· web viewbetween 2002-03 and 2009-10, £101 million of public funds were recouped from...

OFT INQUIRY INTO THE COST OF MOTOR INSURANCE

Response of the Law Society of Northern Ireland

96 Victoria Street Belfast BT1 3GN

Tel: 02890 23 1614Fax: 02890 232606

Email: [email protected]

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Website:www.lawsoc-ni.org

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Introduction

The Law Society of Northern Ireland (the Society) is a professional body established by Royal Charter and invested with statutory functions primarily under the Solicitors (NI) Order 1976 as amended. The functions of the Society are to regulate responsibly and in the public interest the solicitor’s profession in Northern Ireland and to represent solicitors’ interests.

The Society represents over 2,200 solicitors working in some 550 firms, based in over 74 geographical locations throughout Northern Ireland. Members of the Society represent private clients in legal matters. This makes the Society well placed to comment on policy and law reform proposals.

In a devolved context, in which local politicians have responsibility for the development of justice policy and law reform, the Society is keen to ensure that its voice is heard. The solicitor’s profession, which operates as the interface between the justice system and the general public, is uniquely placed to comment on the particular circumstances of the Northern Irish justice system and is well placed to assess the practical out workings of policy proposals.

October 2011

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LAW SOCIETY RESPONSE TO OFFICE OF FAIR TRADING INQUIRY

1.1 The Society welcomes the OFT’s investigation into private motor insurance. There is a need for a greater understanding of the private motor insurance market, the cost of premiums and the factors which influence costs. Discussions about this topic have been dominated by misinformation about the factors which influence the costs of insurance and misunderstanding around the differences between the Northern Ireland insurance market and that of England & Wales.

1.2 The Society has provided comments on the issue of car insurance to the Committee for Justice of the Northern Ireland Assembly who are also considering this matter. The Society notes that the OFT has produced a number of specific consultations for stakeholders, none of which specifically relate to lawyers. The Society has therefore identified a number of specific issues upon which we have provided substantive comments in this response.

The Northern Ireland Insurance Market

2.1 It is the Society’s view that there are a number of characteristics of the Northern Ireland insurance market which make it unique from England & Wales – not least the very small number of insurance companies operating in the Northern Ireland market compared to England & Wales, thereby restricting choice for consumers and reducing competition within the market. The OFT will wish to investigate what effect this has on the cost of premiums.

2.2 It has been claimed that the cost of motor insurance in Northern Ireland is significantly higher than in England & Wales. The Society understands that there have been a number of challenges to this suggestion. However it appears to be accepted that there is some disparity. The Society suggests that the OFT obtains an independent verification of the extent of any disparity and seeks to identify if there are any specific trends – for instance is the disparity more prominent for younger drivers? for those in certain post code areas?

Number of Claims

3.1 There has been a significant reduction in the number of claims for compensation arising from personal injury over the past decade. An examination of data produced by the Compensation Recovery Unit (part of the Northern Ireland Department for Social Development) which all compensators are required to notify when advised of a claim for personal injury, reveals that

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whilst claims notifications in England & Wales increased by 17% between 2000 – 2009, in Northern Ireland they have decreased by 23% (See Figure1).

Figure 1 Reproduced from NI Audit Office Report ‘Compensation Recovery Unit – Maximising the Recovery of Social Security Benefits and Health Service Costs from Compensators 2011

Year NI Compensation Recovery Unit registrations

GB Compensation Recovery Unit registrations

2000 38,416 735,9312001 39,067 688,4302002 39,196 706,7152003 30,966 770,2432004 28,174 755,8752005 27,826 674,4222006 25,938 710,7842007 25,452 732,7502008 27,760 812,3482009 29,467 861,325

3.2 In 2005 the County Court (where most civil litigation is conducted) made awards in 2,320 civil bills for personal injuries. In 2010 it made awards in 872. (See Figure 2)1.

