyer who enters the details for the Compensation Recovery Unit; it is the defendant’s representative. If they are being entered as back injuries, it is the defendant’s representative doing so. I am aware of that as a practitioner. The Government CRU statistics seem to me to be crucial to understanding this. If you look back—

Photo of Oliver Heald Oliver Heald The Minister of State, Ministry of Justice

Q Can you explain what it is, in case anybody here does not know? It is the DWP, isn’t it?

Brett Dixon:

It is. If you have an injury claim, the defendant’s representative informs the DWP—the Compensation Recovery Unit—that a claim is being made. Then there is a mechanism for the Government to recover costs such as NHS costs or benefits paid because someone has been unable to work. It is important that the money from the person who has negligently caused harm finds its way back into the Government system, rather than the Government and the taxpayer footing the bill, but what is important about those statistics is the simple fact that they effectively record the number of claims that go through the whole court system as well as claims settled before the court system.

If you look back six years, you can see that the Government figures show a 41% decrease in this type of whiplash claim. If you look at it in terms of neck and back—there are different recording mechanisms; they are all available and there to be seen—there is an 11% decrease over a similar period. The ABI’s own statistics also show that since 2013, which is roughly after the last major set of reforms, the cost of dealing with these types of claim is down 12%. They are saving approximately £500 million per year. There is not an issue in terms of cost.

I would urge the Committee not to be taken in by the hyperbole prevalent in the sector and think how we as a society we would want to deal with someone who has been genuinely injured as a consequence of somebody else’s negligence. There should be consequences for wrongs, and insurance is there and takes a premium to cover people in those circumstances. If there are issues with people pursuing claims that are not genuine, that is a completely different thing for the Committee to look at. We should not impact on genuine people and the fabric of our society in an effort to deal with that problem.

Photo of Oliver Heald Oliver Heald The Minister of State, Ministry of Justice

Q So, Mr Townend, you are exaggerating the figures and these are genuine claims.

Rob Townend:

There is point around it being a choice for society—that is the one thing we agree with—whether people want to pay for these claims in their premiums; whether they want the ongoing nuisance calls; whether they want the fraudulent and opportunistic claims. We seem to think of this as victimless crime where people are not injured, but we have to defend our customers from spurious claims through the courts. We have had serious injuries and fatalities related to “cash for crash”.

In terms of the volume point, our volumes have been flat for the last three or four years. We still see significant variations between different areas of the country in terms of injury as a proportion of total claims. Somewhere like Exeter has 20% of road traffic accidents with an injury. If I go to Manchester, it is nearly two and a half times that. Why do they have weaker necks in Manchester than in Exeter? The road traffic accidents are no different, so that tells you the extent of the problem.

Photo of Oliver Heald Oliver Heald The Minister of State, Ministry of Justice

Q If there are some savings here, is it right that Aviva has said that they will pass them on to the customer?

Rob Townend:

Absolutely. We will guarantee to pass on 100% of the savings through the premiums.

Photo of Richard Burgon Richard Burgon Shadow Lord Chancellor and Shadow Secretary of State for Justice

Q Can I just start by clarifying with the Aviva representative that Aviva has chosen to pass that saving on? That is not compulsory; it is your organisation’s choice to do that.

Rob Townend:

It is our commitment as an organisation. Most of you are aware of how the market works; it is a highly competitive motor market. There are a lot of underwriters and business providers. Whether claims costs increase or reduce, they typically flow through to our premiums.

Photo of Richard Burgon Richard Burgon Shadow Lord Chancellor and Shadow Secretary of State for Justice

Q To the best of your knowledge—obviously, you will know all about your competitors—is Aviva in a minority in taking this position to pass on the saving?

Rob Townend:

I know others have. I do not know whether James knows more.

James Dalton:

There are firms that, like Aviva, have committed to pass on the savings. As Rob said, the market is highly competitive. There are 97 businesses in the UK that write car insurance. If one firm fails to pass on the savings—that may happen—the premiums charged by that firm will be higher, so consumers will switch. There is a report out from the Competition and Markets Authority this morning that indicates that over 80% of consumers use a price comparison website each year to shop around for insurance. It is a highly competitive market, and the dynamics of that competition will ensure that savings are passed on to consumers.

