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Major insurer says reforms will increase the cost of car insurance8 Aug 2011by Eleanor Morris The Director of Technical Claims at Aviva, Dominic Clayden (pictured), has said that when the insurer  computer modelled Jackson’s final report
(the recommendations
from which are incorporated in the current Legal Aid, Sentencing and Punishment of
Offenders Bill), it was found that civil litigation costs (such
as personal injury claims in motor insurance) under the proposed system
would increase, rather than fall as intended. He added that the extra
costs would need to be passed on to car insurance
policyholders via higher premiums.Clayden's assertion that the Jackson reforms would make car insurance more expensive was made as long ago as early last year at the Law Society Civil Justice Section annual conference but it is not a theme that has emerged from other insurance providers or their representative body, the Association of British Insurers (ABI) subsequently. The latter has supported the Jackson reforms, in large part because it will render legal fees proportionate to the damages award, a move which they anticipate will lead to overall savings to insurance providers given that currently, according to the ABI, for every £1 paid in damages, 87p is paid in legal fees. Because the Government has accepted the Jackson-proposed increase in general damages awards by 10%, the Aviva calculations suggest that this increased cost will outweigh any reduction in legal fees. However, Aviva's modelling relates only to its own practices in relation to how and when it settles claims and it is possible that their practices are not generalisable across the industry if the ABI statement on legal costs, consitent with Jackson's own research, is accurate. Nonetheless, the anti-Jackson lobby sees the Aviva cost modelling as critical with the Access to Justice Action Group (AJAG), that was set up to fight the Jackson proposals by injury lawyer and ex-labour MP Andrew Dismore, arguing that the ABI has been disseminating a well-funded "mythology" in relation to legal costs in car insurance. AJAG correctly points out that it is often the behaviour of insurance companies themselves that unnecessarily pushes up legal costs in litigation. Shadow Justice Minister, Andy Slaughter, a former barrister specialising in personal injury cases, has also cited the Aviva modelling in his criticism of the Government's reforms while rubbishing the insurance industry assertion that motorists are paying an extra 10% on their car insurance as a result of high legal costs in settling personal injury claims. While cost judges have generally supported the Jackson reforms, three costs judges from the Senior Court Costs Office (Campbell, Haworth and Leonard) wrote in response to the Government consultation on the Jackson reforms (published in the AJAG campaign documents): “The Costs Judges deal with many bills in which the costs have been significantly but avoidably increased by the conduct of Defendants. In some cases, the litigation is conducted with hostility, thereby requiring claimants to address each and every point. In others, defendants delay, thereby causing unnecessary additional costs. In others still, settlements are left to the last minute, thereby often triggering the third stage of a three stage success fee (always 100%) whereas had the defendants opened the negotiations earlier, the figure would have been significantly less. Where this happens, the fact that success fees are claimed at 100% is not a reason to criticise the recoverability regime. On the contrary, culpability lies with the defendants who, nonetheless, are always the first to complain on detailed assessment about having to pay success fees at levels which they contend are unfair, disproportionate and impede their access to justice. In reality, the fault lies with defendants such as these and not with the recoverability regime as a whole.” Those cost judges in favour of the Jackson proposals take the view that if in practice dysproportionate legal fees are incurred, reform that will prevent this is to be welcomed. Nonetheless, there is much more uncertainty about the true impact of the reforms, something the Government freely admits in its own impact analyses, than either side of the debate would suggest. If Aviva is right, it could turn out that it will be the banning of referral fees, if it occurs (as now appears likely), that will have the greatest impace on reducing costs in litigation by reducing referrals to costly services and reducing numbers of claims substantially (in addition to those already reduced by the no win, no fee reforms). The bottom line, however, is that consumers will probably not see a significant drop in their car insurance premiums as a result of the reforms but it will become harder for some genuine cases to access justice. |
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