Third-party capture is a boon to insurers and touted as beneficial to claimants. But is it really a ploy to deprive accident victims of legal advice? Jon Robins reports


A new faultline appears to be opening between the claimant and defendant personal injury camps. This time it is over the growing practice of what the insurance industry calls ‘third-party capture’.



This process involves insurers contacting would-be claimants directly (as opposed to their own policyholders) in an attempt to deal with claims before those claimants have had a chance to take independent legal advice.



The words ‘third-party capture’ are likely to elicit two very different responses, depending on which side of the professional divide the listener is on. The practice is either a commercially necessary move, whereby insurers miss out on incurring disproportionate costs associated with processing a claim – mainly, those of claimant lawyers – at no loss to the consumer; or it is a cynical ploy to deprive accident victims of independent legal advice, plus a large chunk of their damages.



Claimant lawyers, led by the Association of Personal Injury Lawyers (APIL) and the Motor Accident Solicitors Society (MASS), as well as the trade union Unite and union firm Thompsons, have called on the Financial Services Authority (FSA) to plug a perceived loophole in the Compensation Act, which lets insurers approach third parties without accountability. Late last year the FSA said, in essence, ‘show us your evidence’; now the claimant camp has done just that.



A dossier of six recent cases, sent to the FSA by APIL, raises concerns reminiscent of the excessive practices of dodgy claims companies, including examples of inaccurate advice, attempts at under-settling and of cold-calling clients in the aftermath of accidents. Unite has sent a second dossier with another seven cases.



‘The issue has been brought to the fore by insurers themselves because they now have dedicated third-party capturing units which didn’t exist until recently,’ says APIL president Martin Bare. ‘It is the job of these units to get hold of any potential claimant and to “capture” that claimant before that claimant has the opportunity to take legal advice. They aren’t the policyholders and they owe them no duty. The [FSA] regulatory regime is such that it regulates by vague principles rather than regulation by rules of conduct.’



APIL’s evidence included two claimants, both sisters-in-law of the defendant, who could not speak English and whose first language was Urdu. They were persuaded by a rep who came to their homes to sign forms saying they were not injured; their claim is ongoing. Another claimant felt that the insurer was ‘deliberately rude, difficult to get hold of’ and that she was made to feel ‘like the accident was her fault in order that she would under-settle the claim’.



Nor were these cases ‘straightforward’ rear-end shunts (which, of course, are often traumatic for those involved). APIL provided evidence of one client so seriously injured at work after being crushed while servicing a lift that he had to have reconstruction surgery – and he remains in need of further surgery. His employer’s insurers offered him £25,000 in ‘full and final’ settlement shortly after the accident. The insurance rep told him he did not need to use a solicitor, and that he could only make a claim for loss of earnings, not for his injuries. This advice was incorrect. He was subsequently offered £30,000 and then £35,000. The worker eventually instructed his own lawyer. The solicitor, says APIL in its submissions, thinks his claim may be worth up to ten times the insurer’s original offer. Another case concerned a claim on behalf of bereaved parents who lost their three children in a road traffic accident. They were originally offered £21,000 in a claim that settled last year for £60,000.



MASS chairman Tony Goff argues that third-party capture should be brought within the reach of the Compensation Act. ‘The FSA regulations are all geared up around the way insurance companies act in relation to their clients and not the third parties, so that practice is pretty much unregulated,’ he says. ‘Insurers try and settle claims for less than they are worth. They do that with solicitors and they try and do it with the public.’



This is a view echoed by Thompsons. ‘It’s a situation that is developing and, from an insurer’s point of view, it is a win-win situation,’ explains Thompsons senior partner Tom Jones. ‘They save on legal costs, they get direct access to claimants and, from our experience, they pay less in damages than they would if the claimant was represented by an independent lawyer. Therefore, why wouldn’t they do it?’



So the claimant side clearly believes a case is made, but the FSA appears unmoved. ‘We are grateful to APIL and others for providing evidence regarding their concerns about how insurers are dealing directly with third parties,’ a spokesman says. ‘We have looked carefully at the evidence provided and are continuing to investigate the extent of the alleged customer detriment.’ He goes on to say that this is ‘a technical area and the analysis is not straightforward.