Photo of Richard Burgon Richard Burgon Shadow Lord Chancellor and Shadow Secretary of State for Justice

Q So there is no figure at moment about how many of the 97 competitors have adopted Aviva’s approach? We do not know whether it is a minority or a majority of them?

James Dalton:

There is no figure.

Photo of Richard Burgon Richard Burgon Shadow Lord Chancellor and Shadow Secretary of State for Justice

Q Finally, I would like to ask each of the panel members, starting with Brett, why, in your opinion, the Government do not seek to better regulate claims management companies, which unlike solicitors are free to cold call potential customers?

Brett Dixon:

In my opinion, the Bill is a missed opportunity to deal with the real drivers of these types of claims, and that is claims management companies. I can see the argument that, in some respects, if you do not regulate claims management companies—which we would firmly support—and you do not ban pre-medical offers and cold calling, you are creating a circumstance where someone who does not have a genuine claim might see this as a one-way bet. By that I mean that you might be encouraged by a claims management company to make a claim. I am told that insurers make pre-med offers without any medical evidence and you can, in effect, make it up and not be able to be called to account, because you can stop before there is medical evidence. If you take rogue claims management companies out of the equation and ban this insurance-led practice of making pre-med offers then I think you deal with most of the problems in the sector that we are hoping to deal with through the Bill and maintain the position of the genuine claimant who wants access to justice.

Photo of Craig Tracey Craig Tracey Conservative, North Warwickshire

I shall start with you, Mr DaltonQ . Obviously, the Government are keen to get a definition of whiplash in the Bill, and I think it will be key to this being successful that we get that definition right. Does the current framework definition hit all the right spots, or should we be looking at something else?

James Dalton:

This is a critical point. Clause 61 defines whiplash: we have some significant concerns, which go to my earlier comment that the definition does not adequately include cover for back injuries: it includes neck and upper torso but does not include back. We think that is a really important part of the jigsaw that needs to be included within this legislative framework, so that you capture the right type of claims. The risk if you do not do that is that whiplash injuries will become back injuries and they are not covered by this legislation.

Rob Townend:

I have the same answer, really. We do not want to see a loophole where back is excluded and you end up with two systems, one for neck and upper torso and one for back. It adds complexity and reduces the number of claims that are caught by the legislation by about 60%.

Brett Dixon:

Clause 61, particularly clause 61(1), does contain provisions for further regulations. I think it is important to understand what is intended in the regulations and how that would interact with it. I sound one note of caution as a practitioner: it would be within the realms of a medic or a medical expert to define what whiplash is. If you were to ask a medic, or you were to ask a lawyer to give a go at what a medic would say, they would say it is soft tissue injury to the upper torso and neck that has been caused by hyperextension or hyperflexion. The mechanism is as important: some thought needs to be given to involving a medic in the way that regulations are drafted. That is the most important point.

Photo of Craig Tracey Craig Tracey Conservative, North Warwickshire

Q What about the MedCo definition?

Brett Dixon:

The MedCo definition is something of a work in progress in many respects. There is a definition there that has been imported into the civil procedure rules and this draws in part from it. Just because it exists in the civil procedure rules and is used for MedCo does not mean that this is either a good starting point or the way to go. This is an opportunity to define it properly by using and involving medics.

Photo of Craig Tracey Craig Tracey Conservative, North Warwickshire

Q What are the consequences to insurers if you get the definition wrong, in terms of additional cost? Has there been any analysis of how much more that will cost insurers?

Rob Townend:

You will see displacement of claims from purely neck injuries to back injuries. The analysis we have done suggests that 60% of the claims that are currently wrapped under small soft tissue injuries will drop out. Without the displacement impact, where people will claim, I think it gives a loophole for fraudsters and I do not think it will help to reduce nuisance calls.

James Dalton:

No. I think the revised regulatory impact assessment from the Ministry will be extremely important for understanding the extent to which this definition will deliver the Government’s anticipated savings. Because I do not think it will, for the reasons I have already explained. So if we do stick with this definition, the regulatory impact assessment should show that.

