The unintended consequences of whiplash reform - by Gary Barker

Gary Barker 2017

The Civil Liability Bill is currently making its way through Parliament with the intention to deliver, in part, the Governments manifesto commitment to reduce insurance costs for ordinary motorists by tackling the high number and cost of whiplash claims.

Having survived largely unscathed through the House of Lords, the Bill will go through its second reading in the House of Commons next week. In fact, for such a contentious bill, its passage has been remarkably smooth, aided perhaps by the seemingly endless chain of Brexit related crises that have provided the backing track for what amounts to ground breaking legislation. 

While it isn’t too late for the Bill to be de-railed by Brexit, it’s quite possible that it will receive Royal Assent by the end of the year. The legislation, whilst likely to be opposed, is still expected to gain the required majority. So how different will this new order look and what are the implications for insurers and consumers?

The Government expects that the outcome of the Bill will see insurers pass on savings amounting to somewhere in the region of £620m to customers. To do this the reforms (of which the Bill forms part) introduce 3 key changes:

  • A shift to a tariff based system for assessing damages - generally less than half the value of current awards for similar injury durations.
  • A ban on settling injury cases without a medical report.
  • Raising the Small Claims limit (the threshold required to allow profit costs to be charged by lawyers) to £5k for RTA and £2k for other types of injury claim.

In order for these measures to achieve the desired goal, the government's assumptions about anticipated changes in consumer behaviour need to come to pass. Foremost amongst these is that  the volume of personal injury claims brought by claimants will fall by around 27%.

The government believes that half of all personal injury claims of six months duration or less will simply no longer be pursued. The rationale being that the lack of a financial incentive for lawyers representing the claimant (no profit costs) removes the driver for the claims to be brought.  Not surprisingly, and perhaps not without justification, many have cried foul that this arrangement restricts access to justice.  In response the government has decided to implement a self-service on-line portal that allows Litigants in Person to process their own claims without the need for legal representation.  The complexity of this undertaking however is why the Whiplash element of the Bill is now delayed until April 2020.

There are two fundamental flaws in the logic behind this Bill.  The first is the notion that intermediaries such as Accident Management Companies (AMC) drive the hunger for compensation payments in England and Wales – they don’t, they facilitate it. At the end of every personal injury claim brought by an AMC is an individual who has signed a legal agreement confirming they were injured and want to be paid for their trouble. 

They don’t sign these documents under duress or because they get a cold call - they sign them because there is an entrenched belief in our country that the payment is a deserved recompense following a non-fault accident. If this is the case, why would a reduction in the payment amount deter someone from making a claim? In fact, making it easier to claim may increase the likelihood to do so, especially if the new reduced payment of around £450 lowers any moral hurdles to a claim. After all, the prospect of having to deal with lawyers, signing documents that confirm a liability for legal costs and all the associated grief that goes with it may be one of the few things that actually suppresses PI claims frequency under the current system – the proposed portal takes that difficulty away. As such, reducing friction in the claims process may have the very opposite effect to the one intended.

The second flaw is the idea that simply by defining Whiplash, the proportion of personal injury claims brought within that definition will remain the same as it has in the past. One of the few amendments to the bill during its passage through the House of Lords was the addition of a more fulsome definition of Whiplash.  Here it is: 

“Whiplash injury” means a sprain, strain, tear or rupture or lesser damage of a muscle, tendon or ligament in the neck back or shoulder or an injury of soft tissue associated with a muscle, tendon or ligament in the neck, back or shoulder. An injury is excepted if it is an injury of soft tissue which is a part of or connected to another injury and the other injury is not an injury of soft tissue in the neck, back or shoulder of a description falling within the description above.

The problem with bringing such clarity to the definition is that it makes equally clear the symptoms required in order for a claim not to be covered by the definition, and hence the tariff damages. Lower back injuries, tinnitus and thumb injuries for example.

From the point when the first announcement of wholesale changes to whiplash compensation was made in November 2015, ERS has observed a 10% increase in the proportion of non-whiplash related injuries reported through the MoJ Portal. If a claim does not land in the tariff, then current levels of damages will be paid. Lawyers can retain 25% of the damages they secure for their clients. With average damages at around £2500, £625 is a significant sum, add to that a cut of any other special damages secured, like hire charges, repair etc. and it’s easy to get to a value of between £1000 and £2000 per claim. There is sufficient evidence to at least give credence to the possibility that the number of Whiplash defined claims may reduce, but the number of injury claims may not.

Finally, there is the issue of who will actually bring or process these claims. Under current regulations, only solicitors can pursue (and litigate) a claim for personal injury on behalf of a claimant.  Despite the cynicism that is often voiced in the media about personal injury lawyers, the claimant lawyer body is a regulated entity and by and large, the system as it stands, works. The new system allows any individual, company or organisation to bring claims without a solicitor’s representation but instead allows the use of a ‘McKenzie Friend’, which is a lay person appointed to advise someone who feels they need the support in court. This leaves tremendous scope for various participants to step in and take over the process, including unregulated parties with no overarching body for consumers to go to in the event they are shortchanged. The PPI market has shown that even when a process is very simple, many consumers still use Claims Companies to pursue claims on their behalf – often for sums smaller than a Whiplash tariff payment – why wouldn’t the same thing happen here?

The government should be commended for attempting, through the Civil Liability Bill, to get a better deal for insurers and consumers. However, for insurers there is no advantage to a change in the current system as whatever savings are made will be competed away; and consumers may or may not get a reduction in their premiums. If they are unfortunate enough to sustain an injury in a road traffic accident, what faces them is potential confusion, risk and uncertainty. 

Is it really worth the effort?