Figure 2 Number of ordinary civil bills for Personal Injury Cases in the County Court 2005 – 2010 – provided by the NICTS in response to a Freedom of Information request

Year Personal Injury Civil Bills

2005 23202006 17132007 16082008 11892009 7682010 872

3.3 The number of road traffic accidents reported to the PSNI has decreased from 14,584 in 2000-01 to 9,748 in 2009-10, a reduction of 33%2. This trend is also reflected in accidents in the workplace. In 2000-01 there were 4,572 accidents reported to the Health and Safety Executive in Northern Ireland. In 2009-10 there were only 2,881, a reduction of 37%.3

3.4 It is important to note that a successful compensation claim not only puts the injured party in the position he/she would have been in had the accident never

1 These figures have been provided by the NICTS in response to a Freedom of Information request and exclude cases that were adjourned generally, default judgements or had office disposals. 2 See NIAO report into Compensation Recovery Unit – January 2011 Belfast3 Ibid

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occurred but also puts the State in the position it would have been in had it not had to provide for the injured person. This is achieved through the recovery of health service costs along with any welfare payments made to the injured party for any period in which they were unable to work. Between 2002-03 and 2009-10, £101 million of public funds were recouped from compensators in Northern Ireland.

Litigation

4.1 Civil litigators in this jurisdiction have a strong culture of engaging in informal negotiation as a way to resolve disputes without the need to have recourse to the courts. In addition the solicitors’ profession has a well developed understanding of alternative dispute resolution mechanisms and a not insignificant proportion of the profession are accredited mediators.

4.2 It has however been stated that a higher number of claims for personal injury result in litigation in Northern Ireland compared with England & Wales. The Association of British Insurers has suggested that 40% of all claims for compensation result in litigation. However the evidential basis for this suggestion has never been made clear. This is a complicated issue which would benefit from independent investigation. These figures seem to be in clear contrast to those at paragraph 3.2.

4.3 An examination of data produced by the Compensation Recovery Unit reveals that 29,467 cases were registered in 2009. Consideration of data provided by the Northern Ireland Court and Tribunals Service (NICTS) show that in 2009 there were 768 civil bills for personal injury cases subject to a decree in the County Court. These figures are difficult to extrapolate fully but it is clear that the vast majority of cases are dealt with by negotiation and not by court hearing. In this context the suggestion that 40% of all compensation claim result in litigation is clearly questionable.

Damages for Personal Injury

5.1 To assist members of the judiciary in assessing general damages Guidelines have been produced by a Committee, currently under the chairmanship of the Right Honourable Lord Justice Higgins. These are commonly referred to as the Green Book.

5.2 The introduction to the Guidelines stresses that they are intended to assist members of the judiciary in undertaking a fair assessment of an individual’s case. The Guidelines provide suggested values of damages that are set in wide ranges. In carrying out an assessment of general damages a judge will take into account a number of variables such as age, sex, pre-accident health and so on. It is said that the Guidelines for general damages in Northern Ireland for physical pain and injury are higher than those for England & Wales

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and there have been calls for levels to be brought in line with England & Wales.

5.3 Up until 1987 juries were responsible for the award of general damages for personal injuries in Northern Ireland. The Committees which have set the guidelines since 1987 used the levels of damages as awarded by juries as their baseline as they felt that juries had a good appreciation of what levels of compensation the standard and reasonable man would expect to receive.

5.4 The levels of compensation payable in England & Wales have been criticised for being too low. The Law Commission in its Report of 1999 stated that damages should be increased by between 50-100%.4 In its research for this Report, the Law Commission commissioned the Office for National Statistics to conduct a survey of the general public on levels of general damages. The comments below from the Report summarise the findings.

“The research provides support for the message communicated to us by our consultees, namely that damages for non-pecuniary loss in personal injury cases are considerably too low.”

However, no increase, beyond inflation, has yet been made.

5.5 There are several factors which may reduce the disparity in total compensation payments for damages between Northern Ireland and England & Wales. Awards of damages for a personal injury fall into two categories: general damages for pain and suffering and special damages for loss of income and other expenses incurred. In England & Wales a claim for special damages will routinely involve detailed claims for care costs and expenses arising from the injury. In Northern Ireland these costs are reduced as injured persons will often be cared for and supported by family members at no expense. Accordingly the total damages payable in Northern Ireland will be less than in England & Wales.