Photo of Craig Tracey Craig Tracey Conservative, North Warwickshire

Q That brings me to the cost. We have already said that Aviva has said that it will pass on the cost, as have other insurers. It was based on a £40 figure, wilfully, at the time, but I think that figure was based on the complete removal of soft tissue injuries. Has there been a re-evaluation of likely cost? What is the impact on other things such as insurance premium tax rises and discount rate changes, which we will obviously see? You can pass on a saving but that does not necessarily mean a lower cost.

Rob Townend:

Let me deal with the exclusion of back, which has the biggest impact in terms of how the definition is written. Having a tariff instead of removing damages in its totality has a smaller impact. I think our analysis—we can share it properly with the Committee—was £4 or £5. So the bigger impact is in the reduction of back. The second part of the question was—

Photo of Craig Tracey Craig Tracey Conservative, North Warwickshire

It was around other impacts such as IPT rises.

Rob Townend:

The environment around motor pricing at the moment is really dynamic. IPT has been going up and the discount rate has significant impact on premiums for larger injuries. Adding these together, the opportunity to offset premium increases with a reduction in the cost of whiplash claims would be beneficial to consumers.

James Dalton:

We have been very public about our view that the decision to reduce the discount rate to the extent that it has been reduced is absurd. There is a very important need to reform the system and we look forward to seeing the Government’s consultation on that in due course. Inevitably that has already led to increased car insurance premiums and an increase in the insurance premium tax. This makes it even more important to progress these reforms in order that premiums will not go up as much as they would were you not to proceed with these changes.

It comes back to the society question: do you want to live in a society where you have a claims culture and compensation system that drives the sort of behaviours that Rob Townend was describing earlier. I think the answer that most consumers give to us is that they are sick and tired of the cold calling and the text messages. This is the system that drives them.

Photo of Nick Thomas-Symonds Nick Thomas-Symonds Shadow Solicitor General

I have two points, Mr Brady, and the first is to Brett Dixon. The small claims track limit of £1,000 has been there since 1999. If you increased it by the same rate as the consumer prices index, you would end up with just under £1,500. If you increased it by the same rate as the retail prices index, you would end up with just under £1,600. Do you think there is any justification for going to £2,000 in most cases and £5,000 in whiplash casesQ ?

Brett Dixon:

I do not think there is any justification for it, to be perfectly frank with you. The use of a small claims track system is to identify those claims that somebody can deal with on their own, rather than it being about a monetary value. If you introduce changes to the small claims track at the same time as altering the court system to provide hearings at a distance—video evidence—you are going to make it incredibly difficult for a litigant in person to deal with and understand all those issues on their own.

Remember, the defendant who has paid an insurance premium has a right to call on those insurers to provide them with legal representation. I always think of it as being the person in the dentist’s chair on their own—that is what you would be as a litigant in person against well-represented opponents. I think that there is no justification, either monetarily as you have put it, or on the basis of the purpose of a small claims track.

Photo of Nick Thomas-Symonds Nick Thomas-Symonds Shadow Solicitor General

Q Perhaps Mr Dalton could answer another question. You are talking about a claims culture and all the rest of it. When we are talking about fraudulent claims, if there is sufficient evidence to plead fraud—and I appreciate there has to be a bar to plead fraud—the defendant lawyers, whoever they are, will plead the fraud and it is either proved before the court or it is not. I can remember my own involvement with these cases. You will have a number of cases where fraud has been definitively proven. Beyond that, any statistics are just based on suspicion, aren’t they?

James Dalton:

No, not really, because the ABI produces statistics which indicate the number of detected fraudulent motor claims each year. In 2015, the last year for which statistics are available, there was £800 million of detected insurance fraud and there were around 70,000 cases. However, I think the really important thing to think about in this context is whether the reforms are designed to address fraud. I think that they will help to address the fraud issues that you have articulated, but again it comes back to the societal question: do you want the text messaging, the spam calls and that type of environment, with the money in the system that drives those sorts of behaviours?

Photo of Nick Thomas-Symonds Nick Thomas-Symonds Shadow Solicitor General

Q In how many of the 70,000 cases where you say fraud was detected were the frauds actually proven before the courts?

