As the 21st century justice report by the Law Society of England and Wales is published, it provides the opportunity to reassess the value of Legal Expenses Insurance (LEI) and the financial protection it can provide against litigation risks, whether as a before-the-event (BTE) policy—purchased prior to the emergence of a dispute—or as an after-the-event (ATE) policy—taken out during legal proceedings.
Historically, LEI has been predominantly offered as an ancillary addition to home or motor insurance policies; standalone policies do exist but are generally associated with higher premiums. In other jurisdictions, most notably Germany, LEI enjoys a strong reputation and high take-up among consumers who view it as a vital aid to justice. This is far less the case in the UK.
Reform to legal aid and the rise of ‘self-help’ in the civil justice system has rendered legal access more challenging for many individuals. Therefore in the post-reform world LEI should have assumed an increasingly important role for consumers engaged in civil disputes.
The adoption of LEI has so far been limited here but legislative changes, most notably the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) and the Civil Liability Act 2018 (CLA), as well as continued underinvestment in civil justice under successive governments, have materially altered civil litigation funding arrangements. The LEI sector is adapting in response to these reforms, increasing its relevance and value.
The Legal Services Board wants a majority of households to possess BTE LEI coverage by the end of this decade. This is a strategic objective we think could best be met through more cross-industry collaboration and has been given added impetus by the implementation of the Consumer Duty by the Financial Conduct Authority (FCA), which places the onus on insurers and suppliers to improve customer claims metrics and enhance transparency.
Research conducted by ACSO has found that consumer awareness of LEI remains limited, and understanding of its scope and benefits is correspondingly weak. This largely stems from its typical positioning as an ancillary product combined with limited promotion.
The FCA’s latest data on the adoption of LEI recorded 390,000 ATE policies in force, and nearly a combined 30 million BTE policies across motor and home general insurance policies, but with a claims frequency of only 4.6% on ATE products, 0.8% on motor BTE and just 0.3% on home BTE.
What is crucial is that consumers can make informed choices as to whether a BTE or ATE policy best suits their needs. Both products have their place. We therefore welcome the Law Society’s new consumer guidance on LEI, a further step to help consumers make the choice that is right for them.
As legislative changes continue to bite and with government funding so limited, LEI has to be part of all of our thinking. The industry itself needs to invest in product development, diversifying coverage options for both ATE and BTE. It also needs to acknowledge the importance of enhanced collaboration and communication between legal and insurance sectors if LEI is to live up to its potential at the heart of 21st century justice.
Matthew Maxwell Scott is executive director at ACSO
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