5.6 Regardless of the amounts appearing in the Green Book, the Society considers that the actual sums paid by insurers to claimants in road traffic accidents merit close examination. It should be noted that in 2010, 87% of awards in the County Court for personal injuries were for less than £5,000 (see Figure 3). In 2005, 89% of awards were for less than £5,000. This demonstrates that regardless of inflation, awards for personal injuries in Northern Ireland are comparatively low level and have largely remained stagnant over the past five years.

4 Law Commission for England & Wales ‘Damages for Personal Injury: Non-Pecuniary Loss’ 1999

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Figure 3 – The number of ordinary civil bills for Personal Injury cases by amount awarded 2010 5

Value No. Civil BillsNo value 313

£1,000 or less 57£1,001 – 2,000 105£2,001 – 3,000 117£3,001 – 4,000 101£4,001 – 5,000 67£5,001 – 6,000 27£6,001 – 7,000 29£7,001 – 8,000 31£8,001 – 9,000 7£9,001 – 10,000 8

£10,001 – 11,000 2£11,001 – 12,000 2£12,001 - 13,000 2£13,001 – 14,000 1£14001 – 15,000 1£15,000 0r more 2

TOTAL 872

5.7 The OFT will therefore wish to investigate total awards (both for general and special damages to include future financial loss) made in Northern Ireland in comparison with those in England & Wales. If it is discovered the higher levels of damages are being awarded in this jurisdiction, the OFT will wish to obtain independent analysis to determine what impact this is having on the cost of insurance premiums and whether that is a cost which is proportionate to the need to assist injured persons to cope with their injuries.

Legal Costs

6.1 There are a number of components which go to make up a bill of costs. The OFT will wish to consider the impact which the 2007 increase in court fees levied by the NICTS to ensure its policy of full cost recovery, has had upon the cost of litigation and insurance. While those proposals provided for only a relatively small increase in the cost of issuing a Civil Bill, the costs of ancillary proceedings through the County Court were very substantially increased, particularly in relation to the cost of a Certificate of Readiness which increased from £29.00 to £250.00. Thus in a road traffic accident claim where previously court fees from issue to decree were in the region of £250.00 on

5 These figures have been provided by the NICTS in response to a Freedom of Information request

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average, the new court fees, to include ancillary provisions rose to £600.00 on average.

6.2 The issue of legal costs is closely associated with the total value of damages awarded to an injured party. The prevalence of claims for special damages in England & Wales significantly adds to the costs of personal injury litigation. The process of developing a claim for special damages is cost intensive as it routinely requires the instruction of forensic accountants and care experts to investigate past and future financial loss. Vast amounts of legal time are taken up by such investigations and legal bills greatly exceed those of similar cases in Northern Ireland because of the time spent in investigating these matters. An extract from the case of Allen v Balkan Holidays Ltd before Birmingham County Court which demonstrates this point is attached at Annex 1. In Northern Ireland the cost of both solicitor and counsel for each side in a case for this value would be fixed according to the County Court Scale at £2,759 and £690 respectively.

6.3 In Northern Ireland, depending on the value, a claim may be commenced in either the County Court or the High Court. The former currently hears cases up to the value of £15,000 but this will soon increase to £30,000.

6.4 Costs in the County Court are regulated by a scale. The current scale is contained in the County Court (Amendment) Rules (NI) 2007 SR 2007 No 500. Costs in the High Court are based on an hourly rate, which is set by the Taxing Master.

6.5 The County Court in England & Wales has a jurisdiction up to £50,000. Claims for personal injury emerging from road traffic accidents valued at less than £10,000 are dealt with by way of a Pre-Action Protocol which is supported by an electronic portal. This Protocol provides for a three stage procedure. The majority of cases settle at Stage 2, without a hearing taking place. The costs payable for cases which settle at this stage are £1,350. These costs would be payable regardless of the value of the claim.

6.6 In Northern Ireland the majority of awards in claims for personal injury are under £5,000. The costs payable to a plaintiff’s solicitor in a fully litigated action up to £5,000 are £1,552. As previously highlighted the vast majority of claims settle before commencement of proceedings, where costs paid are two thirds of the scale costs - £1,035.