James Dalton:

I do not have those statistics. Each insurer will decide whether they take further action; maybe Rob can explain how Aviva approaches it. Each insurer will make a decision as to how they deal with the case in question.

Photo of Nick Thomas-Symonds Nick Thomas-Symonds Shadow Solicitor General

Q But you just made a statement about 70,000 cases of detected fraud and you cannot even tell me how many of those are actually proven before the courts?

Photo of Suella Fernandes Suella Fernandes Conservative, Fareham

I have defended parties in low-velocity impact claims, and the guidance is generally set out when an allegation of fraud is going to form part of a defence; it is set out in the Court of Appeal guidance for Casey Q v. Cartwright. What do you think is the problem with that guidance and how will these proposals assist? It imposes a burden on the defendant to notify that fraud will be part of the defence and, importantly, in many cases it will allow them to adduce medical evidence on the issue of causation.

James Dalton:

There are a number of tools at insurers’ disposal to address the type of cases that we have just been discussing. Whether insurers choose to use them is obviously a decision for them and, as I said, Rob might be able to explain what Aviva’s position is.

However, the Government have recognised that fraud is a big problem in insurance. They established an insurance fraud taskforce, which has reported and made a number of recommendations for reform. The Government have delivered. For example, there is now a fundamental dishonesty action that insurers can plead in court, so that those claims that are so flagrantly fraudulent are kicked out of the system. We need those tools and we are using them to get rid of fraud from the system.

Rob Townend:

It is a good question; I will answer two questions together. We started defending claims at Aviva a couple of years ago. We stood back and said, “Look, we’re not going to back away quickly. We are going to trust the courts to support us,” and we took a defence excellence strategy on behalf of our customers. If they are saying, “There wasn’t anybody injured. I might have been liable, but the speed of the accident didn’t cause injury,” we have been defending our customers through the courts for the last couple of years. I think we have put 1,700 through the courts; we have a success rate of something like 70%. More recently, we have had great success with fundamental dishonesty and the judges are generally starting to support us. I think we have had 174 cases where we have had fundamental dishonesty.

If we go to the other gentleman’s comment about fraud, we do not pay one in 10 of our whiplash claims. Some of that disappears when we challenge it. I invest millions of pounds in investigation analytics capability technology and we will challenge plaintiffs at the first point where we think the claim is linked to a gang and is spurious. We do not pay one in 10 of our whiplash claims at Aviva.

Photo of Suella Fernandes Suella Fernandes Conservative, Fareham

Q Does Mr Dixon wish to comment?

Brett Dixon:

Yes, I would—thank you.

In some respects, the debate has moved on from fraud and low-velocity impact. That is because of the provisions that were enacted in relation to fundamental dishonesty, which are in the civil procedure rules at rule 44.16 and in section 57 of the Criminal Justice and Courts Act 2015.

If a defendant thinks that there is fundamental dishonesty involved in a claim, they have two opportunities to challenge it. They can challenge it at the conclusion of a case, when the case is unsuccessful, and then seek their costs. They can also challenge a case if it is successful but there is a question mark over what has been claimed, and that can lead to a claimant losing all of their damages and to a cost order as well. There are sufficient drivers in the system and levers that can be pulled to discourage any type of claim like that.

It is important, though, to understand this in context. First, the most important thing is to consider proven fraud. I see in practice, from different members of our organisation, many allegations of fraud or fundamental dishonesty that are not made out when tested by the court. You only need to look at a recent Court of Appeal decision by Lord Justice Briggs in Qader & Ors v. Esure Services Limited to see that there is a developing gaming of the system by insurers to prevent people from being able to challenge those cases properly. That case was about trying to prevent a claimant from having access to the same tools to fight the allegations as a defendant has to bring them.

There was an implicit recognition from the Court of Appeal in that judgment that it is important that a person who is accused of something like that has the ability and resources to answer it. It is a serious issue for somebody accused of it and it is about what is proven fraud, rather than vague statistics of about 70,000 cases, where we are not quite sure whether it is fraud, detected fraud or suspicion of fraud and what standard that is at. It is for the judiciary to decide if that is an issue and, if it is found to be an issue, that person should be dealt with. Equally, if you are going to have access to justice and equal rights on a level playing field, they need the ability to challenge it in appropriate circumstances.

