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Transport Committee - Minutes of EvidenceHC 117
Taken before the Transport Committee
on Monday 17 June 2013
Mrs Louise Ellman (Chair)
Examination of Witnesses
Witnesses: James Dalton, Assistant Director, Head of Motor and Liability, Association of British Insurers, Dominic Clayden, Director of Claims, Aviva UK, David Fisher, Catastrophic and Injury Claims Technical Manager, Axa Insurance, and Steve Maddock, Managing Director for Claims and Business Services, Direct Line Group, gave evidence.
Q145 Chair: Good afternoon and welcome to the Transport Select Committee. Would you give your name and organisation, please?
James Dalton: My name is James Dalton. I am the head of motor insurance at the Association of British Insurers.
Dominic Clayden: I am Dominic Clayden. I am the claims director at Aviva Insurance.
David Fisher: I am David Fisher, catastrophic and injury claims technical manager at Axa Insurance.
Steve Maddock: I am Steve Maddock, Managing Director for Claims and Business Services for Direct Line Group.
Q146 Chair: Mr Dalton, what is your estimate of the proportion of whiplash claims that are either fraudulent or exaggerated?
James Dalton: The first point I would like to make is that the industry is committed to paying genuine whiplash injuries. Therefore, the question about the amount of fraud that exists is quite a difficult one to answer on the basis that each individual insurer-my colleagues will answer for their own firms-will take a different view on what fraud is. If an insurer knows that a claimant is actually committing fraud, that will be a fraud claim. If an insurer has suspicions that a claim is exaggerated, they may pay that claim and count it as fraud, or they may pay that claim and not count it as fraud. My colleagues to the left may be able to help you further on that.
Q147 Chair: But what proportion of claims fall into either of those categories? We have heard very loudly over a long period of time from the Association of British Insurers that a large proportion of claims are fraudulent or exaggerated. Are you telling me that you can’t give us a figure?
James Dalton: I can give you a figure for fraudulent claims.
Q148 Chair: What is that figure?
James Dalton: The figure for fraudulent claims is around 7%. That doesn’t take into account exaggerated claims. In terms of the issues that we are focusing on in this Ministry of Justice consultation in relation to improving medical evidence-
Q149 Chair: Mr Dalton, you are not talking to the Ministry of Justice; you are talking to the Transport Select Committee. I am putting a question to you because I want more information about statements that the Association of British Insurers, whom you are here to represent, has made.
James Dalton: As I said, 7% is about the number of known fraudulent claims, but we don’t know and it is very difficult to capture how many exaggerated claims there are.
Q150 Chair: Can any other witnesses give me any other information? Mr Maddock, how many exaggerated or fraudulent claims are there?
Steve Maddock: Supplementary to the answer that James has given, obviously you are aware of the Faculty of Actuaries’ third party working group that estimates fraud or exaggeration to represent anywhere between 10% and 60%.
Q151 Chair: That is a pretty wide range, isn’t it?
Steve Maddock: That is a pretty wide range. We have conducted an internal study ourselves. We have independently sampled over 2,000 claimants. In answer to the question, "Have you exaggerated or submitted a fraudulent claim?" we found that 12% responded positively-i.e. they had. We think that is arguably the thin end of the wedge.
Q152 Chair: Mr Fisher, do you have any information?
David Fisher: Fraud by its nature is difficult to identify and prove. Our own estimation of low-speed impact and phantom passenger claims that would fall within the ambit of fraud is 15%. Looking at fraud and exaggeration overall, the position in our submission to this Committee is that the prognosis that we see in medical reports is in stark contrast to that which is reported in medical literature and the like, which suggests that, where there have been accidents, about 17.6% of victims will sustain injury and about 75% of people will recover within six months, going down quite dramatically from the six-month stage. I would estimate that the percentage of fraudulent and exaggerated claims is even higher than the 60% suggested by the Faculty of Actuaries.
Q153 Chair: On what basis would you suggest that?
David Fisher: The mismatch between the medical literature and what we see in medico-legal reports. They will invariably give a prognosis period of 12 to 24 months for a whiplash injury.
Q154 Chair: You are taking your information from your reading of medical reports rather than an examination of claims that have been made to your company.
David Fisher: Obviously all the claims will be examined.
Q155 Chair: Have they been examined?
David Fisher: Yes; well, not all the claims. We do sample claims and that drives the low-speed impact and the phantom passenger figure that I have given of 15%. Exaggeration claims, unless they go to court, are more difficult to identify.
Q156 Chair: But, in your evidence, your company or you talk to us about the compensation culture.
David Fisher: Yes.
Q157 Chair: Do you think you have enough firm evidence to be able to talk about a compensation culture as something that is derogatory?
David Fisher: The fact that the number of claims submitted through the Road Traffic Act portal from April 2012 to April 2013-in other words, the means of fast-tracking whiplash-type claims-has increased by 27% is a cause for concern and perhaps indicates that we have a compensation culture. Our experience across Europe is profoundly different from that within the UK.
Q158 Chair: Mr Clayden, what work has your company done and what figures can you give us?
Dominic Clayden: If I could build on the evidence of my colleagues rather than repeat it, I would add two additional pieces of information. The first is the incidence of fraud rings in personal injury claims. This is not individuals in isolation committing a fraud. These are rings of people connected to commit fraud.
Q159 Chair: Is this cash-for-crash?
Dominic Clayden: It is a combination of cash-for-crash, which is good shorthand for it, but it is a material problem for us. Currently, we have more than 5,000 individual claims under close scrutiny that have a very high subsequent evidence of fraud and repudiation in them. That figure is around 5% of our total claims numbers, which are organised multiple people involved in the incidences-in the plural. It is the same groups of individuals involved.
In addition, we recently surveyed 2,500 members of the public. The response there was that 17% of people either admitted to having committed a faked or exaggerated whiplash claim or had known somebody who had committed a faked or exaggerated whiplash claim. Of course we know the ones we know. We have an inkling of the ones about which we have great suspicions but we cannot necessarily get the evidence, and there is a body that is a complete unknown volume of fraudulent or exaggerated claims.
Q160 Karl McCartney: On that point, all four of you have mentioned different figures for the actual percentage of fraudulent claims. How many of that percentage of fraudulent claims do you examine and then take those fraudulent claimants to court to try and recover your costs or back up the other driver who is being claimed against?
Dominic Clayden: In terms of a hard figure, the 7% quoted is very similar to Aviva’s, which is understandable bearing in mind our market share. The vast majority of those claims are where the claimant simply withdraws the claim. We have not paid money out; we have declined it and said no when we have produced the evidence, and they simply go away. We take cases through to court. I can give an example that will bring it to life. There was a case of a taxi driver who claimed, following a whiplash, that he was unable to work. We commissioned video surveillance on him, which is expensive. The claim was for £100,000. When it finally went to court he got £500. While it was a good result, our total costs outlay was £41,000 for defending that claim. Pursing that for recovery of costs is very difficult.
Q161 Karl McCartney: That one example is very commendable, but how many are you not taking to court? At what level do you decide that you just pay out the claim?
Dominic Clayden: I am sorry-I thought you were referring to the criminal court. In terms of the evidence when we go through to taking them to court, we look to scrutinise all claims. We challenge where we believe we have evidence, but in a lot of instances-for example, if there is a rear-end shunt so liability for the accident is not in dispute-the factual evidence is very difficult if someone is claiming whiplash and it did not occur.
Q162 Karl McCartney: Do you think you make it easy for the people who have paid you premiums to defend themselves against claims like that?
Dominic Clayden: We make it as difficult as we can for people who-
Q163 Karl McCartney: I think you misunderstand me. Do you make it easy for people who have paid premiums to you, for them to defend in those cases where a fraudulent claim is being made against them?
Dominic Clayden: We look to support our customers where we can, yes.
Q164 Karl McCartney: How many of those do you take to court, percentage-wise? Can you give me numbers or a round figure of 1,000 or 500 a year?
Dominic Clayden: Bearing in mind that 7% are ultimately proven to be fraudulent or gone away, that will give you a rough idea of the percentages.
Q165 Graham Stringer: I want to follow up Mr McCartney’s question. We are using the word "fraudulent", but that usually has consequences apart from a lower payout. Are there any consequences for people who fill in a fraudulent claim? Can you prosecute them separately, and do you?
David Fisher: Yes, they can be prosecuted separately. Sometimes that will be with the co-operation of the police and other agencies. In other instances, they will be prosecuted by insurers for contempt of court or some other device. The situation that we have, though, is that the common law, as opposed to the criminal law, allows for the recovery of damages by a claimant who has falsified or exaggerated part of his claim. That is the issue that we face.
An example that went to the Supreme Court a year ago last April was the case of Summers v Fairclough Homes Ltd, where Mr Summers had signed a statement of truth to the effect that his claim was in the region of £800,000. He recovered £80,000, and the Supreme Court declined to strike out his claim so that he would receive nothing at all. That is the situation that we face all the time in respect of exaggerated and falsified claims. If there has been injury, the common law allows for the recovery of compensation in respect of the genuine amount of injury, no matter how tainted the claim might be as a whole.
Q166 Graham Stringer: Have you had any successful claims where somebody has not suffered whiplash, they claim £x thousand and you can show that they have not had whiplash? Have you prosecuted anybody for that?
David Fisher: The difficulty would be demonstrating that someone has not sustained whiplash.
Q167 Graham Stringer: I understand that it is difficult, but have you actually prosecuted anybody?
David Fisher: Prosecuted or defended a civil claim-there is a difference.
Q168 Graham Stringer: There is a huge difference-prosecuted.
David Fisher: There are lots of examples where there have been prosecutions in respect of staged accidents or phantom passengers and the like. There will be attempts to use criminal or other civil remedies against the claimants.
Q169 Chair: How many times has your company prosecuted somebody in these circumstances?
David Fisher: It will be very small numbers because the balance of evidence is high.
Q170 Graham Stringer: When you get these cases of three or four people getting into a car and putting the brakes on at a roundabout so that they cause an accident, who prosecutes them? Is it the insurance company or the police?
James Dalton: The insurance industry has funded an Insurance Fraud Bureau as well as a dedicated insurance fraud unit at the City of London Police. Insurers will tend to gather the evidence and pass that to the City of London Police unit, who will then go and prosecute those people. That unit has been operating for just over a year and has had quite a lot of success in prosecuting people. I can write to the Committee with some statistics from that unit in terms of the number of prosecutions, convictions and jail sentences that have resulted.
Q171 Graham Stringer: That would be interesting. On a slightly different tack but with the same objective of trying to stop fraudulent claims, do you think there is any benefit or sense in following the German system of saying you cannot get whiplash below a particular speed of, say, 10 kph?
James Dalton: The first question that will come up in that sort of scenario-and I am not sure how the Germans and Austrians have dealt with this-is what speed the car was travelling at. As we get more in-car technology and computer-based telemetrics-based systems in cars, that will be an issue that we may come back to in time. At the moment, there is not enough of that in-car computer technology in the vehicle fleet for us to be able to go to court and say, "The car was travelling at x kph." It will be me saying that the car was travelling at one speed and you saying the car was travelling at another speed, and then there will be a debate about what speed that actually was.
Q172 Graham Stringer: There could be, but there is often residual evidence like little bumps. If there is only the tiniest bump in the back or side of the car, you could make an estimate that it was not going at 10 mph.