6.7 Legal costs in Northern Ireland therefore compare favourably with those in England & Wales. In relation to the hourly rate which is claimed by solicitors representing claimants in the High Court, the current hourly rate for solicitors in Northern Ireland, with uplift, is £150. In a comparable region in England and Wales, such as Oxford, the hourly rate of a solicitor with eight years

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experience is £217. In parts of London solicitors can claim hourly rates of up to £409.

6.8 In England & Wales success fees can lead to costs uplifts of up to 100%, dramatically increasing the cost of litigation. There is no provision for success fees in Northern Ireland.

Small Claims Court

7.1 It is suggested that the exclusion of personal injury claims and claims for damages in respect of road traffic accidents from the jurisdiction of the Small Claims Courts is a factor leading to the higher cost of car insurance in this jurisdiction.

7.2 Road traffic litigation often involves complex issues of liability and quantum. The lack of funding for legal representation in the Small Claims Court would mitigate against the involvement of an experienced legal practitioner to provide advice on these issues unless the claimant is of sufficient means to fund his/her own legal costs.

7.3 It should also be noted that the outcome of claims for damage only road traffic accidents may prejudice the bringing of other claims for personal injury in the County Court or the High Court arising out of the same accident.

7.4 In the absence of legal advice, many claims would simply not be brought by claimants as litigants in person. In 2006 the Strategic Research Unit of the Law Society of England & Wales carried out a study of claimants who had recently brought a lower value claim with the aid of a solicitor. The survey revealed that 83.2% of respondents felt that having a solicitor’s advice on the value of their claim had been ‘very important’. Over three quarters of respondents (79.3%) claimed to be ‘not very confident’ or ‘not at all confident’ at the thought of bringing the case themselves.

7.5 In order for a claimant to succeed in a road traffic action (even in low value claims), he/she must

- prove the facts of the accident

- ensure that the correct defendant or defendants have been identified

- show that a duty of care is owed to him/her.

7.6 To show that a duty of care is owed, the claimant must prove that there has been negligence or breach of statutory duty on the part of the defendant(s). He/she must also deal with any issues as to contributory negligence and in injury cases establish that the injuries are a direct result of that negligence or breach of duty. The claimant has then to justify and evidence all of the consequences of the accident. In damage only cases this will involve claims for car hire and depreciation and in injury cases claims both in the past and in the future in relation to the consequences of the accident for both his/her health and finances.

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7.7 Injured claimants further often encounter difficulty in obtaining a medical report and in interpreting its contents. Experience elsewhere has shown that consumers representing themselves in personal injury and road accident cases are often unable to financially value their claim.

7.8 If these cases were within the scope of the Small Claims Court, there would also be an uneven playing field. Consumers would be at a distinct disadvantage as claims are often made against large companies, or an insured defendant, both of whom will almost always be represented by experienced legal practitioners. The primary aim of such defendants is to protect the interests of their shareholders. This is to be contrasted with non-personal injury cases falling within the jurisdiction of the Small Claims Court.

7.9 Any incentive on defendants to settle claims at an early stage would also be removed. Indeed it is possible to foresee a situation where insurers would be tempted to contest every claim in the hope that the consumer would either run out of time or funds or indeed both.

7.10 It would appear to us that the inclusion of road traffic accident and personal injury litigation within the jurisdiction of the Small Claims Court in England & Wales has not led to a reduction in the cost of premiums.

Referral Fees

8.1 The payment of referral fees by solicitors has been highlighted as a contributory factor to the recent increase in the cost of insurance premiums in England & Wales. Article 28 of the Solicitors (NI) Order 1976 prohibits the sharing of profits or fees with an unqualified person. The effect of this article is to restrict the payment of referral fees by solicitors. Whilst there are some issues regarding the scope of the precise wording of the relevant provision, which is attached at Annex 2, the prohibition has prevented the widespread payment of referral fees by solicitors.

8.2 The OFT will be aware that the Society has consistently argued for the prohibition on referral fees. The Society welcomes the recent move towards the introduction of a ban on referral fees in England & Wales.

