Earlier this month the Transport Select Committee held the last hearing of its inquiry into whiplash.
This followed the Ministry of Justice consultation covering similar ground and which proposed the raising of the small-claims limit for whiplash claims from £1,000 to £5,000. The pressure for reform is two-fold. First is the government’s wish to see insurance premiums come down and second comes, naturally, from insurers.
Despite the huge changes recently implemented in this area, all of which should act to reduce premiums – including the introduction of portals for low-value claims, costs budgeting and fixed costs, stopping recoverability of success fees and after the event insurance premiums, the referral fee ban and the massive reduction of the portal fee – some insurers implausibly contend further reforms are critical before a reduction in premiums can be delivered.
Recent reports, however, indicate car insurance premiums are starting to come down, and well they should.
That said, I do not set out to challenge the basic premise that steps should be taken to tackle fraudulent whiplash claims. I do, however, strongly disagree with the MoJ’s proposal to deal with this by raising the small-claims limit.
That would stymie the claims of both the fraudulent minority and the vast majority who are genuine claimants. All would be forced to either, at best, negotiate direct with trained insurance clerks, motivated to get the best deal for their boss or, at worst, litigate against insurers able to afford legal representation of their choosing. That is a recipe for injustice and cannot be fair.
A more sophisticated and proportionate way of tackling the problem becomes apparent if we go back to the basics of what being a personal injury lawyer is all about: fault accident + injury = claim.
Although in the real world the issues are invariably more complicated, at the most basic level this is the formula applied by claimant lawyers on a daily basis when deciding whether to accept instructions.
Here the risk of fraud, arising purely from the danger the potential client is trying it on is, to an extent, self regulated by the time and effort needed to achieve the desired outcome. The introduction of referral fees and inducements – whether this is the offer of cash up front or a gadget – however, contaminates the process and creates perverse incentives. Frequently, these payments can be but an incidental feature in the calculation; too often, however, their effect can be pernicious and the net result is an increase in fraudulent claims.
With referral fees this happened because they introduced another actor who stood to profit from the claim and therefore had an interest in it being pursued.
This problem is well illustrated by the letter of Rob Barley describing the inappropriate pressure he came under to make a came during an unsolicited call, no doubt from a claims management company (CMC), but one that will sell its wares to solicitors. Insurers were culpable too and happily sold on their customer’s details to the highest bidder, a practice that continues in some quarters albeit under the ABS guise.
With inducements the added risk comes from a claimant with a transient desire to lay his hands on a quick buck or the next must have device. The way they are marketed creates the impression in the mind of the prospective claimant that a simple phone call will procure the inducement – 'Try it – what’s the worst that can happen? You don’t get £1,500 – so what! You’re in no worse position than you are now' – is unlikely to be an atypical thought process.
The referral fee and the inducement thus introduce inappropriate pressures to the equation. If they are stripped out the risk of fraud will recede. What risk persists should be manageable, particularly in the post Jackson era.
As a personal injury lawyer it might be considered strange that I would argue against inducements bringing benefits to claimants. I do so because I believe that by contributing to an increase in fraud they are bad for claimants as a class.
The rise in fraud and the practices driving it have, in the eyes of the public, had a mutilating effect on the system akin to that which each forbidden act inflicted upon the portrait of Oscar Wilde’s Dorian Gray. It has seen phrases such as ‘cash for crash’, ‘ambulance chaser’ and ‘compensation culture’ become part of the lexicon of everyday life.
Consequently, the task of challenging recent civil justice reforms, that will hurt accident victims, was more difficult than it should have been – the door of the voting and premium paying public is wide open and insurers have found it easy to nudge a willing government through.
With referral fees banned instances of fraud will reduce and the latest figures show whiplash claims are dropping. The government’s next step should be to ban inducements. Lord Young recommended as much in his 2010 report Common Sense Common Safety, endorsed by the prime minister.
The Association of Personal Injury Lawyers supports this approach and from 1 April CMCs have been banned from offering them. The SRA’s failure to impose a ban is lamentable and risks contributing to a situation that will see genuine accident victims unable to obtain access to justice.
I hope therefore that come the end of the summer the justice secretary will act as his title dictates and will not be persuaded to wield his sledgehammer by the money men lobbying relentlessly at his door.
Richard Edwards is a solicitor-advocate at E Rex Makin & Co, Liverpool, and APIL Fellow