Photo of Chris Philp Chris Philp Conservative, Croydon South

Welcome to our panellists this afternoon. About three years ago, my wife and I were involved in a relatively minor road traffic accident. For the year that followed that, I was phoned up on my mobile almost every week by people talking about the accident and trying to make me submit a claim for a neck injury. No matter how many times I told them that neither I nor my family had suffered any injury, they persisted in trying to incite me to commit fraud. Mr Townend, why were they doing thatQ ?

Rob Townend:

I spoke a bit about it earlier: it is encouraging you to make a claim so they can access the cash. The referral fee ban that was put in LASPO obviously is not working. There are marketing fees available for people to attract you to make a claim. I agree with Mr Dixon and his earlier comment about regulation of claims management companies. Insurers and lawyers are heavily regulated; I would still like to see more regulation of the legal fraternity by the Solicitors Regulation Authority. The regulation around CMCs has been pushed back, I understand, to 2019. The referral fee ban has not worked. There is too much money still in the system and they will keep pestering. We know that. We have got a lot of examples where vulnerable customers are being contacted repetitively, like you were, until they make a claim.

Photo of Chris Philp Chris Philp Conservative, Croydon South

Q Am I right in saying that panel members are unanimous in their view that cold calls by CMCs should be banned?

Brett Dixon:

Yes.

Rob Townend:

Yes.

Photo of Chris Philp Chris Philp Conservative, Croydon South

Q The panel is unanimous on that point.

You mentioned referral fees, Mr Townend. As you say, they were banned a few years ago. My understanding is that some organisations, including insurance companies, seek to circumvent the referral fee ban by entering into what they euphemistically term “alternative business structures”, where they essentially have some kind of equity stake in a claims management company and, effectively, get paid via their equity stake or similar arrangement, rather than an explicit referral fee. Is it the opinion of the panel that this practice, designed to circumvent the will of Parliament, is going on?

James Dalton:

The referral fee ban is widely regarded as being relatively ineffective. The mechanism you have articulated is one of the ways people have chosen to get around that ban, including insurance companies and law firms, I would emphasise. That problem is addressed substantially by the reforms in this legislation, because what they do is take that money out of the system and, therefore, take out the incentive to try and circumvent a referral fee ban.

Photo of Chris Philp Chris Philp Conservative, Croydon South

Q Mr Dixon, do you want to add at all to that before I move on?

Brett Dixon:

I will with an anecdote, more than anything else. I shared a similar experience to you where I had vehicle damage. I was not in the vehicle. It was in a supermarket car park and an older gentleman was kind enough to leave his details. I was pestered by my insurance company. I was even asked, “Are you sure you weren’t in the vehicle?” Take that on board.

If you have damage to your vehicle—your car that is insured—the first organisation that has access to knowledge that you have had an accident is the insurance company. They take referral fees for work—I am aware of that practice—and they also make a profit from referring such cases on. You only need to look at some of the reports that they make as part of the stock market requirements in relation to that.

Generally, if you take claims management companies out of the equation, you will remove one of the drivers. If you look at banning the practice of insurance companies and claims management companies referring work on, you go some way towards doing that as well. If you ban cold calls, for which the Association of Personal Injury Lawyers has been campaigning for some time, you remove the possibility of what I call the one-way bet and you are focusing then on the real problem, rather than on the genuinely injured person.

Photo of Chris Philp Chris Philp Conservative, Croydon South

Q Your mention of the one-way bet brings me to my next area of questioning. Take the example I experienced: had the recipient of that cold call been someone who was more open to temptation than I am and gone along with what the claims management company was suggesting, how would the claims management company have ended up making money out of an essentially bogus claim? They must be able to make money out of it, otherwise it would not be worth them soliciting the public.

Brett Dixon:

It is the one-way bet analogy. If you then compound the problem by allowing an insured defendant to make an offer to somebody without seeing medical evidence, where are the checks and balances in the system? Bear in mind that a claims management company may be dealing with that, rather than a lawyer or a solicitor at that point. If you remove those two levers, those two drivers—the cold calling and the effect of a claims management company encouraging somebody to make it, and an insurance company then making pre-med offers without evidence of the actual injury—then you can deal with a lot of the problems that are inherent in the sector.