James Dalton: The problem that the industry has historically faced in those sorts of cases is that, in court, the judge tends to put quite a lot of weight, if not determinative weight, on the medical report that he or she has in front of them. Insurers have tried introducing into court processes the use of biomechanical evidence, and that has been rejected by courts.
Q173 Graham Stringer: Do you think a statutory speed would help to influence the court’s decision?
James Dalton: Today, no; in future, possibly.
Q174 Jason McCartney: I would come back to this figure of maybe more than 60% of whiplash claims being potentially fraudulent or exaggerated. Mr Fisher, I see your job title is Catastrophic and Injury Claims Technical Manager. Mr Maddock and Mr Clayden, as Director of Claims, would you not agree that this is really a catastrophic state of affairs if we are looking at potentially more than 60% of claims being fraudulent or exaggerated?
Steve Maddock: Potentially, yes.
Dominic Clayden: I certainly agree. It is also an issue of social policy. When we refer to a compensation culture, we believe that part of this is also about the behaviour of the individual involved when making a claim. If the institute’s number is as high as 60%, people are absolutely putting evidence forward that they themselves know not to be the case.
Q175 Chair: But is that figure of 60% for cases that are made up and where the incident either did not happen or there was no injury, or is that related to where there has been some kind of injury but it has been exaggerated?
Dominic Clayden: The latter; there is an exaggeration element in there as well.
Q176 Chair: How do you know it is 60%?
Dominic Clayden: It is the best view that the actuaries have from chewing the numbers. Based on the review of the medical evidence, as my colleague Mr Fisher referred to, it is what the underlying medical community is saying is the level of whiplash, the likely recovery period and what is seen through the medical reports presented to us as an insurance industry.
Steve Maddock: Equally, it is a comparative analysis between the frequency of whiplash injuries in different geographies of the UK. If you look, for example, at the frequency of bodily injury claims per claim reported in Scotland, you will see it is 10%. As you go through to the north-west, where there is a higher concentration of claims management companies, that frequency of occurrence increases significantly. It is for the reasons that Dominic describes and those that I have outlined from which the Faculty of Actuaries have drawn their numbers.
Q177 Jason McCartney: With these cash-for-crash fraud rings, are there regional hotspots for this kind of activity? Have you done a regional breakdown on this?
Dominic Clayden: Yes.
Q178 Jason McCartney: What are the results?
Dominic Clayden: Apologies for referring to the Institute of Actuaries, but we would be happy to write to you separately. They have a very interesting set of graphics showing the spread of density of whiplash claims over a period of time, which started in the north-west and has spread out. For ourselves, we know there is a strong linkage between cash-for-crash and incidences where there are higher elements of claims management companies. That may be coincidental, but there is a linkage to the north-west and it has spread out from there.
Q179 Jason McCartney: Have you done quite detailed analysis on this?
Dominic Clayden: Yes, for two reasons. Frankly, from a claims point of view, it is to understand how to handle claims. The other part of understanding the frequency of personal injury claims is that this is something that is used by people who are setting the price of insurance policies. The more likely a policy is to receive a personal injury claim, including whiplash, then that will have to be factored into the price. There is an extensive amount of work done to understand this.
Q180 Karen Lumley: Mr Clayden, you mentioned you have 5,000 claims under close scrutiny. What does "close scrutiny" mean?
Dominic Clayden: They have been pulled into a central unit that simply handles fraud ring claims.
Q181 Karen Lumley: Have whiplash claims increased since we have seen a big increase in claims management firms?
Dominic Clayden: We have seen an increase over time. Whether it is the causative link to claims management companies, I couldn’t say. We have certainly seen over time an increase in the number of fraud rings and so-called crash-for-cash claims.
Q182 Karen Lumley: How do they get the information that these people have had accidents? Do they get them from you?
Dominic Clayden: No. Whether it is a claims management company or whatever, a fraud ring doesn’t-
Q183 Karen Lumley: I am not talking about a fraud ring; I am talking about people who get whiplash. How do people get hold of them?
Dominic Clayden: You are probably best to ask the people giving evidence later. My understanding is that it is by advertising.
Q184 Karen Lumley: You don’t sell details on to them.
Dominic Clayden: Not to accident or claims management companies, no.
Q185 Chair: Are you absolutely sure about that?
Dominic Clayden: Do I refer claims to solicitors? Yes.
Q186 Karen Lumley: Do you sell those details on?
Dominic Clayden: Not since the change in the law in that situation. I do not receive a referral fee.
Q187 Chair: But you did before then.
Dominic Clayden: Absolutely. We have been a strong advocate of the ban on referral fees and the reduction of the legal fees that go with it. It is the nature of the system. The reality is that, to remain competitive in a market where something is legal, we referred and took a referral fee. We still refer people to solicitors but we do not take a referral fee.
Q188 Chair: We have had quite a lot of evidence saying that insurers themselves often generate claims. The Government have said that they would like to see you, the insurance companies, address behaviours that encourage excessive and unnecessary claims within their own business models. It appears that the Government think that you are the people who are generating the claims. Are they wrong?
James Dalton: As Dominic has said, the system has changed very recently.
Q189 Chair: But before it changed you were guilty of this, were you?
James Dalton: The industry has long said that there is a dysfunctional compensation culture in the UK and that we are part of the problem.
Q190 Chair: What I am putting to you is that part of that dysfunctional system is the behaviour of the insurance companies. That is what the Government say.
James Dalton: Yes; and we have admitted that the insurance industry has played a part in that dysfunctional system, which is why we made a very strong case for the banning of the payment and receipt of referral fees. That came into force from 1 April. No insurer can pay or receive referral fees for personal injury claims.
Dominic Clayden: If I can give clarity on that, within my own company our processes have not changed before or post the ban on referral fees. The fact that we do not receive referral fees has not changed what we do for our customers.
Q191 Chair: What about the new alternative business structures? Is it any of your intentions to become involved in those structures so that you, as insurance companies, are still involved in legal companies through a different route?
James Dalton: The new legal framework of alternative business structures allows a number of people to think about whether an alternative business structure is the right thing for their customers. There are a number of insurers that have entered those arrangements and a number that are considering entering those arrangements. At the end of the day, it is about improving customer service from an end-to-end claims perspective. ABSs are not just about personal injury; they are about the entire claims spectrum, whether that is vehicle hire, personal injury or conveyancing.
Q192 Chair: Mr Clayden, is it not correct that Aviva still refers claims to solicitors?
Dominic Clayden: We do.
Q193 Chair: Why do you do that?
Dominic Clayden: I would make it clear that we do not have an ABS. We don’t have a financial interest in the firms of solicitors. We have customers who have had accidents that are not their fault and we have explained to them, where they have a legal expenses policy for example, that if they have had a personal injury claim they have a right, should they choose, to pursue that personal injury claim and we will refer them to solicitors.
Q194 Chair: Do you have a financial benefit from doing that?
Dominic Clayden: No. We absolutely do not take a referral fee on that. Equally, I suspect, if we were having a conversation with the FCA asking us whether or not we had deterred people from being referred to a solicitor, they would be having an awkward conversation with us. I believe it is the right thing for us from a customer point of view to explain to them their rights in the current system and, should they so choose, to be referred to solicitors. I do not receive a referral fee income and I do not have a financial stake in the law firms.
Q195 Chair: Is it possible that your company might become involved in alternative business structures in the future and have a legal interest then?
Dominic Clayden: I never say never; that would be a rash thing to say. At the moment, we do not have an application in process. We will keep the situation under review. It is not at the top of my priorities in terms of where I want to go.
Q196 Chair: But it is under review.
Dominic Clayden: We keep lots of things under review in terms of where we are going. As I say, I do not have an application in and I have known about this for a while.
Q197 Jim Dobbin: You have mentioned the issue of medical opinion a few times. What is your view of the medical opinion that you receive? Do you trust it?
James Dalton: The industry has had a problem with the quality of medical reporting for quite some time. The current process does not allow for sufficient independence of the person commissioning the medical report from the person who is providing the medical report. There are known financial linkages between claimant law firms and medical reporting organisations. At the end of the day, if a doctor has a patient in front of them claiming for whiplash two and a half years after a road traffic accident, their symptoms were long ago, they have resolved and basically the doctor is simply hearing about the subjective views of the claimant in relation to the accident circumstances. The medical report provides no value to an insurer whatsoever.
Q198 Jim Dobbin: Is that the general view?
David Fisher: By and large, whiplash is a non-demonstrable injury. The diagnosis, save for in extreme cases, is made from having taken a history from the patient. That means it is highly subjective, and that is reflected in the nature of the medical reports we see.
Q199 Jim Dobbin: Has there been any dialogue with the British Medical Association or the general practice organisation at all?
James Dalton: No.
Q200 Jim Dobbin: Why is that?
James Dalton: It comes back to the system of how one commissions those reports. As I said, it is the hired gun approach. If I was a claimant lawyer, I would choose the doctor that is going to provide a diagnosis of whiplash. That is why, in our view, the independence and transparency of the current medical reporting process is not fit for purpose.
David Fisher: In addition to that, many doctors will not get paid until the solicitor has been paid. Therefore, it may be that they feel they have a vested interest in supporting the claim.
Q201 Jim Dobbin: Do you think the Government proposals on this issue will satisfy your doubts about the system?
James Dalton: The Government’s proposals are absolutely a step in the right direction. In the current medical reporting process, we need to see a system of accreditation of those doctors that are providing medical evidence. We need to see some improved training for medico-legal experts on the conversation that we are having here today about the nature of whiplash. There needs to be some standardisation around instructions for medical reports and getting some peer review into the process.
David Fisher: In terms of instructions, one crucial thing is that the reporting doctor has access to both versions of events. At the moment, they invariably see only the version of events for the person instructing them, who is the claimant lawyer. There could be an absolute divergence in terms of what has happened in the accident, but they will get the claimant’s version and that will be reflected in their report. That may influence their view.
Steve Maddock: Added to that, where you have conflicting pieces of medical evidence, it is very difficult for the defending party to overturn that medical evidence.
Q202 Jim Dobbin: If this goes to court and you are defending or fighting the claim, are these points raised in the courts?
David Fisher: Yes. At the moment, the balance probably rests in favour of the claimant because of previously decided cases.
Q203 Karl McCartney: I want to come back on a general point. It seems that you have done very well in front of us today castigating everybody else involved in whiplash claims but have not really taken any responsibility yourselves. You seem to have absolved yourselves as insurance companies from getting to where we are today, which is 1,500 whiplash claims a day. In anybody’s books, that is a phenomenal amount.
Listening to what Mr Clayden had to say, it seems that business is business and whiplash claims mean that you and various people within the legal profession are in work. Surely, though, we are representing our constituents and 32 million people who drive in this country. We all want to see premiums lower than they should be, but unless we start reducing the number of whiplash claims we are not going to get there, are we? At the moment it does not seem that you, as a business sector, want to do anything about that; otherwise in the past 10 or 15 years not only would we not have the claims we have at this point but also our court system, which the taxpayers pay for, would not be clogged up with those claims.
Steve Maddock: I want to set the context a little around the insurance industry here. Clearly, we are here to compensate innocent victims of genuine road traffic accidents. As a function of that, as Dominic said, for genuine claimants we do refer to panel lawyers. That is without a referral fee post-LASPO, to clarify the point.
