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Does Lord Young's report introduce common sense to the 'compensation culture'?
22 October 2010
Lord Young’s report to the Prime Minister on ‘compensation
culture’ last week promised to outline a common sense way forward
for health and safety, and address problems within clinical
negligence and personal injury litigation highlighted by Jackson.
We take a look at Lord Young’s proposals and in particular as to
how they may affect the insurance industry.
Watch this space?
Lord Young’s recommendations on changes to the handling of
personal injury and clinical negligence claims are perhaps the most
welcome part of his report for insurers.
Young’s recommendations:
- examining the option of extending the RTA scheme upper limit to
£25,000
- introducing a simplified claims procedure for personal injury
claims on a fixed cost basis
- restrict the way in which referral agencies and personal injury
lawyers operate with restrictions on advertising
The laudable aim of Lord Young is to simplify the claims process
and reduce the time taken to agree damages and to reduce costs.
There is no detail in his report as to how this would be achieved
and one remembers the difficulties that Lord Justice Jackson
encountered when trying to reach a consensus on the question of
costs between claimant and defendant bodies. It is unfortunate that
no framework has been set out in his report as to how he intends to
implement his proposals. It seems to be a question of ‘watch this
space’.
Squeeze on referral fees
Lord Young also shows his distaste for claims management
companies (CMCs) and some claimant personal injury lawyers. He
believes some of their advertising provides a “high pressure
inducement” to bring a claim. He expresses concern that cases are
auctioned off to the highest bidder and that, in effect, 15% of the
total cost of a claim goes to pay for a referral fee. Lord Young
has asked the chair of the Advertising Standards Authority to
review the advertising of some CMCs and lawyers to ensure that the
advertising code is being adhered to. However, the difficulty he
faces is highlighted by the content of his letter which
acknowledges that the advertisements may be within the law but that
he feels that they are not socially responsible. If the
advertisements do not break the code, we cannot see that anything
can be done about the advertising.
So far as referral fees themselves are concerned, Young comments
that he believes these have added to the perceived “compensation
culture”. No firm recommendations are made in relation to referral
fees – perhaps he hopes that, by curbing the worst excesses of
advertising and by extending fixed fees, these measures will put a
sufficient squeeze on the market to depress referral fees. The
recommendations of the Legal Services Board will be important to
note and earlier this year they published their research to show
that the public did not have great concerns about referral
fees.
Lord Young does not believe that the current regulation of the
industry goes far enough and has written to the Regulator to
express his concern and to ask for a review to be undertaken.
Again, there is no firm agenda for the review and it remains to be
seen whether anything will change when the ambit of the proposed
review is so woolly.
A waiting game
In short, Young’s report does not really take us any further on
CFAs and DBAs than Lord Justice Jackson did but he does indicate
that he is in favour of the conclusions reached in Lord Justice
Jackson’s report, namely that he sees this as preserving the ‘no
win, no fee’ agreement but that the costs for which the losing side
would be liable, would be limited. Young’s rather empty conclusion
is that he welcomes the Ministry of Justice consultation about
Jackson’s proposals on CFAs and DBAs in the autumn and so we await
the detail of the consultation.
Add on policies on the way out?
Lord Young is of the opinion that "add on" policies are not the
way forward and that instead the insurance industry should look at
ways to make stand alone policies available. No evidence appears in
his report as to why he believes "add on" policies should no longer
be considered relevant and no reference is made to the fact that
this issue was looked at in some detail by the Ministry of Justice
in 2007. Further insurance experts are quoted in that report as
suggesting that stand alone policies would cost upwards of £250.
One wonders, in a climate of financial austerity, as to how popular
these policies would be with the general public. If there is a
genuine open-mindedness to looking at new and innovative ways to
fund litigation, then we believe that this will create
opportunities for insurance companies to come up with cost
effective ways to fund litigation.
“Worthwhile activity” – a vague concept?
Young’s recommendations:
- insurers refrain from requiring SMEs that operate in low risk
environments to employ health and safety consultants
- insurers require that health and safety consultants used by
businesses are qualified
- consultation with the insurance industry to make sure
“worthwhile activities” are not unnecessarily curtailed on health
and safety grounds
- insurers offer consultancy advice on health and safety free of
change
Young criticises rising insurance premiums, but fails to
consider that self-assessed health and safety compliance by
untrained in-house staff could increase the risk for the insurers,
and so the premium for the business. Equally, Young seems to
suggest that insurers should favour “worthwhile activities” by
“making sure” they are not unnecessarily curtailed. This is surely
a matter for legislation, rather than expecting insurers to favour
the vague concept of “worthwhile activities” when considering
commercial risk.
Further, Young threatens that “if insurers fail to draw up a
health and safety code of practice, legislation should ensure that
non-compliance with and outside health stipulation cannot be used
as an excuse to refuse to meet claims, so long as the company has
met their obligations under health and safety
legislation.”
This argument is problematic: if a company’s claims would be met
by insurers, so long as the company has met their obligations under
health and safety legislation, surely the company would want to
employ health and safety consultants to ensure that they have
complied with health and safety legislation. If so, under Young’s
proposed legislation, small businesses could still be advised to
use health and safety consultants to make sure their activities are
covered by their insurance policies.
An empty conclusion
The obvious irony throughout Young’s report is that he
criticises the media for creating a hysteria about compensation
culture while fully endorsing this created hysteria as the reality
of the situation in Britain.
While Young’s report could be characterised, by and large, as a
collection of sound bites without many new concrete ideas, the
proposals for the extension of RTA-type schemes could, if
implemented, dramatically change the legal landscape for low value
personal injury claims; both reducing costs and making them more
predictable for the vast majority of personal injury claims. It is
a shame that much of the report lacks punch or a suitable agenda
going forward for the necessary impact surveys and consultations to
take place. Like Lord Justice Jackson’s report, we are left with a
series of statements and suggestions without any indication of when
or how the proposals might be implemented.
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