There has been a flurry of announcements and initiatives that all go to issues that surround the the “compensation culture”. The Insurance Fraud Task Force in January and the Brady Review of Claims Management Regulation followed the Autumn Statement, which saw the announcement of an end to general damages for minor whiplash claims and an increase in the Small Claims Track (“SCT”) limit from £1,000 to £5,000 for injury claims. Government data confirms 190,000 EL /PL claims registered with the CRU, the vast majority of which will be affected by SCT reform. What could be the unexpected consequences and impact on claims experience and the risk management issues?
SCT change is unlikely before April 2017. Although it does not need primary legislation to implement. Civil Procedure Rule change is necessary and these take place each year in April and October. Given the delays caused by the EU referendum and the government’s desire to link the SCT changes with whiplash reform it is certainly too late for October 2016 amendment.
However, as with previous civil justice reforms, we can predict that there will be a surge in activity in early 2017 before the rule change as lawyers try to minimise the impact on revenue streams as cases move from the fixed recoverable costs environment to SCT.
Claimant funding models will have to change and Damages Based Agreements will become more attractive (itself another policy area the Government is considering). Economically, claimants, mindful of their net damages recovered, could choose to represent themselves – should they feel confident that they can present and assess their own cases – or through necessity if the supply of legal services for SCT cases diminishes. Alternatively, the access to justice gap could be filled by claims management organisations who have been adept at filling these market voids.
At the SCT / Fast Track margins the boundaries will be tested by all parties, anxious to ensure the best outcome for their clients, and the boundaries will not just be around the financial limits. There will be exceptions – for instance “infants” where the Courts have always been determined to afford judicial oversight and protection. A consultation will no doubt consider where the exceptions should lie, whether they should be extended and the appropriate tests to apply.
Angela Doran, Claims Focus Group Chair for Airmic provides a risk manager’s perspective in which she asks members to consider the potential unforeseen consequences of The SCT on risk profiling and claimant models.
When deciding whether the SCT change is right for you and whether you wish to participate in the consultation, various issues may need consideration:
- If the claimant profile changes in the sub £5k group, will that lengthen lifecycle, with the attendant difficulties re sub deductible provisioning with the actuaries?
- Although the fixed costs element of the claims will be reduced in the short term, will DBA agreements push up GDs and increase lifecycles affecting claims experiences and possibly premiums in the longer term?
- How will Airmic Members deal with the TPA/External legal providers contracts? Should risk managers be considering placing a tolerance on % split in terms of costs per case – would an in house option now be financially viable dependant on your claims profile and frequency? Should an “if” clause be used to allow a strategic change of direction?
- What will happen to the litigation rates and how will you resource the litigation? In house or external?
- What will fill the vacuum for claimants between £1,000 to £5,000k? Are the current in house claims teams SCT ready – if not what do they need to do to get there?
Consultation is expected on all of the above issues and will need a careful and considered response given the many linkages and issues. However, to keep reform “on track” for 2017 it is anticipated that the usual consultation periods may be shortened. Airmic members should be ready for a busy summer.