If I looked at the number of cases that my organisation refers on-I think this is reflective of the insurance industry-and then extrapolate that up by my market share to derive an industry total, I would expect to see about 170,000 whiplash claims in the market. Today I see half a million. I think that, hopefully, sets in context the level of referral that is made and is indicative of the referrals made for genuine claimants by the insurance industry versus the headline level of half a million claims a year that are reported to the Compensation Recovery Unit.
Q204 Mr Sanders: Who ought to be investing in the development of diagnostic tests for whiplash injuries? Should it be the insurance industry?
James Dalton: If I had a pound for every time someone came to me with a cure for the whiplash epidemic facing the UK, I would be retiring. The reality is that whiplash is a soft tissue injury. It is little different from a headache, in that I can’t prove that I have whiplash any more than you can prove that I don’t. If the insurance industry could buy a diagnostic test for whiplash, it would. There isn’t one.
Q205 Mr Sanders: Therefore, if there is not going to be a remedy to this through testing, shouldn’t the answer be to put some barrier in under which you cannot claim? Would that be your preferred policy solution? If an accident occurred below a certain speed limit and somebody claimed whiplash, then the normal position would be, "That is not a claim," and they would have to make an exceptional case in order for it to be considered?
Dominic Clayden: If I can part-answer the previous question, as an industry we are absolutely committed to reducing the cost of claims, including whiplash claims, where they are not genuine. Part of the issue that we have here, and it partly goes to the solution you are seeking, is that the Government have gone some way in terms of reducing what I believe is the significant oxygen that fuels the fire of this, which is by reducing legal fees.
Q206 Chair: But Mr Sanders is asking you a different question. He is asking you if the industry should be involved in funding better diagnosis.
Dominic Clayden: He is also asking whether there should be a threshold test as to whether or not there should be any compensation at all. I believe, for my own part, that a sensible compromise may be to increase the small claims track limit quite considerably so that there are no legal fees associated, but people still have an opportunity, where they have had a genuine injury, to get some compensation. It is a matter of political or judicial decision as to what the level is, but I believe removing legal fees and other associated fees up to a threshold would be a good way forward.
David Fisher: Threshold tests do exist in other jurisdictions within Europe, notably France. I think there is merit in a threshold test as a means of reducing the number of whiplash claims. As James has mentioned in terms of low-speed impact, you have to be careful about evidential issues. It is trying to make a threshold sufficiently robust so that we don’t end up with lots of litigation proving or disproving whether the threshold has been breached, which is what happened with low-speed impact claims.
Q207 Chair: If that threshold was increased, wouldn’t there be a concern that people wouldn’t have access to legal representation to ensure their claims are heard properly and that the insurers would have the advantage? Does that concern you?
David Fisher: In terms of an increase in the small claims court, because of the changes introduced at the beginning of April-a claimant has always been able to have legal representation in the small claims court; they just had to pay for it themselves-now you have a situation-
Q208 Chair: That is quite significant, isn’t it? It is not that they will just have to pay for it themselves. That could exclude somebody of limited means from being represented.
David Fisher: Since April, damages-based agreements would facilitate legal representation in the small claims court at a capped percentage in terms of cost. They would lose up to 25% of their damages but they would be able to have legal representation. In any event, the small claims track can be facilitated with use of the MOJ portal to allow unrepresented claimants to bring their own claims and to bring their own claims successfully. A similar situation occurs in employment tribunals and in criminal injuries compensation claims, where there is no automatic legal representation. Our experience of direct claimants, where we have dealt with them, is that their cases are settled far quicker. There is an almost unanimous uptake of rehabilitation at 94.6% of cases. In respect of represented claimants, it is less than 40%. The damages payment is about £70 less. That is across a big portfolio of represented claimants and a small portfolio of unrepresented claimants, so there will be some larger claims in the represented pool. I do not think there is evidence that the insurance industry is under-compensating direct claims.
Q209 Chair: Those claims may be settled more quickly, but would it be a just award? We have had a lot of evidence on this issue. One of the pieces of evidence refers to an 84-year-old lady who was dealt with under third party capture, where they dealt quickly with the insurance company. The first offer made to this 84-year-old lady was damages of £2,500. That went up to £7,000, but when she had legal advice and the legal adviser said she should not accept that, she eventually got up to £9,000. If she had accepted the initial offer without legal representation, she would have got £2,500, when actually she ended up with £9,000. That is just one example of the pieces of evidence we have had. Do you think that is just?
Dominic Clayden: It is unfortunate to look at individual cases. As a large professional indemnity insurer and insurers of solicitors, I am aware of cases that have involved solicitors where there has been under-settlement as well. In terms of reform and ways we could improve the system, it is absolutely a risk that needs to be managed. We believe the way forward is to have a standardisation and transparency around the medical reports and, additionally, to have a standard method of assessing quantum.
There are a number of computer-based systems that translate severity of medical conditions to a financial award. As a company, we use a system called Colossus. We are very transparent about it. We believe, going forward, that it should be appropriate to have a standard medical assessment process and then that is standard and in an agreed tariff for the award of compensation. I don’t believe we need lawyers in all cases.
In the related area that I see day in, day out, in other insurance claims where people don’t have lawyers, there is no suggestion that we are under-settling. It is something where the lawyers peddle a need for services that I don’t think is justified.
Q210 Chair: Quoted premiums for motor insurance have decreased over the last few months. Have the actual premiums paid by motorists decreased? Mr Dalton, can you help us with that?
James Dalton: I do not have any figures in front of me. I am happy to write to you on the actual numbers. My colleagues to the left will hopefully be able to give you more detailed information, but my sense is that, yes, they have reduced, because quoted premiums turn into the price that a consumer pays.
Q211 Chair: Can any of the other witnesses give me any information? Have the actual premiums paid reduced?
David Fisher: On a like-for-like basis, bearing in mind that we may flex our risk profile of our book from one year to another, our premiums have reduced.
Q212 Chair: The actual premiums paid.
David Fisher: Yes.
Steve Maddock: I would concur with that.
Q213 Chair: Is that because the anticipated savings from civil litigation changes have already been factored in? Is that the reason for it?
James Dalton: Yes, I think that is the reason. Insurers price on a quarterly basis. That is why you saw premiums reduce for Q2 of this year, in anticipation of the civil litigation changes that the Government had made.
Q214 Chair: Therefore, if whiplash claims reduced as a result of the changes that are now being discussed, would there be any guarantee that the premiums paid by motorists would reduce in the future, or would the insurance industry then say that they have already been reduced?
James Dalton: We have made a very public commitment that premiums will reduce as a result of changes to the civil litigation system and a reduction in the number of whiplash claims. Premiums have and will come down if further changes are made to improve the claims landscape for insurers.
Q215 Chair: That means they would come down further.
James Dalton: Yes.
Q216 Chair: Is that categorical?
James Dalton: Yes.
Q217 Chair: By how much?
James Dalton: No further changes have yet been introduced. The Government have consulted on them. If something is delivered, premiums will come down dependent on whatever is implemented. If you have a small claims track in one matter versus another matter, there will be different amounts that the insurance industry will be able to pass on to premium payers as a result of that. At the end of the day, the Government have consulted on something; they have not done anything.
Q218 Karl McCartney: On that point, you as an industry have been telling us for a long time now that whiplash costs are approximately £90 on the average premium. How exactly is that figure calculated, and are you prepared to publish that calculation? Why isn’t it a lot more? If your premium is £1,500 a year, then £90 is a reduction, but it is not as big a reduction as I think-if you removed all fraudulent whiplash claims-you could make as an industry.
James Dalton: It is £90 on the average car insurance premium. The average car insurance premium is £440.
Q219 Karl McCartney: Do you not think it could be even more?
James Dalton: Could the saving be more? There will always be an element of whiplash. There are genuine injuries for whiplash, and the insurance industry continues to be committed to paying those chronic conditions. If there is a reduction in the number of whiplash claims, there will be a reduction in premiums as a result of that. I do not know how much, but at the moment £90 pays for whiplash.
Q220 Karl McCartney: How did you come to that calculation? Are you prepared to make that public?
James Dalton: Yes, absolutely. I am happy to write with information on that. At the moment, insurers pay about £2.2 billion a year for whiplash out of an overall claims spend of about £10-point-something billion. I can write to you with the specific numbers. That is 20% of claims just for whiplash.
Q221 Chair: In what ways would you like the judiciary to take a stricter approach to whiplash claims?
David Fisher: I would like them to take a more robust approach and to move away from the common law position that we have at the moment, where, if part of the claim is tainted or exaggerated, then the whole claim should fall.
Q222 Chair: Does anyone else have any comment on that?
Steve Maddock: Setting a de minimis timeframe within which to report a whiplash claim would be helpful as well.
Q223 Chair: What do you think is the appropriate recompense for whiplash? You presumably think people are getting too much now. What are your suggestions?
James Dalton: That is not really a question that the insurance industry can answer. Insurers will pay whatever society determines is the appropriate amount for a whiplash claim. That will be built into car insurance premiums. If society decides that £2,500 is the appropriate amount of compensation for a whiplash injury-by which I mean a low-speed shunt in a supermarket car park resulting in a sore neck for a couple of days-then that is what insurers will pay. The question that society and the public need to have a debate on is whether that is the appropriate level of compensation.
Q224 Jason McCartney: Mr Maddock, picking up on that, currently what is the time limit for a whiplash claim after the actual incident itself?
Steve Maddock: Within the statute of limitations it is up to three years.
Q225 Jason McCartney: Somebody threw a scaffolding bolt off a motorway and it hit my car. I was still getting calls two years after the event. It just damaged my car; I was okay. Two years afterwards, I was still getting cold calls to my home address asking if I had been injured.
Steve Maddock: That is exactly the type of behaviour we would like to see stopped.
Q226 Chair: Mr Fisher, you say in your written evidence "the courts condone fraud and exaggeration in personal injury claims." Do you mean that, and on what do you base that?
David Fisher: To all intents and purposes, that is how it appears on this side of the fence. That comment is borne out by decided cases in the Court of Appeal in 2009 and the Supreme Court decision last year that I referred to earlier. A distinction is drawn between claims under a contract of insurance. If I fraudulently made a claim on my household policy, it would automatically fall, if it was proven to be fraudulent, to a common law claim for compensation, where, as I said earlier, the common law takes the view that a genuine injury is compensated and the claim stands. Attempts to have the claim thrown out have been unsuccessful in the courts.
Chair: Thank you very much, gentlemen, for coming and answering our questions.
<?oasys [np[pg6,cwe1] ?>Examination of Witnesses
Witnesses: Desmond Hudson, Chief Executive, Law Society of England and Wales, Matthew Stockwell, President, Association of Personal Injury Lawyers, Nigel Teasdale, Forum of Insurance Lawyers, Craig Budsworth, Chairman, Motor Accident Solicitors Society, and Andrew Ritchie QC gave evidence.
Q227 Chair: Good afternoon and welcome to the Transport Select Committee. Would you give your name and organisation, please?
Andrew Ritchie QC: I am Andrew Ritchie QC. I am head of chambers at 9 Gough Square.
Desmond Hudson: I am Des Hudson, chief executive of The Law Society.