Photo of Chris Philp Chris Philp Conservative, Croydon South

Q Am I right in saying that under qualified one-way costs shifting, were an insurance company to take the choice to defend a claim, even if it were successful in defending that claim—if the claim was found to be without foundation—the insurance company would none the less bear both sides’ costs? Would it not further be the case that those costs would be substantially—probably by a factor of two or three—in excess of the value of the claim, and that is why for the past five, 10 or 15 years, insurance companies have simply coughed up without challenging the case? Perhaps Mr Townend might comment on that.

Rob Townend:

Yes; I am one of the insurers who has been defending despite the costs.

Photo of Chris Philp Chris Philp Conservative, Croydon South

Q When you defend a claim and win, do you lose money?

Rob Townend:

It depends if we then go for a costs order. We will try to if we think we will be successful in that. What is really interesting is that, in the model I operate, the only person I am paying as a result of an injury claim is the party who has been injured and their lawyer. How the CMC gets remunerated for that introduction, I do not really know. The only person I am paying cash to is the plaintiff and their lawyer.

Photo of Chris Philp Chris Philp Conservative, Croydon South

Q Presumably one of those two makes an onward payment to the claims management company?

Rob Townend:

I do not know how it works.

Photo of Chris Philp Chris Philp Conservative, Croydon South

Q Mr Dixon, you practise in the area. How does the money get to the CMC—by magic?

Brett Dixon:

I do not take any work from CMCs; I take the work from personal referrals. What I would like to do is to pick up on some of your questions.

Photo of Chris Philp Chris Philp Conservative, Croydon South

Q Before you do, you also represent the trade body representing personal injury lawyers, so you can answer in general terms. How does the money get from the claimant’s lawyers or the claimant to the CMC?

Brett Dixon:

We do not recommend that any of our members interact with CMCs.

Photo of Chris Philp Chris Philp Conservative, Croydon South

Q I did not ask what you recommend, which I am sure is very virtuous; I asked what actually happens in practice.

Brett Dixon:

I would not know what happens in practice because I don’t do it and our members are told not to do it either.

Photo of Chris Philp Chris Philp Conservative, Croydon South

Q They clearly do, otherwise CMCs would not exist.

Brett Dixon:

We have a large membership but it is not all people who practise in the area. There may be areas where they are not APIL members where that practice goes on. To go back to your earlier point about the qualified one-way cost shifting and the effect of it, qualified one-way cost shifting was brought in to replace the after-the-event insurance policy, which was something insurance companies were making money out of.

Now, if a claim is not successful, then there are exceptions to the qualified one-way cost shifting rule. Take the example of the one-way bet, where someone has not actually had an accident. There would be two different provisions in the civil procedure rules whereby a defendant could get their costs paid. There would be fundamental dishonesty, and there would also be the fact that the claim would be struck out for being no cause of action, or an abuse of process. If there was no actual accident, then it is not a viable claim. It would be an abuse of process.

If the claim was successful, there is a provision in section 57 of the Act for them to recover in circumstances where there is a taint of fraud in relation to a fundamental, or large, part of the claim. If a defendant challenges a claim where there is evidence of fundamental dishonesty, or it is based on a one-way bet, there is a mechanism for them to be paid. It is a mechanism that is being used and, like any provision that you introduce into the civil procedure rules, the mechanism takes time for the courts to interpret and to bed in. However, there have been quite a lot of cases—at county court level, High Court level and some in the Court of Appeal—that are starting to shape how that works. The fundamental point is that, in those circumstances, there is a mechanism for a defendant to be paid for the costs they have incurred.

The final point you made was about the cost being two or three times the likely damages. If it is for a whiplash claim that is in the fast track, then that is fixed cost, so you will not get two or three times the damages. The only circumstances in which you would are if you have made a part 36 offer to the defendant and then gone on to do better than it. In other words, you offered to settle at an early stage and that offer was ignored. That is there to promote settlement between the parties and save court time.

