Welcome to the second edition of the Scotland and Specialist Services division insurance news briefing. The division, headed by Katherine Howells-Price, incorporates Lyons Davidson Scotland and our specialist defendant teams, as well as our costs experts Meruit Costs.
Civil Liability Bill – where are we now?
The Civil Liability Bill is forging ahead and the set of the sail is clear; after the second reading in the Commons last month, it will become law by 2020. The reality of this is contingent on the vicissitudes of the current government but also on the need for the online portal to be ready and fit for purpose by the proposed implementation date.
Notwithstanding the bill’s progress through parliament to date, opposition continues, as the Labour Party have expressed their intention to challenge it at the third reading unless there are key changes. The main points voiced by the opposition are that:
- Claims volumes have already reduced as a result of LASPO;
- Fraud represents a small fraction of whiplash claims and the bill will introduce measures that disproportionately affect genuine claimants, thereby restricting access to justice;
- The definition of ‘whiplash’ should be created by medical experts and the tariff set by the Judicial College, as opposed to being set by politicians on both counts;
- The disparity between the awards for a motor claim and an employer’s liability claim: in particular, the perceived or actual injustice of two claimants who have the same injury being entitled to significantly differing levels of award, purely on the grounds of the type of action brought.
Holding insurers to account
It is widely known that the government’s agenda in driving the reforms is tackling ‘compensation culture’, followed by the natural assumption that insurance premiums will reduce by doing so: an appealing prospect to the electorate, so an assumed safe passage through the legislation process was expected.
While the concept is attractive, it is challenged by the sceptical view that any savings achieved will not be passed on to consumers. Apart from the theoretical challenge, the practical ambition of being able to demonstrate a reduction in premiums was recognised in principle. In its response, the government has announced measures that may require insurers to report to the FCA both on what they have paid out each year as a result of PI claims and what they would have had to pay, had the legislation not been in force. In order to allow for sufficient time to pass, to fully understand the impact, this obligation will not be required until 2024/2025 and, at that point, the Treasury will give a view on whether and how policy holders have “benefited from any reductions in costs for insurers.”
Vulnerable road users
A second notable concession is in relation to vulnerable road users – pedestrians and cyclists – who will be exempt from the reforms entirely, meaning they will not be subject to the tariff or increased small claims limit.
Discount rate proposals
The debate thus far has mainly focused on the whiplash reforms but discount rate proposals remain a significant feature in this bill, after the reduction in the discount rate announced by the government in February 2017 increased damages awards significantly.
Stakeholders ought to be aware of the timescale for review, which, if agreed in the Lords, will see the rate being reviewed within 140 days of royal assent.
The issue of who sets the rate continues to be debated, with insurers adopting the view that political accountability should be retained by the Lord Chancellor, rather than alternative options such as a ‘panel of independent experts’, on the basis that it would be inappropriate for a small group of unaccountable individuals to be responsible for setting the rate.
There is also concern about the proposed mandatory use of periodic payment orders (PPOs), bearing in mind there are existing mechanisms contained within the Civil Procedure Rules that allow for PPOs. These decisions are based on an informed choice of accepting a lump sum or not after financial advice has been given to the claimant, which may otherwise be removed.
The bill proceeded to the Public Committee stage and concluded on Tuesday, 9 October 2018, where MPs examined it line by line and considered amendments.
While the bill in its final form is likely to bring clarity, the desire for reform also draws attention to the wider issues of claims management companies, credit hire organisations and the impact of cold calling, which are a fundamental part of the claims process but not necessarily addressed by the bill.
Once implemented, the bill will significantly change the landscape of the claims industry and will directly impact on claimants and defendants across the supply chain. In order to meet the challenge, stakeholders will need to be agile in response to the legal framework and market trends. Lyons Davidson’s combination of technical expertise and innovative IT systems are perfectly poised to respond to the anticipated changes, so that we can continue to offer value to our clients, delivering a high standard of legal services and efficient claims handling in the new environment. Please get in touch if you would like to discuss how we can work with you.
Key contacts for our insurance news briefing
For more information on any of the issues raised in this article contact:
Divisional Manager/key contact for defendant – Katherine Howells-Price: [email protected]/0117 904 7002
Lyons Davidson Scotland LLP – Caroline Tait: [email protected]/0131 563 7596
Costs and Funding – Ian Curtis-Nye: [email protected]/0208 3366 968