Matthew Stockwell: I am Matthew Stockwell, president of the Association of Personal Injury Lawyers.
Nigel Teasdale: I am Nigel Teasdale, representing the Forum of Insurance Lawyers.
Craig Budsworth: I am Craig Budsworth, representing the Motor Accident Solicitors Society. Chair, I am sorry to interrupt, but may I start with a possible inaccuracy that the Committee has over this minimum speed involved in whiplash cases in Germany?
Q228 Chair: No, no. There may well be questions put to you on that, so you can deal with that in the course of the session. Is the UK the whiplash capital of the world?
Andrew Ritchie QC: It is not, because there is a fundamental defect in the consultation document that Helen Grant issued. She compared the DWP figures-those are accurate figures for the number of personal injury claims made-with Stats 19, which are the figures gathered by the police for the number of road traffic accidents. That was the comparison. Stats 19 are known and have been analysed to be inaccurate by a factor of at least 200%, if not 300%, as a record of the road traffic accidents in the UK.
The Department for Transport in 2006 came to that conclusion. The report is here. There are three lines I could read to you, but my summary to you is accurate. The figures are inaccurate to record road traffic accidents in the UK. Why? The police are rarely called to minor whiplash crashes. Secondly, if they are called, they may not get there in time, so people leave. Thirdly, it only covers on-road accidents, not industrial estates, car parks, private land and the rest.
That is supported by international commentaries on Stats 19, which say that it is recognised worldwide that the police figures from various countries are not accurate for all of the road traffic accidents. All you need to do in this Committee is ask the insurers to give you the figures for crash damage claims. If you compare the personal injury claims with the crash damage claims that they pay out for bent metal, you will have a proper, accurate comparison.
Q229 Chair: Are there any other views on that, either adding to that or does anyone disagree?
Desmond Hudson: I very much agree with the points that have been made. If I could add to those, we have available to us today information from the insurers. There is a document called "European Insurance in Figures," which was published in January of this year. It is produced by insurers throughout Europe. It is based upon data in the year ending 2011. That shows, for example, that in 2011 Germany’s share of European insurers’ total motor claims expenditure was 20%, France’s was 13%, and the UK’s was 14%. If you think about the size of our populations, the number of cars being driven, the traffic densities and so on and so forth, that seems to me to be the normal market share you would expect for our country and for those other two countries.
That report also gives us some very interesting information about the level of premium increases seen that year across European countries and relates those to the number of claims. If I may, let me just share this with the Committee. Motor insurance premiums rose by 3.6% in Germany, 3.5% in France-
Q230 Chair: We may well come on to this afterwards; I am dealing with this particular issue at the moment, on the extent of the problem.
Desmond Hudson: I understand; of course.
Matthew Stockwell: We have the benefit of our own statistics compiled by the Compensation Recovery Unit. They indicate that there is a 47% share in relation to whiplash claims out of the total number of claims. The figure that was put forward as a European-wide average by the insurance companies was 48%, which would place us slightly below, but it is not statistically significant in terms of percentages. That is based on our own reporting within this country of claims that are recorded by the Compensation Recovery Unit.
Q231 Jason McCartney: The Chair just asked the question whether the UK is the whiplash capital of the world. You have said not, but is the UK the fraudulent and exaggerated whiplash capital of the world?
Desmond Hudson: We don’t know because we don’t have statistical evidence. We have heard a number of claims made to this Committee this afternoon. I would ask all insurers to make all of that information available for scrutiny and review.
Q232 Chair: We are asking you. This is your opportunity to say what you think. You have told us, Mr Hudson, what you think. Do any other members of the panel want to answer Mr McCartney’s point?
Craig Budsworth: You have heard from the ABI suggesting that they have established that only 7% of cases have fraud attached to them in some form or another. My personal experience in practice is to say that I suspect it is slightly less than that in that I am seeing, in practice, only about 3%.
Q233 Chair: Mr Teasdale, do you want to comment on this matter?
Nigel Teasdale: Statistics are helpful to a certain extent, but we can all perhaps come up with our own statistics that best help us. The fact that we have all the interested parties giving evidence to the Transport Select Committee into whiplash and an MOJ consultation suggests that there is perhaps, at the very least, a perception that there is a whiplash problem in the UK.
Q234 Jim Dobbin: In my view, the issue of medical opinion is a very important aspect of this whole process. I want to ask this group of witnesses about their opinion of the quality of that evidence supplied to a claimant or on behalf of a claimant to the courts. How professional is that?
Craig Budsworth: The reports that I see, again through practice, are decent reports qualified by a statement of truth. The experts have to comply part and parcel with the Civil Procedure Rules when they are completing their reports. What must not be forgotten here is that when a GP, an orthopaedic expert or whatever further expert is needed compiles a report, the defendant insurance company or solicitor has the perfect opportunity to put more questions to that medical expert if they don’t feel as though that report is professional enough. Further, if they feel as though they are still not convinced after that report, they can arrange for that person to be medically examined themselves. There are checks and balances in the system that is already there.
Andrew Ritchie QC: When I was a baby barrister I did a lot of whiplash cases, and the baby barristers in my chambers do the same. The quality of medical evidence in whiplash cases is variable. There are some reports that are word-processed and are poor. There are others where thought has been added to the pot and they are well produced.
I consider that it would help if there was accreditation or certification and more training for those who are involved. They should be trained to look at photographs of the crash damage and whether a report has been made to A and E or a GP of the sore neck. They should hopefully see the claimant early on when the claimant is still suffering pain. I do not agree with the insurance industry that you cannot diagnose whiplash-nor do the doctors. If you ask them, they consider they can diagnose whiplash. They move the neck, they press on the neck and shoulders and they come to a clinical view. If they are experienced, they have seen a number of fraudsters compared with those who are not. I suggest it is diagnosable, but the quality of reports is variable and should be improved.
Q235 Jim Dobbin: Is the general view that very often the medical report is biased towards the claimant?
Andrew Ritchie QC: I see you are looking at me. I hope you don’t mind if I put one more sentence in. No; there are some experts who favour one side and there are some who favour the other. In my opinion, 80% to 90% are doing their best as independent experts. It is a danger if you are going to the old war horses who have almost given up and are just doing a medico-legal practice and are no longer in clinical practice. In my experience, that is a danger.
Nigel Teasdale: I would say they are not necessarily biased in favour of the claimant, but they are based on the claimant’s version of events. That is probably part of the problem.
Matthew Stockwell: I think there needs to be a greater consistency through training and accreditation. In so far as I agree with the evidence that was given by the insurers, a greater dialogue in relation to the issue surrounding whiplash would inform the medico-legal experts. We would like to see that as part of a process of training and accreditation to improve standards. I certainly agree with everything that Mr Ritchie has said in relation to there being good and bad. Everybody should be committed to trying to improve the quality of medico-legal reporting.
Q236 Jim Dobbin: For clarity, are these reports available to both the defendant and the claimant?
Desmond Hudson: Yes.
Q237 Jim Dobbin: I do not know this, but has there ever been a round-table session between the insurers, the medical profession and others involved in this process, like yourselves?
Matthew Stockwell: The difficulty is that it has been slanted. There have been studies funded by insurance companies. When I was a baby barrister, I bought the book on this very subject that Mr Ritchie wrote. There are lots of different papers digested in that publication. Some should be treated with caution for a variety of different reasons, but certainly some kind of symposium or longer-term study looking at what can be objectively verified would be welcome. There have to be checks and balances within that process so that it is not manipulated by one party or another.
Q238 Graham Stringer: Are there real statistics, going back to Louise’s question, about whether we are the whiplash capital of the world? The statistics show reducing road accidents, which have come down by about a third, but an increase in the number of whiplash claims, which have doubled. Doesn’t that indicate that there is a great deal of fraud going on?
Andrew Ritchie QC: That is based on Stats 19. Both CMI1, this Committee’s first report in paragraph 16, and CMI2, this Committee’s second report in paragraphs 5 and 6, summarise the number of road traffic accidents based on Stats 19. When you say that the number of road traffic accidents is going down, that is Stats 19 reporting; that is police reporting.
Q239 Graham Stringer: But they are internally consistent, aren’t they?
Andrew Ritchie QC: They are internally consistent but wholly inaccurate. It is a little bit like saying we should judge the number of voters in this country by the number of people who voted. Voting is optional. A third-or 40%-vote. You can’t judge the number of voters from that.
Q240 Graham Stringer: I understand that-unless there is an empirical ratio between them. What you have here are two graphs going in opposite directions. The number of claims is increasing and the number of accidents is going down. We don’t know the exact relationship, although you gave some relationships in your previous answer, between those statistics and the absolute number statistics, but you would expect those two graphs to be following each other and not diverging from each other, would you not?
Andrew Ritchie QC: I think not. It depends on funding. The Department for Transport compared the reported Stats 19 with the NHS, and those graphs are going in different directions. For serious injuries, the NHS numbers are going up and Stats 19 is still going down for road traffic accidents. That shows how Stats 19 is nose-diving for other reasons.
Q241 Graham Stringer: You keep comparing apples and oranges. The reason serious injuries are increasing-and it is a completely different argument-is because of the survival rates in accident and emergency units. One can immediately think of an answer to that. These are very large figures of number of accidents from one database internally consistent with the number of claims for whiplash. Surely you can see that, as the insurers have told us, there is a serious case that fraud is increasing massively here.
Andrew Ritchie QC: That does not support it. It is wrong in principle. You need to know the crash damage figures from the insurers to see a correlation.
Q242 Graham Stringer: Why? You do not have the absolute number of figures, but you have a direction of travel as a series of statistics. It was very interesting that when we had the insurers before us and when they were asked about the medics, they all did silent laughs. When you are here representing the legal profession you have a lot more confidence. Isn’t that just self-interest?
Andrew Ritchie QC: No, it is not. The portal has now been introduced and 75% of personal injury cases go through the portal, if not more. Lawyers’ fees for the solicitors that deal with that have been completely fixed. What the portal does, unfortunately, is prevent the defendants from examining medically so there is just one medical report. The system has been set up-
Q243 Graham Stringer: There are a lot more cases here, aren’t there?
Craig Budsworth: I would point you to paragraph 22 in our response because I think it is offering the explanation that you are seeking here.
It says, "Average car speeds (due to congestion) in the UK are amongst the lowest in Europe and so minor accidents are more common (the number of road deaths per million population in France is double that of the UK (France-61 per million, UK-30 per million), in Germany more than 50% higher (49 per million) and double in Italy (63 per million)."
The number we are alluding to there is that the roads are slower in the UK, which brings about more minor collisions than any other country in Europe. In some ways that is the correlation that you are looking for. We are more susceptible to a whiplash injury, because we are slow-speeding vehicles, than we are to a more serious injury, which is happening across the continent.
Q244 Graham Stringer: That is the equivalent of, "My homework fell down the drain," isn’t it? Basically, you have a doubling of the number of whiplash claims. There are different reasons for road safety, but you are saying that there is a doubling of whiplash claims because we have slow traffic. Do you think traffic has slowed down dramatically over the last five or six years?
Matthew Stockwell: Everybody can identify the increasing congestion that is taking place, so you have a greater traffic density.
Graham Stringer: That just simply isn’t true.
Q245 Chair: But has that happened particularly over the last five years or the years for which these figures were chosen?
