Around this time last year, Sir Terence Etherton was beating the drum for before-the-event insurance.
In a LawWorks lecture, the master of the rolls suggested we should look to countries like Germany, where BTE is one of the main sources of litigation funding, for inspiration about how we can solve the problem of access to justice.
Etherton, who chairs the Civil Justice Council, set up a CJC working group to examine how more could be made of BTE. It published its findings last month in a very detailed and considered report [https://www.judiciary.gov.uk/publications/cjc-publish-report-on-before-the-event-legal-expenses-insurance/]; but sadly no magic formula exists to suddenly convert BTE into the main source of funding for civil litigation.
So what exactly is BTE? In the UK, it is generally a cheap add-on to home or motor insurance, whereby the consumer pays around £15 to £25 for ‘legal expenses’ insurance to cover legal costs if a claim arises, up to a limit of around £50,000. The consumer also gets free access to the insurer’s legal helpline.
The market is steadily growing. Amtrust, for example, identified BTE as a growth area in its 2016 financial results; while the CJC report notes an uptick in the purchase of BTE by small companies, which is encouraging. But we have nowhere near the same level of takeup as in Germany; and it is no coincidence that in Germany fixed costs are widespread.
One of the biggest stumbling blocks for BTE here is the uncertain costs environment. If insurers do not know what the costs bill will be, it is much harder to price the insurance premium. So a fixed-costs regime, in which costs will not only be lower, but also more certain and easier to predict, could potentially be a real boost to the BTE industry. Indeed, this was what lay behind Etherton’s optimism over the future blossoming of BTE; that its growth would be fed by fixed costs.
But will fixed costs really be the making of BTE? Insurers on the CJC working group thought it would have a positive impact, reducing the cost of premiums, or perhaps leading to a hike in the level of cover. But others were sceptical that fixed costs would have any effect on pricing, pointing out that the price of BTE includes the cost of operating the legal helplines, which would be unaffected by fixed costs; and employment claims, which form a significant proportion of the claims made, would be unaffected.
Even if fixed costs did bring down the price of BTE, there is another major difference with Germany which is probably the biggest problem that BTE faces in the UK. In Germany, consumers are used to buying a standalone insurance product to cover litigation expenses. But we do not have the same culture here. Consumers might click to add legal expenses on to their home or motor insurance, but they would never buy it separately.
That means BTE simply does not reach the people who arguably need it most; those who cannot afford a car, and who do not own a home. In days gone by they would once have been covered by legal aid, and many still assume that the state would pick up the tab; but by the time they discover otherwise, it is too late.
Rachel Rothwell is editor of Litigation Funding magazine