Photo of Chris Philp Chris Philp Conservative, Croydon South

Q The phrase I have heard several of you use is this idea of a one-way bet. Given that it is a one-way bet, it is no surprise that the floodgates have opened in the past few years.

I would like to come on to the pre-med offer point, which is important. In clauses 64 and 65, legislation contemplates essentially banning pre-med offers where there has been a whiplash claim—a whiplash claim is defined as in clause 61. Would it not make sense, in relation to the banning of pre-med offers, to suggest that any personal injury claim in relation to a road traffic accident should involve a face-to-face medical examination, rather than just the whiplash claims, as currently drafted? Would that not be a much stronger way of ending the pre-med offer practice?

Rob Townend:

From our perspective, absolutely. We would like to see a pre-med offer ban. In Aviva, we do not make any offers without a medical—again a decision we made—

Photo of Chris Philp Chris Philp Conservative, Croydon South

Q Are those face-to-face medicals?

Rob Townend:

Yes.

Photo of Chris Philp Chris Philp Conservative, Croydon South

Q You are unusual in doing that, are you not?

Rob Townend:

Yes, we are pretty unusual doing that. We looked at the overall system and said, “We do not want to feed it”. We wanted to make sure we have medical evidence around the settlements we make, and that we then follow through and defend those if we think the injury is not in line with either the accident—

Photo of Chris Philp Chris Philp Conservative, Croydon South

Q So the suggestion I just made is in line with your current practice, and it would effectively force the rest of the insurance industry to adopt the very commendable practice you are already adopting voluntarily?

Rob Townend:

Yes, I think: do not pay a claim without medical evidence, whether that is a motor accident or a liability claim in the commercial courts.

Photo of Chris Philp Chris Philp Conservative, Croydon South

Mr Dixon, are you happy with thatQ ?

Brett Dixon:

Very short and very simple: yes, ban it in all personal injury claims. Pre-med offers should not happen.

Photo of Chris Philp Chris Philp Conservative, Croydon South

Goodness me, there we are! A further usual outbreak of unanimity.

Rob Townend:

There is one point to go back to. Do not end with a system with your current definition of whiplash that excludes back because, unless you do that, you will have no pre-med offers—

Photo of Chris Philp Chris Philp Conservative, Croydon South

Q There are two operative provisions in the Bill. One is in relation to the fixed tariff, and one is in relation to pre-med offers, and one might treat them slightly differently.

In relation to the definition of whiplash in clause 61, my colleagues have asked about this already but, having read your submission to the Committee, Mr Dalton, I think I am right in saying that you are concerned that the definition in clause 61(1) is too narrowly drawn. In particular, it excludes the back, and you are worried that there will be a sudden miraculous upsurge in people with bad lower backs.

James Dalton:

Absolutely correct. I repeat the point I made earlier: getting the definition right is absolutely critical to ensuring the success of this legislation, in terms of delivering the outcome that the Government have articulated that they want to achieve. At the moment, I am concerned that by excluding back you will see a surge in back claims that are not covered by this legislation.

Photo of Chris Philp Chris Philp Conservative, Croydon South

Q To be clear, we have heard a figure of £1 billion a year of savings mooted in the past. If we adopt the definition as drafted, in your opinion what proportion of those estimated savings will in fact be realised?

James Dalton:

I think you said earlier that Aviva’s figures suggest that 60% of the claims are probably going to be excluded, so take away 60% of £1 billion.

Photo of Chris Philp Chris Philp Conservative, Croydon South

Q The final question I would like to ask is about a matter I understand might be introduced into the Bill at a later date, which is to do with the discount rate used when paying claims for long-term injuries. It has recently been amended by the Lord Chancellor from, I think, 2.5% down to minus 0.75%. I would like to close by giving each of the panellists an opportunity to comment on that move and the impact it may have on the wider public.

James Dalton:

The decision to reduce the discount rate by 325 basis points has imposed substantial costs on the insurance industry. By “substantial”, I mean to the tune of about £6 billion. That is about 60% of the annual claims cost of motor claims. That cost simply cannot be absorbed; it must be passed on to consumers. Premiums will inevitably rise as a result.