Matthew Stockwell: We can all look at the roads over the last 10 years or so-
Q246 Graham Stringer: But if you actually look at the evidential basis for congestion and speeds in urban areas-I did a lot of this in the debate about the congestion charge in Greater Manchester-there actually was not any increase in congestion. That is one of the reasons why the process was rejected. You are coming out with all sorts of hypotheses that are not based on the evidence.
Desmond Hudson: I wonder if I could add to that. In response to Mr Stringer’s questions, while I don’t believe there is an evidential basis to suggest that we are the whiplash capital of the world, it would be a mistake if we don’t accept that there are some pernicious drivers here. The existence in England and Wales of claims management companies, for example, and the practice of insurers in selling referrals have contributed to the number of claims. That is why, for example, the Law Society has been arguing for some years that we should ban referral claims. It seems to me that the Ministry of Justice should be coming to Parliament tomorrow and making the practice and activities of claims management companies unlawful. They serve no purpose and do not advance the public good.
My final point is that if we do have people who are genuinely injured in an accident and who have suffered a whiplash injury, then it seems to me that, being a reasonable country, they ought to receive reasonable compensation. The proposals that are before you-
Chair: We are going to come on to that. We are dealing with the issues that different members wish to put to you.
Q247 Sarah Champion: Could you expand on the relationship between the legal profession and the insurers, specifically looking at what you do collaboratively to drive down insurance fraud? Mr Hudson, would you like to start?
Desmond Hudson: I am bound by a confidentiality agreement that the Law Society has signed with the ABA in relation to a joint piece of work that we are currently doing. I must try and comply with that.
Q248 Chair: Mr Hudson, you refer to this in the written evidence of the Law Society so we do want to know more about what you mean.
Desmond Hudson: We have been seeking to work with the insurers in particular for about the last 12 months. Technology is being introduced that will give you some indications about potentially fraudulent or inappropriate claims. Those claims are a hazard for any honest solicitor. If a fraudulent client comes in front of a solicitor and a solicitor takes on that case, and only discovers two months down the line that that is an inappropriate claim, the solicitor will have wasted money. We are looking to work with the insurers to try and improve those things.
With regard to the comments made by my colleagues about working with the BMA-the accreditation schemes, training and thinking about how we could improve the generally questionable quality of medical evidence that is produced in the majority of cases-all of those are things that the Law Society wants to see improved. Society is not helped by inappropriate or exaggerated claims. We need to deal with that and we certainly need to root out the fraudsters.
Q249 Sarah Champion: How do you find the insurers responding to these suggestions?
Desmond Hudson: I find them slow and not as helpful and collaborative as I would want them to be.
Matthew Stockwell: That has been our experience as an organisation as well.
Craig Budsworth: Perhaps this is a surprise, but within the industry there is no exchange of data. If I present a claim, the insurer will not say to me, "By the way, this person has been involved in 17 other accidents in the last three years. Are you aware of that?" That does not happen. This exchange of data between the claimant’s side and the insurer’s side, together with them bringing in the medical expert, providing the medical expert with that information and that data, means we might receive a better quality of medical report and help drive out fraud in the first place.
Q250 Sarah Champion: I am quite challenged to hear that. Is that something you have been lobbying to try and get the insurers to do?
Craig Budsworth: Certainly. MASS as an organisation has been working for the last two years to try and gain this exchange of information to try and help eradicate fraud. You need to link that in with prevention overall. The next point is that the insurers are not utilising the information that they have through the claims records of these people to stop these policies being purchased in the first place.
Q251 Sarah Champion: Why do you think there is that reluctance?
Craig Budsworth: They get paid for a policy. I am not sure; perhaps they are the better ones to ask.
Q252 Chair: To whom have you been making representations?
Craig Budsworth: Through the ABI. We are getting there. There is progress being made in relation to this sharing of data.
Q253 Chair: So you are making progress on that.
Craig Budsworth: We are making progress.
Desmond Hudson: It is very slow.
Q254 Karl McCartney: I am very interested in all those points you have recently brought up, but I have a specific question regarding court time and how much the five of you think it has increased exponentially over the past 10 years in terms of how many whiplash claims you see in court now compared with 12 or 15 years ago. By the way, I don’t think it is because we have slower traffic in this country.
Nigel Teasdale: I am not sure it has necessarily increased as much as you would think because a lot of the claims get settled before they reach the courts, and that is still the case. The portal that has been introduced is designed to push the parties towards a settlement. The latest portal figures show that only a very small percentage of those claims go through stage two, where they don’t settle and go into litigation. Generally speaking, other than the true fraud cases, the cases that are litigated due to whiplash and disputes over the amount are probably a very small percentage.
Q255 Karl McCartney: Do you think it should be higher?
Nigel Teasdale: I speak on behalf of the Forum of Insurance Lawyers. The point is that we could challenge it but we would lose. I can understand the insurers’ position. They say, "What is the point of fighting them when we know that, if the claimant has a medical report that says he was injured and we go to a hearing before a judge, the judge is likely to say, ‘The medical expert says he was injured; the claimant says he was injured; I am going to award him damages’?"
Q256 Karl McCartney: Brokerbility chairman, Ashwin Mistry, is quoted recently as saying that any action on whiplash may take as long as 10 years to filter down from legislation to premium adjustments. He says, "It is fantasy to assume that rates will come down. The market forces won’t allow them to reduce rates to the tune that the Government expects." Do you all agree with that view?
Andrew Ritchie QC: No.
Craig Budsworth: As a result of the changes from April, there have been nearly £1.5 billion of savings straight away to the insurance industry by the reduction in costs from £1,200 to £500 for a portal case. At the end of July we are going to see a further change, in that costs are going to become fixed for cases in which court proceedings have already been issued. That will introduce another significant change. That is not in three years’ time; that change is happening now.
Q257 Karl McCartney: So where will their savings go at this point in time, do you think, considering the two companies have announced quite large profits so far this year?
Craig Budsworth: Exactly that.
Q258 Karl McCartney: It is not being passed on to those who pay the premiums.
Craig Budsworth: I am worried that it is not being passed on to those who are paying the premiums. You are talking about, for instance, Aviva. UK General Insurance made a profit of £448 million in 2012, up from £433 million. Direct Line had an operating profit of £262 million in its motor division, up from £246 million. Axa had an underlying profit of £134 million in 2012, up 86% on the £72 million it made in 2011. Admiral had £345 million. These are significant amounts of money. When you break that down into individual policies, on average it is nearly £100 a policy that these firms are making.
Matthew Stockwell: This is obviously against the background of an absolutely astronomical marketing spend. I sometimes come home for a sandwich after a day in court and turn on the TV. I am besieged with the same adverts about compensation and so on. When I sit down at prime time with my wife to enjoy a meal, that type of advertising wall-to- wall from insurance companies or brokers is a damned sight more expensive than the daytime TV. We know that that is filtering into the administrative costs that are being passed on to consumers because they are all trying to outbid each other for market share.
Q259 Karl McCartney: When actually what they should be doing is driving the cost of premiums down.
Andrew Ritchie QC: Precisely. What they have effectively achieved is capping legal costs, particularly for the small claims. The portal has capped legal costs. In effect, the Bar has been excluded because very few of those go to stage three of court. Yet we have not capped their advertising costs. Why not cap their advertising costs by reference to their payout?
Q260 Karen Lumley: Can you explain what happens and how you normally hear about whiplash claims? Is it through insurance companies or through people walking in off the street?
Desmond Hudson: The majority of solicitors would, at this stage, see their cases coming via referrals or paid for or from claims management companies. Almost half of the claims would start in that way. That is why I think we should close down claims management companies tomorrow.
Andrew Ritchie QC: And the insurers pass the details on.
Desmond Hudson: Yes, and sell them.
Andrew Ritchie QC: As soon as you have called your insurers, those details are passed on and then you are contacted.
Q261 Karen Lumley: Insurance companies are not allowed to sell on details any more, are they? Is that true?
Desmond Hudson: We have a ban on referral fees in relation to a civil process applying to lawyers. For example, a question was asked before about ABSs being used as a route round this. Of the 115 or so ABSs licensed by the Solicitors Regulation Authority, six involve solicitors connected to an insurance company. One insurance company has recently formed an ABS with a claimant’s solicitor. It is lawful within an in-house structure-let’s call it an ABS-to pass cases from one part of the business to another. <?oasys [pc10p0] ?>That would not be classified as a referral fee. I am very cautious and very worried that the ban on referral fees is going to be ineffective. I don’t believe referral fees serve society at all.
Matthew Stockwell: However they are described. If a solicitor had a client walk in with a whiplash claim, it would be the solicitor who would have to sit down, take a comfort break and adjust and deal with that situation. They would be more surprised than the person who had had a rear-end shunt or something of that nature. It is pretty much unheard of for somebody to go into a solicitor’s firm with that type of claim.
Desmond Hudson: I suspect that we are also seeing insurance companies receiving referral fees from car insurers, from the sellers of parts to car repairers, and from the sellers of paint to car repairers. What we need is a very transparent understanding of everything that is going on here and just where all these flows of money are coming from.
Q262 Karen Lumley: In terms of referral fees, what sort of money or cost are we talking about? Could you quantify that at all?
Craig Budsworth: £22.1 million is what Direct Line put in their referral fee receipt box from solicitors for 2012.
Q263 Chair: How do you think this will change in the new system? How much money will be received in the new equivalent of referral fees, in your view?
Craig Budsworth: I am not sure. I don’t mean to dodge the question, but it is still early days yet to fully understand the impact. Referral fees were funded out of the costs that we received. When you now see that these costs have been slashed as much as I said they have, there is not enough money there to pay referral fees. In my mind, that was part of the reason why the MOJ wanted to see the costs reduced so significantly, as a way of getting rid of the referral fees because they know a ban is difficult to enforce.
Q264 Chair: Do you think there will be a new market developing where solicitors represent claimants on the small claims track in return for a proportion of the compensation given? Do you think that will be the new pattern?
Andrew Ritchie QC: No.
Nigel Teasdale: Yes.
Matthew Stockwell: It is going to be very difficult because 25% of what will be a relatively small sum to begin with is going to mean, more likely, that people find themselves unrepresented. When I started off in practice, I was arguing over uninsured losses. A driver’s excess, for example, may be £100 or £200. There would be one insurance company providing legal expense cover to its policy holder and I would be representing another insured policy holder. Absent before-the-event insurance, I suspect you are simply not going to get the overwhelming majority of people represented at that level. There will be an imbalance if the insurer is represented to resist those claims. It will be much more difficult for them.
Andrew Ritchie QC: I would like to answer that question as well. It is deeply discriminatory, in my view, to increase the small claims limit to £5,000, because how are those who are old and infirm, those who have mental difficulties and those who are not so well educated going to run their own cases? How are they going to issue their claims forms? If they are going to be met with an allegation of fraud-
Q265 Chair: But is it likely that a new market will be created where solicitors do represent those people in exchange for a proportion of the compensation?
Andrew Ritchie QC: No. 25% of past loss when the whole claim is worth £2,500? That will be 25% of £1,000, so £250. I have run a small claim when I was clamped. It is a lot of work and it is difficult. Then you have to turn up-
Q266 Chair: So you don’t think that will happen.
