The claim game
Date: 23 September 2011
Authors: David Greene
Issue: Vol 161, Issue 7482
Categories: Opinion, Fees, Personal injury
The last major piece of the Jackson proposals is, somewhat unexpectedly, slipping into place with the banning of referral fees for personal injury (see The death of referral fees). The concept of a ban had been gathering political momentum over the past few months since the initial announcement of the implementation of other Jackson reforms. A variety of stakeholders with their own agendas joined the hubbub. No doubt the ban will produce some radical changes to the accident industry.
There is somewhat of a knee-jerk reaction shared, I am sure by many of us, that paying for claims is morally and practically repugnant but will the ban meet the expressed desires of the proponents?
Waiting game
The parliamentary under-secretary of state for justice, Jonathan Djanogly, initially said that the government would wait and see on the development of alternative business structures (ABSs) this autumn and the effect they would have on the market. On the one hand, the government had the Office of Fair Trading’s (OFT) recommendations that the referral fee mechanism assisted claimants to gain access to justice and assisted competition in the market. Further, the legal aid cuts and civil justice reforms announced this year will undoubtedly cut access to justice for many claimants. To heap onto this picture another potential cut in access was politically unattractive. On the other hand, the growing clamour against an “accident claims culture” was gaining political headway. It is this lobby that seems to have won the day.
What next for the claims industry?
It’s a tidy idea that the elements supposedly driving this new culture will fall away—the claims industry driving the TV adverts and text messages or the more direct approaches after an accident. But is it realistic to think they will? Is it likely those profiting will pack up and go home? I think not.
Whether we like it or not those that profit from the claims industry will simply alter their working methods. Indeed perhaps the government was right in the first place that it should wait to see the effect of ABSs before acting. The ban and the changes to the workings of the business are likely to drive the claims management companies and perhaps insurers and associated solicitors into ABSs thus effectively sidelining the whole referral fee debate. Save for further regulation the adverts, the text messages and the selling of client data will continue unabated.
Jackson’s cost argument
Jackson’s argument was essentially that the payment of referral fees signified a cost to the process from which no benefit for the client was achieved. The fee was washing about in the system adding unnecessarily to the cost. Many were critical of his approach and suggested that the referral fee did in large part meet a cost—advertising and administration—and this cost would have to be borne whether or not referral fees were the method of paying it. Further, it is said along the lines of the OFT argument that the structure of the industry with referral fees increase competition and drives down prices for consumers. The answer will lie not in the law but in altered business practices. The judiciary can have some effect on cost recovery and payments made by defendants but determining how the industry shares its costs is a much harder nut to crack.
What say the insurers?
The stance of the insurers has always been interesting. On the one hand, a reduction in claims should reduce the cost to the insurers and, in due course, premiums. On the other, insurers are big winners in the receipt of referral fees. The proposed ban has had an immediate effect on Aviva’s share price because investors foresee that the ban will have a significant effect on the insurer’s income. So from where will insurers make up this loss? Probably in raising premiums. Opinion was for this reason much divided within the industry but the gut reaction of trying to reduce front of house claims won the day. The result, however, may not be good news for the driving public. Motor insurance premiums are in any event the subject of a separate inquiry announced last week.
Chancery Lane
So what about solicitors and the Law Society? Jackson has accused the Law Society of confusing the public interest with the interest of its members. Some of its members make the same allegation, but from the other side of the fence. There are very mixed views among solicitors about referral fees. The society officially changed its view by council vote a little time ago and has entered the recent debate against referral fees with some gusto. The ban, however, will fundamentally change the way that personal injury work will be sourced and managed and is likely to lead to a shake out in the industry and a consolidation of the work into larger firms. Unsurprisingly not all personal injury firms welcome the stance taken by those that represent them.
Chancery Lane has warned against unintended consequences, but the problem for all who advocate a stance is that business does not react predictably to changes. Like water it finds its own level to achieve the greatest profit. Its response may well provide very different consequences to the goals that today’s protagonists seek to achieve.
David Greene, senior partner, Edwin Coe LLP & consultant editor of NLJ.
E-mail: David.Greene@EdwinCoe.com Website: www.edwincoe.com
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