8.3 The payment of referral fees by solicitors’ practices and other actors has provided a source of income for claims management companies in England & Wales. The impact of the practices of claims management companies on the cost of motor insurance is receiving attention across the United Kingdom. In Northern Ireland the prohibition on the payment of referral fees by solicitors has inhibited the growth of the claims management industry. However this has not prevented a number of companies from establishing themselves in the market. The Society noted with interest comments relating to referral fees and the claims management industry contained within the Report of the Advisory Committee on Costs’…

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“This is far and away the most controversial issue facing us. One side of the argument suggests that the Claims Management Industry (CMI) serves no socially useful purpose. If referral fees were banned and there were no CMCs, injured persons wishing to make a claim could easily contact solicitors with appropriate expertise. Apparently, the majority of solicitors hold this view.”6

8.4 The Society has considerable concerns about the prevalence in Northern Ireland of the payment of referral fees amongst other actors in the motor claims process to include insurance brokers, repairers and car hire providers. With regard to the particular arrangements between brokers and claims management companies, the Society has recently raised its concerns with the Office of the Information Commissioner with regard to possible breaches of the Data Protection Act. Further enquiries are being made by the ICO.

LSNI Claims Advice Service

9.1 The Society, in conjunction with the local insurance industry, has developed a Claims Advice Service (CAS) which through direct contact with the ‘not at fault’ party solicitor and insurer of the ‘at fault’ party provides a replacement vehicle to the ‘not at fault’ party and makes provision for the repair of their motor vehicle. This initiative was developed in conjunction with the local insurance industry following concerns that the actions of claims management companies were unnecessarily increasing the costs of replacement vehicles and repairs, whilst exposing ‘not at fault’ motorists to unnecessary risks.

9.2 A copy of the Judgement of the Northern Ireland High Court in the case of Salt & Helley is attached at Annex 3. This decision considered whether a ‘not at fault’ party, by accepting a hire vehicle from a claims management company, rather than availing of the use of a courtesy car which was available to her under her comprehensive policy was liable for additional costs. The facts of the case demonstrate the difficulties which consumers face when obtaining motor insurance. The comments of Stephens J at paragraph 9 are informative:

“I consider that the arrangements were structured in such a way that she would not appreciate the different identities and different commercial interests of the various companies involved.”

9.3 This lack of transparency opens up the potential for consumers who are the victims of a road traffic accident to be unduly exposed to additional and unnecessary cost. The comments of Stephens J at paragraph 25 are equally informative on this matter:

“The service provided by Motorist Insurance Services Limited to the plaintiff had exposed her to a liability to its wholly owned subsidiary Independent Car

6 http://www.judiciary.gov.uk/Resources/JCO/Documents/Guidance/guideline-hourly-rates-conclusions-march-2010.pdf

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http://www.judiciary.gov.uk/Resources/JCO/Documents/Guidance/guideline-hourly-rates-conclusions-march-2010.pdf

http://www.judiciary.gov.uk/Resources/JCO/Documents/Guidance/guideline-hourly-rates-conclusions-march-2010.pdf

Hire Limited in circumstances where the plaintiff, if informed, would have availed of a courtesy car under her own insurance policy.”

9.4 In the particular circumstances of this case, under the law of agency the injured party was found not to be liable for the costs of the vehicle hire. However, this case highlights the potential risks which members of the public are exposed to when availing of the services of a claims management company. This case also demonstrates the additional costs which can arise where a claims management company is instructed. It is worth noting that a high proportion of insured motorists in Northern Ireland have comprehensive insurance cover, the terms of which will routinely provide for a courtesy car.

9.5 This scheme is unique to Northern Ireland and is an example of the legal and insurance sectors working together to ensure a quality service delivered to individuals involved in road traffic accidents at the lowest possible cost. The admission of liability at the earliest possible stage avoids unnecessary litigation for relatively small amounts that are brought to secure a ‘not at fault’ party’s no claims bonus.

Funding Arrangements

10.1 The arrangement for the funding of personal injury cases is also different in this jurisdiction. Those pursuing compensation for a personal injury must either fund this privately, thereby exposing themselves to the risk of having to bear costs should they be unsuccessful, or seek legal aid. Personal injury cases are currently within the scope of the Northern Ireland legal aid scheme. However this is currently under review. Conditional Fee Agreements are not permitted in Northern Ireland. Therefore solicitors cannot offer to take on a case on a no-win no-fee basis, as is common in England & Wales. Furthermore there are no insurers offering After the Event (ATE) insurance, which is arrangement which those seeking compensation often enter into to avoid the risk of having to bear the defendant’s costs should their action be unsuccessful.