Andrew Ritchie QC: There will be no such market. People will be deprived.
Desmond Hudson: I think there is likely to be a change in the market.
Q267 Karl McCartney: The Competition Commission inquiry has raised multiple concerns around the insurance industry. I have some concerns having just listened to what you have said. We know that the insurance industry has been in to see some of our colleagues from the Conservative side and the coalition side in the Transport Department. I believe they have also been in to see the Prime Minister at No. 10. Have you all had that same access, or have all those people who do business within this part of the business sector had the chance to get their points over?
Desmond Hudson: No, not at all.
Q268 Chair: Do any of you feel you have had the same access as the insurance companies to No. 10?
Andrew Ritchie QC: No.
Craig Budsworth: There were two questions there. There was a Competition Commission question and a question about No. 10.
Q269 Karl McCartney: The Competition Commission has some concerns about the insurance industry per se. I have as well and the fact that they have been given access to different levels of Government, as well as obviously the Transport Select Committee. I am talking about the Department for Transport and to No. 10. We know publicly that the insurance industry has been in to see the powers that be. I just wanted to find out if you, as part of the business sector, had been in or if you are aware that other parts of the same business sector had been in to see them.
Matthew Stockwell: No. Valentine’s Day came and went this year and we didn’t get any invitations, unfortunately.
Desmond Hudson: But the point of the matter is it is not really a surprise, is it? Back in February, the Law Society wrote to complain to the Prime Minister that we were denied access. He did not want to hear from people with a contrary view. All of these changes are simply about making it harder for people to make a claim. That is what this is all about. The risk is that that carries very significant issues of injustice. There are better ways for us to maintain justice than deal with the inappropriate, exaggerated and small number of fraudulent claims.
Q270 Chair: What problems are caused by people bringing whiplash claims at the very last moment just before the expiry of the three-year period?
Desmond Hudson: They make the prospects of success in their own case more difficult. If you have no good reason why you wait until towards the end of the limitation period, I suspect a court and a defendant is going to look askance at that. There is no sensible reason why you would do that unless there is an extraneous factor.
If you have cases being raised like that-and one of the members spoke about it earlier-that cannot be a good thing. It does seem to me that the existing systems, if they are used, work to make that sort of practice unattractive and unrewarding for the claimant. But the systems are not used by the insurers. It is easier just to settle and add that to the cost of premiums.
Nigel Teasdale: I think we still come back to the fact that the claimant will say, "I suffered an injury two and a half years ago, and I have three years within which to bring that claim." It is then up to the defendants to prove that no injury was sustained. We can analyse medical records. We can perhaps look for inconsistencies elsewhere in some other report where they have said that they were not injured. If you cannot find that, then you are fighting with one hand behind your back. The process is such that the claimant will go and get a medical report. He will say to the expert, "I was injured." The medical expert has no way of proving or disproving that. We will come back before the court with the position where the claimant is holding all the cards really and saying, "I was injured."
The late notified claims, as you have mentioned, of two and a half years is perhaps a more extreme element, but everyone knows these days that they have whiplash within 72 hours or thereabouts. If you have not made a claim within two and a half years, with all the advertising and texting that goes on to say, "Why don’t you make a claim?" something has gone wrong somewhere.
Q271 Chair: Can you get significant whiplash injury from a low-speed accident?
Craig Budsworth: Yes, very much so. That was the point I was trying to make earlier on this de minimis speed. The rule in Germany is that if your accident has happened at less than 10 kph, the burden of proof shifts. It is not that you can’t sustain the injury but that you now have to prove that you have sustained that injury. It is only a subtle difference but it is there.
If you are involved in a low-velocity impact, you might be sitting there waiting to pull out of a side road so you are looking to the right. It might be that you then get hit from behind. Your head rest is not positioned properly to protect you from that impact. You might miss the head rest. That is the type of injury you are likely to sustain during a low-velocity impact that would still warrant having compensation and might still bring on a compensatable injury.
It is this balance of understanding the person and where they were in the vehicle. It might be that that person is more susceptible to injury anyway, depending on the person’s age or their own physical abilities. There is this balance to be drawn here rather than just saying, "It’s a low-speed impact so you can’t sustain an injury."
Mr Dalton put forward earlier the highlighted figures of a low-speed injury with a two-week injury. Is it worth £2,500? Never in a million years is that going to be worth £2,500. That type of injury valued through the courts at the moment is a few hundred pounds. Each injury has to be valued individually for each person. It is not just the injury that is valued; it is the pain, suffering and loss of amenity.
Andrew Ritchie QC: There are many medical papers to show that four to five miles an hour is about the threshold. What worries me about introducing a threshold is that older people have weaker necks and so they are more likely to be injured. The figures are quite clear. Women are more likely to be injured from a low-speed impact than men. If you introduce a threshold, what you are really doing is excluding the vulnerable from their right to claim. The better way of doing it, in my view, is to require photos of the damage and a note from the GP or the A and E. If you want to set thresholds, set thresholds that put a burden on the claimant to go and get at least some objective record of what has happened. If you impose that burden, you don’t discriminate between one and another.
Matthew Stockwell: There may be circumstances in which somebody suffers injury where somebody else wouldn’t. Everybody from common experience has moved awkwardly and twitched a knee, a neck or something else of that nature. Age, sex and all the other predisposing factors will influence that.
I can only speak from personal experience. I had a road traffic accident about 10 years or so ago. I was at a junction and had been in the car for about three hours or so. I was quite stiff to begin with and I had to lean forward to see to the right of myself at a junction. Somebody went into the back of me. I had a small injury to the left-hand side, which was the bit that was extended in that motion round to the right-hand side, but it was unsupported by the back of my seat. There can be a variety of different circumstances that might mean that somebody would suffer injury in circumstances where somebody else in precisely the same type of accident with the same surrounding circumstances would not suffer any trauma.
Q272 Graham Stringer: I accept the anecdotal evidence that it is possible to break your leg walking down stairs. Is there any harder medical evidence about the percentage chance of getting a whiplash injury or injury at less than 10 kph?
Nigel Teasdale: In the papers that Mr Ritchie has already referred to.
Andrew Ritchie QC: There are a number of papers that have examined it.
Q273 Graham Stringer: I accept it is possible. I am just talking about the percentage.
Andrew Ritchie QC: How many do at certain speeds?
Graham Stringer: Yes.
Andrew Ritchie QC: They used some American troops in the 1960s in one set. They put them in cars and they bashed them into walls. You just need to read the papers and you will see how many got injured.
Craig Budsworth: I think Thatcham has done a fair bit of research into that.
Chair: It seems a bit drastic.
Andrew Ritchie QC: They consented apparently.
Desmond Hudson: And they didn’t have a lawyer.
Jason McCartney: It was either that or Vietnam.
Desmond Hudson: The point we are all making here is that what greatly concerns us is that, at the moment, there appears to be a risk that we are legislating on the basis of lobbying from one side only. If we are going to make changes, we should do it on the evidence.
Q274 Chair: No, no, Mr Hudson. The purpose of today’s session is to have different people giving their views. This is your opportunity. It is not to comment on what someone else has said but to give us your views. Have the judiciary been unduly lenient in dealing with whiplash claims?
Andrew Ritchie QC: I will deal with that briefly. In the cases that are taken before the courts, if it is proven on the balance of probabilities that there is an exaggeration, then the damages are lower. The House of Lords said in the Summers case that the way the insurers protect themselves is by making a relevant offer. In that case, where £80,000 was awarded but a lot more was claimed, if the insurers had offered £80,000 or £85,000 or £90,000 or £95,000, they would have got their costs and they would have been fine. They didn’t, so they made an error of judgment.
This worry about exaggeration is dealt with properly by the courts. If the judge finds that the claimant has intentionally exaggerated-and there are a number of cases where that has happened-what happens is that the insurers bring proceedings in effect for misleading the court. It is contempt of court. There are two or three cases over the last two or three years where people have been imprisoned for it. One got four months and one got six months. That needs to be better advertised and better utilised.
I fear that what happens is that the portal is cheap; the claimant bungs in one medical report; the insurers don’t even put in a medical report but say, "Well, we’ll chuck £3,000 at that; it is cheap and we can’t be bothered."
Matthew Stockwell: I do not think the insurance companies can have it both ways because you do see this at the other end of the spectrum. What happens in the larger value cases is that you have an immediate needs assessment. It is like a nursing assessment so that the insurer can get an idea of what support needs to be provided. Without any medical evidence, I have had £750,000 offered to one of my clients in circumstances where, when the medical evidence was available, it was proved that the claim was worth well over £1 million. There were other cases where there were £100,000 offers that insurers were prepared to make without a single scrap of medical evidence available to them.
You can have a system that is robust at the smaller end and one that is robust at the larger end, but what you can’t have is one that does not carry any cost if you are going to properly scrutinise claims across the whole cross-section.
Chair: Thank you very much for coming and answering our questions.
Examination of Witnesses
Witnesses: Andrew Wigmore, Policy Director, Claims Standards Council, Russell Atkinson, Managing Director, National Accident Helpline, and Peter Gradwell, Owner and Managing Director, Exchange Insurance Services, gave evidence.
Q275 Chair: Good afternoon and welcome to the Transport Select Committee. Would you give your name and organisation, please?
Andrew Wigmore: I am Andrew Wigmore, representing the Claims Standards Council.
Russell Atkinson: I am Russell Atkinson, managing director of National Accident Helpline.
Peter Gradwell: I am Peter Gradwell of Exchange Insurance Services.
Q276 Chair: It seems that both the insurance companies and the solicitors think that you are the cause of the problem we are discussing and perhaps think you should be shut down. Why do you think you should still be here?
Andrew Wigmore: The claims industry has probably been demonised more than any other industry ever. I use the historic reasons for that and probably there was some justification. Going back to 2003, when you had the Accident Group and Claims Direct, you will remember the issues surrounding that. It was very clear that there were huge abuses to the detriment of the consumer. When they looked at bringing in the regulation, they were looking at what they thought was actually quite a small industry, not also recognising the tentacles that that industry had. When they brought the regulation in, they were mildly shocked at the DCA, or Ministry of Justice as it is now, when they realised how intertwined claims management companies were within the entire sector, including lawyers, the insurance industry, brokers, car repair organisations and so on.
If you asked me that question about whether or not we were to blame five years ago, I would agree. Now I have a very different view in that I would say very positively, strongly and confidently that those organisations-the claims management companies that you talk about that are often demonised-are often owned by law firms. They work directly with insurance companies and brokers. There are very few claims management companies, as you would probably understand them, that exist doing what they used to do prior to the regulation in 2006.
Q277 Chair: How do you work with insurance companies? Could you tell us a bit more about that?
Andrew Wigmore: Very easily. Again, this goes back to the fact that claims management companies were very good at what they did. The commodity, which was the individual who was injured, was the bit that everyone wanted. It was a race to get to that commodity because that is where the value and the money was. The lawyers, also realising that, decided to turn from poacher into gamekeeper. So now they employ claims management companies to act on their behalf. They say, "Here is our data and here is what we want to do. We want you to get to that customer first, so please do it because you are better at it than we are." That is what you have now. You have lawyer collectives, lawyers and law firms recognising how the claims management companies first started and how well they did it. That is what they now deploy and that is who they employ to get to those claims first.