‘To reach an informed conclusion, we shall have to gain a better understanding from insurance companies themselves of how they treat third-party claims – and we are currently considering how best to go about this,’ he adds.



So is there a case for FSA regulation? Unsurprisingly, the defendant side of the equation is not taking this attack lying down. ‘I don’t think so,’ replies Henry Bermingham, president of the Forum of Insurance Lawyers and a partner at the defendant firm Berrymans Lace Mawer. ‘As yet there has been no empirical evidence to suggest that claimants settling on third-party payments are underpaid or under-settled’. But, he says, ‘ultimately we need to consider this in a wider context’.



‘The fact that insurers are engaging with claimants directly is the inevitable consequence of excessive cost in a system which is seen as inefficient and overly expensive – both victims of accidents and insurers lack faith in the claims process,’ he adds. ‘The cost of pursuing and defending a claim regularly exceeds its value and for that reason various stakeholders lack confidence.’ If you want to eradicate third-party capture, he says, the best means by which to do so is ‘to reform the PI claims process and make it faster and more cost efficient’.



The insurance industry is fairly blunt in its view that third-party capture is a direct result of rising claimant legal costs. Major insurers acknowledge that it is likely to be a growing feature of their approach to claims handling. Malcolm Tarling, a spokesman for the Association of British Insurers, offers one of those oft-quoted and fiercely contentious statistics that ‘for every £1 paid in compensation, around 40p is paid in legal fees’, and that legal element can be as much as 70p in lower-value, more routine personal injury claims.



‘No insurer wants to be accused of pressurising claimants into accepting compensation payments,’ says Mr Tarling. ‘What insurers want to do is identify those claims that they believe are straightforward where liability may not be in dispute and injuries are relatively minor. They want to settle these cases as quickly as possible.’



Thompsons counters that such arguments are self-serving. ‘It suits them to have a stick to beat claimant lawyers so that they do not have to do anything about themselves,’ says Mr Jones. ‘We would say that the insurers are not being as efficient or as effective as they could be if they really did want to resolve these claims quickly.’



The Royal and Sun Alliance (RSA) makes no bones about third-party capture being a legitimate way forward – and, it argues, one that accident victims are more than happy to embrace. David Frost, the insurer’s technical manager for motor claims, reckons that half of those third parties approached are more than happy for the RSA ‘to resolve their post-accident needs with us and without engaging a lawyer’.



‘A very significant proportion is happy to accept the proposition that we put to them,’ he says. The RSA is currently rebranding its claims process under the banner RSA Care – dealing with claims directly is an important component of the future of the process, though Mr Frost acknowledges that there are limits to its scope. ‘The kind of accident where we find people are perfectly content to have resolved on a one-to-one direct basis won’t typically be a high-value claim or someone profoundly injured. Usually, they want to have legal representation; not always.’



Norwich Union’s stance is that as many as 70% of all injury claims could be dealt with directly, although a spokesman acknowledges that ‘a relatively small proportion’ of motor accident claims are. One reason for that, he explains, is the ‘deep-rooted belief that injury claims require the involvement of legal advisers’.



How does Norwich Union guarantee that accident victims have access to independent legal advice? ‘Claimants are always made aware that they are entitled to seek independent legal advice at any stage in the claims settlement process,’ says a spokesperson. ‘In some cases, we will insist that the claimant takes this course. We are also able to refer the claimant to a solicitor for advice, representation or approval of a settlement offer.’



So which claims are not appropriate for the direct approach? Norwich Union recognises that ‘there are claims where it is in the claimant’s interest to seek independent legal advice – and sometimes we insist’. Such claims would be claims ‘involving minors, those where liability was unclear or in dispute, or where there were serious injuries’.



It does not appear that all insurers are going to be as scrupulous, however. APIL, for example, cites the case of an insurer visiting a 14-year-old female accident victim at her house and attempting to settle her claim ‘in the absence of her parents’.



Jon Robins is a freelance journalist