10.2 The arrangements for guaranteeing access to justice for those pursuing an action for personal injury are currently under review. The current arrangements for the funding of personal injury litigation are undoubtedly a dissuading factor for individuals considering bringing a claim for personal injury, especially those who would be privately paying. The Daniell Report into Access to Justice7 has identified proposals for the development of CFAs in Northern Ireland, to replace current provision of legal aid. The Law Society

7 http://www.courtsni.gov.uk/en-GB/Publications/Public_Consultation/Documents/Access%20to%20Justice%20Review%20Northern%20Ireland%20-%20The%20Report/Access%20to%20Justice%20Review%20FINAL%20REPORT.pdf

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http://www.courtsni.gov.uk/en-GB/Publications/Public_Consultation/Documents/Access%20to%20Justice%20Review%20Northern%20Ireland%20-%20The%20Report/Access%20to%20Justice%20Review%20FINAL%20REPORT.pdf



feels that this would be in the consumer’s best interest to ensure a safety net remains in place. The Society is strongly in favour of the premium not being recoverable. A potential litigant would therefore have to bear this cost themselves, thereby dissuading unmeritorious claims. The recommendation that a solicitor receive no costs for a losing case should also act as a further dissuading factor, ensuring litigation is brought only when it is appropriate.

Fraudulent Cases

11.1 This has been highlighted in England & Wales as a significant problem that is increasing the costs of car insurance but we are unaware of any evidence in relation to the extent of fraudulent claims as a contributory cost in Northern Ireland.

11.2 We would also add that solicitors do not hold details of suspected culprits. This information is held by the insurance industry who may wish to share this information with the solicitors’ profession at as early a stage as possible in the course of a claim.

Uninsured Motorists

12.1 The Society notes that Northern Ireland is the sixth worst region of the United Kingdom in terms of uninsured drivers. The Society encourages full enforcement of the law to dissuade those drivers who may consider driving whilst uninsured.

Conclusion

13.1 There is clearly an information gap in relation to the motor insurance market in Northern Ireland. There needs to be a clear identification of cost drivers and their impact on premiums.

13.2 Statements emerging from the Association of British Insurers have largely focused on legal costs and the cost of compensating individuals. This has led to a lack of consideration of other factors, such as the cost of repairs. The suggestion that legal costs have increased by more than 50% over the last ten years does not hold up to scrutiny. Indeed the recent consultation document on Scale Costs in the County Court noted that the legal profession had faced a pay freeze since 2007 and were forced to subsume increasing costs. The document stated:

“ The Committee recognises that scale costs have not increased since 2007 and, in consequence, the legal profession have effectively faced a pay freeze for work done in the intervening period and have subsumed increasing costs in respect of the cases issued and settled (as the vast majority will have been). “

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13.3 The various factors which have been identified in this response:- the absence of success fees, the presence of a system of scale costs with specific bands, the prohibition on referral fees and the more cost efficient system for the awarding of damages ensure that legal costs in Northern Ireland are kept low. The Society invites the Office of Fair Trading to investigate this issue further and to consider total legal costs.

13.4 Similarly on the issue of awards for damages, there needs to be a consideration of what awards are actually being made. Much discussion has been had on the issue of whiplash. It must be remembered that an award will be made for minor soft tissue and whiplash injuries only where the symptoms are evident and independently verified by a medical report. Where these symptoms impact on an individual for a period up-to 2 years they are still considered minor. Again the OFT should consider and identify the actual amount of awards being made to persons who suffer whiplash. Reference to the Green Book alone is insufficient.

13.5 Finally there must be an investigation into the number of claims for personal injuries. All relevant statistical information points to a gradual decline. However consumers have not seen a proportionate decrease in the cost of premiums. Furthermore the suggestion that 40% of claims for compensation result in litigation does not hold up to scrutiny.

13.6 To ensure the credibility of any report it is essential that the OFT develops a firm evidential basis upon which to move forward upon. This requires the assistance of Government Department and agencies, the insurance sector and the legal profession. The Society is happy to assist the OFT in any way possible.

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