Q278 Chair: You are saying that the insurance industry works with you.
Andrew Wigmore: Absolutely.
Q279 Chair: Would any other witness like to comment on why you think your business is worth while?
Peter Gradwell: Yes. I am not a claims management company; we are insurance brokers. When the system changed, as referred to before, clients of ours were able to make recoveries that they were not able to make before. Before we had this system, if you were an ordinary guy, and somebody who was speeding crashed into the back of your car and it was written off, you had to wait for your insurance company to pay you out before you could afford to get back on the road, unless you were rich enough to be able to hire a car, fund it yourself, go to the court, employ a lawyer and recover the costs there. You would wait for a long, long time.
Claims management companies came in, along with credit hire companies, and they work together. They were happy to fund the hire of the vehicle to you in return for handling the whole of the claim for you, including the personal injury recovery. By that means, innocent clients were able to get back on the road quickly. It was no fault of theirs that they had had the accident. They got the compensation from their own insurer and they were then able to get on with their lives. I believe that has been a good thing. They have been properly compensated for the injuries they have received. Overall, we are a better served culture as a result.
Q280 Chair: Mr Atkinson, what can you tell us about National Accident Helpline?
Russell Atkinson: I would say that, while we are regulated as a claims management company, we are actually a marketing company. We work on behalf of our partners, who are solicitors, in a pooled marketing model. They pay the costs of marketing and we have a national brand that basically allows accident victims the opportunity to assess whether or not they have a claim, and then we can pass that claim on. Claims management companies as a group is a very wide and broad church of organisations doing different types of things. It has been quite a convenient way of saying that the worst practices of the industry all belong in that particular area. I, for one, would want to focus on the worst practices of the industry as a whole and put an end to those, rather than vilifying one particular sector or another as a means of scoring a point.
Q281 Chair: Mr Wigmore, could you explain to us why your organisation-the Claims Standards Council-did not submit any evidence to this inquiry and had to be pressured very hard indeed to persuade you to come in front of us today? Why was that?
Andrew Wigmore: Because pretty much everyone that we work to made a submission to you. When you ask a group of people, "Do you want to make a submission?" most bases were covered. In relation to whiplash, which is quite specific, I think pretty much anyone who had anything to do with the Claims Standards Council, however tiny, had made a submission to you. To put forward a collective view would have been duplicating what you already have.
Q282 Chair: You are aware of all the criticisms of claims management companies.
Andrew Wigmore: Oh yes.
Q283 Chair: Didn’t you feel that as the Claims Standards Council you had some responsibility?
Andrew Wigmore: I would agree, yes, but we have been demonised so often that you end up thinking, "What’s the point?" because anyone in the industry-
Q284 Chair: Are you serious, Mr Wigmore?
Andrew Wigmore: Yes.
Q285 Chair: Because you have been demonised, you think that means you should not come before this Committee and answer questions about your conduct of the industry.
Andrew Wigmore: No, no; we were very happy to come before the Committee, but we-
Q286 Chair: You didn’t seem to be very happy. It took a lot of persuasion, didn’t it?
Andrew Wigmore: Point taken, but we were quite happy to. The reason why the Claims Standards Council didn’t think it would add any value to what you understand is because you pretty much know everything through the Ministry of Justice and the regulator anyway. The claims management industry is so broad and vast, whether you are looking at insurance, the laws or whatever it is, I don’t know if we could have added any value other than to illustrate to you that, in fact, the biggest spenders in claims management activity are lawyers, not claims management companies. The insurers work very closely with us. We would have been duplicating stuff that you already know. If you want specifics about whiplash, we have a view, which I am happy to share.
Chair: You are here to give your view and to answer some of the criticisms.
Q287 Karen Lumley: Mr Atkinson, what is your annual budget for advertising?
Russell Atkinson: I do not wish to go into commercially sensitive information but it is a significant budget for advertising.
Q288 Karen Lumley: Percentage-wise.
Russell Atkinson: We advertise on TV, through the internet and various ways. It is a multi-million pound budget.
Q289 Mr Sanders: Don’t your company accounts show what you have spent on advertising?
Russell Atkinson: Yes. We-
Q290 Mr Sanders: So could I ask the question: what do you spend on advertising?
Russell Atkinson: We spend a very significant sum on advertising. I will quite happily write to you with all of the details of what we spend so that we are not sharing commercial information. In principle, we are allowing accident victims access to justice by having a point to which they can go to discuss their claim and to have the merits of that claim discussed and validated. If we believe there is a valid case, we will pass on the information to our partners with whom we work who actually pay for that advertising. Of the 200,000 or so calls that we get in any year, we only pass on about 75,000. We filter out over 60% of the cases or the calls that come our way.
Peter Gradwell: I would make a point on this as well. Claims management companies tend to be grouped all in one-and understandably so by the buying public-but there are completely different models. There are those models that are based around managing the claim from beginning to end, including, necessarily, car hire and so on. There are also small claims management companies that get the industry a very bad name. They can be involved in fraud. I am an insurance broker; I do not derive money from this. You wouldn’t go near them with a disinfectant.
I represent insurance companies that do ATE insurance-after-the-event insurance. We have to filter through. There is an exchange of information between ATE insurers and acceptable claims management companies, saying, "You do not want to get involved in this because that is the third stage of the check. They are known to have been fraudsters in other parts of the country," and so on.
Personally, I welcome any form of regulation that will close down those companies. Lord Justice Jackson’s reforms should, by the doing away of referral fees, close them down. That is what the MOJ is asking for currently. I am in favour of more regulation-not less.
Q291 Jason McCartney: Mr Wigmore described the victims of whiplash as "a commodity". You are spending millions of pounds on television advertising. Is that the most cost-effective way of you getting access to the commodity?
Russell Atkinson: First, we would never describe victims of any accident as a commodity. They are victims of an accident. From our perspective, we advertise broadly. We don’t advertise specifically for victims of whiplash. Road traffic accidents represent about 30% of the claims types that we get, and, of that, whiplash represents about 22% of the overall claims. From our advertising, we get a very broad selection of different types of claims. Each of those claims is judged on its merits as we go through as to whether the accident victim has a meritorious claim or not.
Q292 Jason McCartney: You are the initial point of call because there could be different types of accidents that people have been in, and you will pass on those details to third parties and get a referral fee.
Russell Atkinson: No; we don’t get any referral fee. The way our model works is that we are paid by those third parties for marketing services, irrespective of whether they get any inquiries from us or not. The services we provide are the advertising I described earlier and also the initial vetting or triage of that claim as it comes through. We ask a number of questions of the consumer to establish the nature of the claim, the sort of things they have had, how long ago it was and those kinds of things. We then pass that data to our partners, who will assess whether that claim is worthy of further action and it becomes a claim.
Q293 Jason McCartney: Do you have a grading system for when customers come to you in terms of those that are top-notch-the gold standard ones?
Russell Atkinson: No; we don’t grade the claims. We don’t earn our money based on how much money is in a claim. We earn our money effectively from the advertising and marketing services that we provide. We don’t grade the claims. We ask questions of the claimants to work out whether there are merits in the claim in the first instance. There are also questions that may indicate whether there is some form of fraud or something similar, but we then pass those inquiries on to our partners, who are more qualified than us to make the final assessment of whether or not there is a valid claim to be pursued.
Q294 Karl McCartney: I have a question to all three of you. We are here in particular about whiplash, but I was very interested in what Mr Gradwell had to say about you welcoming all sorts of regulation. Whiplash is a complete issue, if you like, and we would all like to see fraudulent whiplash claims reduced. We would hope, if insurance companies passed them on, that that would enable premiums also to be reduced. That is what I would like to see as well. Would you like to see the amount of claims reduced per se, or would that impact on your business model? Secondly, if you were in our position or if you were Secretary of State for Transport or in the Ministry of Justice, what would you want to see done?
Peter Gradwell: I spend a lot of my time with claims directors of insurance companies working on getting my clients’ claims down. That is not just the claims that my clients are making but the claims that are being made against them. One of the biggest problems that we have is that it takes insurance companies-and large ones in particular-an inordinate length of time to settle a claim. The longer it takes to settle a claim, the bigger the claim gets and the higher the expenses get. It is not uncommon for a motor accident to run for two and a half years in this country. That is very frustrating for a guy who is running a fleet of 30 vehicles and who is looking at that on his claims experience year after year. I have to explain to him why his premiums are staying at such a high level. He will say, "But it was never my fault," but if the insurance company don’t bring it to a conclusion, he is blamed for it. On a domestic level, your no claims bonus is docked for that period until it is settled. Commercially, it is a disaster because you never get it back. After three years, it is out of time and you just roll on to the new claims experience that comes in. That is the way it works.
I want insurance companies to respond to claims quicker. I want them to respond to the claims that are put in by lawyers quicker. To respond to them would be quite good, because they don’t on many occasions. In 50% of the cases for personal injury at Liverpool court they don’t turn up. That just increases the cost of the claim. There is one firm of lawyers in Liverpool that employs 90 people. Four of those people are on permanent enforcement of judgments against insurance companies. That adds 15% to every single claim. They send the bailiffs in 50 times a year to major insurance companies and then they get paid. There is no excuse for that at all-none at all. As you say, their advertising budgets just go up and up.
You can get insurance claims costs down. Smaller insurance companies can and work hard at it. If you work with them and you look at a claim, it is absolutely clear to anybody who works in this business, if you have the right people on the claim, when you should settle it quickly. It is only going to get more expensive and the legal fees go up. I am not in favour of big legal fees; it is of no advantage to me and I don’t earn anything from it. I want them down.
Q295 Karl McCartney: But the legal firms do.
Peter Gradwell: My legal friends probably do, but you should ask my legal friends about that and not me. I am interested in the policy holders, and they want claims settled as cheaply as possible. Yes, you have to explain to them that insurance companies will pay claims that they think they shouldn’t pay. I heard you before questioning whether they fight and all the rest of it. It is a very difficult explanation to give to somebody to say, "Look, it is just not monetarily worth it." That conversation regularly takes me about an hour a week with a couple of people. In the end, they accept it. It is not nice and you do feel as though you have been done, but I am afraid it is just the way things are.
Q296 Karl McCartney: But it doesn’t necessarily have to stay that way and nor is it right.
Peter Gradwell: Yes, I think so. But if you go to court on certain cases and you lose, then you are looking at £10,000. It is the sort of judgment everybody makes all the time-"Am I going to sue or aren’t I going to sue?" In the end, you just say, "Oh, forget it."
Q297 Karl McCartney: Could I ask that same question of the other two?
Chair: Could I ask you for answers to the point, please?
Russell Atkinson: Your point is very clear. First of all, there is nothing wrong with genuine whiplash victims claiming for whiplash, but we have no interest in non-genuine or fraudulent claimants claiming. You talked about regulation and whether it should be regulated. The worst practices and excesses of the industry should be regulated against and stopped, in whichever part of the industry we are referring to. It is not just claims management companies but insurers, body shops or whoever. That includes data mining, third party capture, cold calling and cold texts. They are things that we passionately believe should be stopped because they don’t do their industry or the consumer any good at all. Mr McCartney talked before about still receiving texts two and a half years later. Those are the sorts of practices that give our industry a bad name and that NAH would like to see banned.