A number of firms have indicated in the public domain that that is the case. The Government need to put out the consultation they said they would produce so people can address the principles underpinning how a rate is set. At the moment, it is linked to Government bonds. No one goes and buys Government bonds. It makes assumptions that 100% of a claimant’s damages are invested in one asset class. No rational investor would do that. So the fundamental underpinnings of how the discount rate are set are fundamentally wrong, and we need to address that.

Photo of Chris Philp Chris Philp Conservative, Croydon South

Q In the absence of any change, what is your assessment of the percentage impact on the average car insurance premium in this country?

James Dalton:

It will go up significantly. I think the impact on young drivers is going to be particularly bad, because those are the customers who are most likely to have catastrophic injuries. It is estimated that their premiums could increase by £1,000.

Rob Townend:

I will not say a lot that differs from what Mr Dalton has said. We have got to sort out the methodology for setting out the discount rate, because I think nobody would say that it fits the current world, either from an investment return point of view or from the point of view of looking after those who are seriously injured.

The fact that there are so many variations of the potential solution that the Lord Chancellor could have chosen tells you that the mechanism does not work. At the moment, while the consultation is happening, there is a world of uncertainty around what will happen in the future. I think it is in everybody’s interest to get clarity around a longer-term rate that can be as formulaic as possible and looks after the long-term interests of those who are seriously injured while looking at the longer-term investment returns that lump-sum payments can achieve. We just plead that the consultation is got on with quickly. We would love to see the piece of legislation that it could be put into.

Brett Dixon:

It is important to understand that you are dealing with issues at two ends of a different spectrum. You are talking about a whiplash claim, and in the same breath, in terms of the discount rate, you are talking about the catastrophically injured person. The important point in relation to that is that, first, the insurers have known for some time that this change was coming. It was long overdue. For a number of years they have made provisions in their own accounts for this, so to suggest that this has come like a bolt out of the blue is disingenuous.

Secondly, the changes are to ensure that a seriously injured person has sufficient moneys available to make provision for their future needs because of somebody’s negligent act. A lot of it is about care. If you are not making sure the person who did the damage is paying via their insurance policy, it will be the NHS and the taxpayer who ultimately have to foot the bill to look after that seriously injured person. What you will not change by changing the mechanism for the discount rate is the fact that that person is seriously injured and needs that care. It is right for society that the person who did the damage should foot the bill, not the taxpayer.

Insurers knew this was coming. I hear a lot of talk about how you cannot buy Government gilts. Because of the mechanism chosen in the Damages Act 1996, the person who is investing their money does so on the basis that they are taking a no-risk investment. That is why that is there. There are no other no-risk investments available. If you want a judge to calculate damages, he has to have a methodology and a starting point.

James Dalton:

No one is arguing about whether these claimants need the support that an insurance company is going to provide. No one is saying that these people should get less money. What we are saying is that the formula for setting the rate, which is now 20 years old, needs to be updated to take into account the fact that it is linked to Government bonds and assumes 100% compensation. These things do not just happen in practice.

Photo of Oliver Heald Oliver Heald The Minister of State, Ministry of Justice

Q I do not know if Mr Dixon and Mr Dalton would agree that the Lord Chancellor has had to exercise her duty in a quasi-judicial way under the existing mechanism as it stands. It is right for this to be a consultation about the future, but that was the law. Do you agree?

Brett Dixon:

I agree entirely. The Lord Chancellor made the decision that she was legally required to make. She was exercising a quasi-judicial function when we made the reforms, introduced the Supreme Court and made other changes. That role was retained by the Lord Chancellor, even though setting damages is properly a judicial function.

James Dalton:

I do not agree. The Government undertook consultation exercises in 2012 and 2013 specifically asking questions around whether the regulatory framework for setting the discount rate was right. Indeed, there is going to be a consultation now asking similar questions. To me, that suggests that the Government do not think that the framework is right. In that context, it also suggests that the decision that the Lord Chancellor has decided to take, based on legal advice, is questionable. I do not think that the way that she has taken that decision is right.

If there are no further questions, may I thank the witnesses for their evidence and invite the Government Whip to propose the adjournment?

Ordered, That further consideration be now adjourned. —(Guy Opperman.)

Adjourned till Wednesday 29 March at twenty-five past Nine o’clock.