Andrew Wigmore: We need a reality check. Ultimately, this is a business and you are going to have organisations that exist, whether you call them claims management companies or marketing firms. The other reality is the fact that there is a merger of this industry, I think for the good. You now have lawyers and insurers working together like never before. Marketing companies and claims management companies are working together like never before. That is a good thing.
The LASPO and legislation currently in place has been the right propellant to see the disintegration of a lot of the abuses in this sector. I think that is happening. The Government have to have a watching brief on what is going on. The way the sector is going to shake itself out will be a good thing.
From the perspective of whiplash, there is an issue-no question-but raising the bar medically and looking at some of the innovations that are taking place between the insurers, lawyers and some of these claims management companies should be looked at in some detail. I know you have evidence there. You will see some great initiatives that I do think will work. Using the word "whiplash" needs to be got rid of completely. I don’t think it describes soft tissue injury at all. Again, you will see some submissions in your evidence that indicate there is tremendous movement towards the whole process being looked at and performed correctly.
As it is an industry, you have to remember that every single person in this room and who has given evidence to you is ultimately in this to make a profit and make sure that they continue to do so. You can’t disguise that or get round it, no matter what excuse is given to you. That is a fact of life. The abuses of marketing that you talk about are wrong. We have regulation through the Ministry of Justice, which is doing and has done a very good job, and I would like to see that continued, but the 21st century junk mail, I am afraid, is going to be your mobile phone. Whether or not people like that, we are just going to have to get used to it. You do what we did with junk mail, which is turn it off, chuck it out or delete it if necessary. Unfortunately, that is the reality of this sector and it is not going to change.
Q298 Chair: Should the Claims Standards Council be dealing with some of those abuses?
Andrew Wigmore: We try to but it is very difficult. Historically, we were good at grassing up the people who had done things wrong. In cash-for-crash we were instrumental in providing a lot of that information, simply because people quite literally used to dump brown envelopes on to our desk.
Q299 Chair: But what about now?
Andrew Wigmore: For instance, with regard to the text messaging issue, which is as relevant in personal injury as it is with PPI, a lot of that information we are able to glean from who was providing all those texts into this country.
Q300 Chair: What are you doing about it as a Standards Council?
Andrew Wigmore: We tell the Ministry of Justice and the Information Commissioner if we get sight of absolutely anything that we think is breaking the rules. We do it regularly. I am sure that if you spoke to the Ministry of Justice they will tell you. That is the only thing we can do.
Q301 Chair: I am asking you. You are telling me that your Council is actively dealing with these issues.
Andrew Wigmore: We have no power other than to grass them up, and that is what we have been doing for 10 years.
Q302 Chair: Can you explain in other words what you do?
Andrew Wigmore: Ultimately, remember, it was meant to be a self-regulatory body- the initial trade body for the industry-so that the regulator, the DCA and the Ministry of Justice, had a bridge to talk and look and find out what these organisations were doing. We did that very well. It has moved on apace since then. What we were representing then is not what we are representing now at all, apart from maybe in PPI.
Q303 Chair: What are you actually doing about the abuses that have been identified?
Andrew Wigmore: All we can do is highlight that to the Ministry of Justice and the regulator. That is absolutely all we can do. Legally, we can’t do anything other than let people know. I often tell the press. If the press highlight a story, which they often do in the Daily Mail or The Mail on Sunday, that sometimes has an effect, and a knock-on effect on what the regulator, the Information Commissioner and the Ministry of Justice can take action on. The law is quite complicated under the Compensation Act. There are lots of ways people get round it-and do. Unfortunately, that is criminal and not something that the regulator is ever going to be able to control. It is a criminal activity, cash-for-crash being a perfect example.
Q304 Sarah Champion: Mr Wigmore, your panel members have both spoken about shady and fraudulent practices within your industry. You say that you have no power. Would you therefore like more regulation in place so that you do have more power?
Andrew Wigmore: You have to remember that the Ministry of Justice regulation team is self-funded. It is paid for by the fees that they get from those organisations they regulate. There has been a dramatic drop-off of organisations that are regulated, so the police force that they have is diminished. Therefore, the effect that they have on regulating is also diminished. If you could get a few extra pounds off the Government, it would do a tremendous amount pretty instantly, but unfortunately it is difficult, with everyone’s budgets being tight.
What the Ministry of Justice has done, which I think is very clever and good, is to get other agencies involved. The Information Commissioner can now come and take action on text messages. That has had some great effect. Relying on other agencies to support the regulator has been very effective, and that has to continue. If they do that, they will get rid of these abuses.
Q305 Sarah Champion: Going forward, are there other recommendations that you would make?
Andrew Wigmore: More money for the police force at the Ministry of Justice; that is what it needs.
Q306 Sarah Champion: To do what exactly?
Andrew Wigmore: They have 20 officers to go round the United Kingdom knocking on doors to find these abuses. They have to gather intelligence before they can bring a case in order to suspend authorisation of a claims management company. Recently, the Ministry of Justice put up for the very first time a shame website containing names of organisations that are under investigation, which is a great thing. The consumer and people who work with these organisations can look to see whether these organisations are fit for purpose. That is a good thing. It does not matter whether you are an insurer, a lawyer, any kind of funder or the consumer. It is important to name and shame. Up until recently we have not had the ability to do so. A combination of the regulators working together will have effect, but as I said, the propellant of the regulation that has been put forward is a good thing and it is starting to take shape. You have a watching brief to see exactly how the land lies, but if necessary, you have to come in and be pretty nuclear with your next step. If that is more regulation, so be it.
Q307 Chair: What proportion of whiplash claims are either fraudulent, in the sense that they don’t exist at all, or exaggerated? Would any of you have an assessment on what proportion of claims fall into either of those categories?
Andrew Wigmore: I think this is a society issue. We have to look at the advertising and the way-
Q308 Chair: No-what proportion?
Andrew Wigmore: I think a good third. You could probably easily question whether they have whiplash.
Q309 Chair: How many?
Andrew Wigmore: A good third of all claims, easily.
Q310 Chair: A third are exaggerated or fraudulent.
Andrew Wigmore: I think they are exaggerated. Fraud is different, but exaggeration is easy. The grading of whiplash has been completely misdiagnosed. They call it a whiplash associated disorder. I think there is a better measurement, which is called the neck disability index, which looks at soft tissue injury as a grading rather than whiplash. It often becomes a lazy way of prescribing the prognosis. You just put "whiplash" because it is a grade 3 what? A whiplash associated disorder. A physiotherapist will tell you that gradings 1 to 2 would not classify as a whiplash as you currently know it. It would be a soft tissue injury grading and, therefore, the treatment is very different, the diagnosis is very different and probably the legal compensation they get is very different. At the moment we do not have that. Maybe three firms and three insurers are starting to pilot it. If you expanded that, you would probably have a very different recalibration for the way whiplash or soft tissue injury is looked at and diagnosed.
Q311 Chair: Mr Atkinson, do you have any assessment of the proportion of claims that are fraudulent or exaggerated?
Russell Atkinson: I would concur that it is a difficult area in terms of diagnosis. Our figures would say it is very much less than some of the figures we have heard today.
Q312 Chair: What sort of figure would you say?
Russell Atkinson: In terms of the way that we would see it happening, effectively, we have an after-the-event insurance policy that works with a claim that is being progressed. The number of those policies that have been cancelled because of fraudulent activity is less than 0.1%; that is less than one in 1,000 cases. That does not mean that there are not other forms of fraud happening.
Q313 Chair: Is that fraud where the incident has not happened or the injury has not occurred at all?
Russell Atkinson: Yes. Effectively, that is fraud where the insurer has said, "No, this is a fraudulent case and we will cancel the insurance policy."
Q314 Chair: What about exaggeration of the extent of the injury?
Russell Atkinson: We don’t have any figures ourselves in that particular area so I would not give you anything on that.
Q315 Chair: Mr Gradwell, is that something on which you have any assessment?
Peter Gradwell: Yes; only on the difference between fraud and exaggeration, which is merrily being rolled together by the insurers. Unfortunately, if insurance claims were all absolutely correct and submitted, then we would not need to have loss adjusters or claims departments of insurance companies. You would put your claim in and say, "I have lost £600," and they would just send you £600 back. We all know they don’t do that.
Exaggeration can’t be classed as fraud. It is a matter of opinion on many occasions. Somebody’s cost of something is arguable by another person. That cannot be classed as fraud. We would have nothing to do with fraud itself. You mentioned ATE insurers. The policy is voided by fraud immediately, so there is no protection for the lawyers. The lawyers do not get their fees and the car hire company lose all their money because they have invested in it. That is it; fraud is the enemy of the industry, and that is why 25% of cases that come to respectable companies are turned down. They say, "We won’t get involved," because there are people out there trying to commit frauds.
Q316 Chair: Is that the figure of fraud, in your view?
Peter Gradwell: It is certainly the average case for lawyers, yes, 25%.
Q317 Chair: I just want to get an idea of how you see it. I have one final question. What steps, if any, do you think should be taken to address the rising number of whiplash claims? Should anything be done and, if so, what, or do you think there is no problem and no action needed?
Russell Atkinson: First, in terms of some of the worst excesses of the industry, we should let the LASPO changes that have just come in bed in. I talked before about some of the practices that should be stopped such as the cold calling, the data mining and those kinds of things. We would certainly suggest that those things happen. Allowing the current regulation and the banning of referral fees to take effect and also banning some of those other activities that we have already talked about would be the two things that I would propose.
Peter Gradwell: I would like to see all parties regulated by the Financial Conduct Authority, which used to be the FSA. They require a fit and proper person test. It costs us a lot of money. You referred to Government money; it is not; it is self-funding. An average company with a turnover of £1 million of brokerage has to pay about £30,000 a year to the FCA. I don’t see why others shouldn’t as well because then it is self-regulating and self- funding.
Q318 Chair: So regulation is what you would say.
Peter Gradwell: Absolutely-regulation.
Andrew Wigmore: I think, Chair, you should raise the bar on medical diagnostics. If you do that, I think it will remove a lot of the issues that have been discussed. I would also caution raising the small claims limit, otherwise you are going to have everyone becoming a claims management company. Ultimately you don’t want that, do you?
Russell Atkinson: I would certainly emphasise that. The raising of the small claims limit gives us significant access to justice issues; 80% of the consumers that come to us have a problem going to solicitors and going to the court. They will effectively be debarred from proper access to justice by raising the limit.
Q319 Chair: Mr Wigmore, you say that everyone would become a claims management company. Do you think this will open up a new area of activity?
Andrew Wigmore: Yes, I do, absolutely. People have already started talking about it. These are clever marketeers and clever people. They have looked at what could potentially be over the horizon. They are sitting there saying, "Yes please, raise it," because it makes them much more profitable. It gives them a better way of getting to that customer. They don’t need lawyers. If you de-legalise it, they will all become claims management companies.
Q320 Chair: Who would be doing that?
Andrew Wigmore: Claims management companies. You will have insurers and lawyers. Everyone will start into it. The whole cycle will start again. You will have the reinvention of new marketing companies, which is fine if that is what you want, but, bearing in mind that the words "claims management companies" are demon words, I would strongly suggest you take a deep breath, have a watching brief, see what happens and then decide.
Chair: Thank you very much. Mr Wigmore, I hope you decide that your visit here was worth while.