Market Round-Up: August 2019
The clock is ticking down to April 2020 and nerves are starting to fray around the whiplash portal (although actually it will cover all injuries arising from road traffic accidents worth up to £5,000).
A letter from the Motor Accident Solicitors Society in June sharply criticised the Ministry of Justice for cutting corners in developing the new portal in order to meet what it described as “the politically driven deadline of April 2020” – and suggested it still cannot be met. Then, both claimant and defendant representatives at a roundtable organised by Insurance Times expressed frustration with the progress of the reforms, again doubting the portal would be ready for April 2020 as planned.
The MoJ and the MIB – which is building the portal for the ministry – have both been accused of not listening to stakeholders in their rush to build the system in time.
However, Legal Futures revealed earlier this month that the MoJ has decided to exempt children and protected parties from the new regime – at least until it is working properly.
And we are now starting to see information come out from the MIB. I interviewed chief executive Dominic Clayden and he confirmed that all RTA claims worth up to £5,000, for both represented and unrepresented litigants, would go through the new portal (so no more calling it a ‘LiP portal’).
The system is being created using the ‘sprint’ methodology, where the core technology is built in blocks that each last around three weeks. The design details are not needed until the relevant sprint is due. So, for example, the decisions on how the ADR element of the system is going to work must be made for the tenth sprint, which will take start around the end of July. (Mr Clayden confirmed that ADR will only be available to litigants in person.)
These decisions – what Mr Clayden called “dependencies” – are the factors that could blow the project off course if they do not go the way the MIB has anticipated. They also include the final form of the pre-action protocol governing the new regime – “We need them not to vary materially against what we’ve built,” he said – the outcome of the MoJ’s recent consultation on how the system will connect with MedCo, and other issues, such as how to deal ‘combination’ injuries featuring both whiplash and non-whiplash injuries. On the latter, the MoJ has asked the Judicial College to provide guidance.
But subject to policy decisions being made in good time, the MIB remains bullish about hitting the April 2020 target. Beta testing should start in late October/early November.
It will also be interesting to see how the MoJ responds to MedCo’s comments in its submission that evidence of misrepresentation, dishonesty and fraud by medical agencies means the government should consider formally regulating them.
The MoJ is also considering responses to its consultation on extending fixed recoverable costs (FRC) across the fast-track and to some cases worth up to £100,000. Claimant and defendant lawyers, perhaps unsurprisingly, accused each other of behaviour which inflates costs, and there were widespread calls to fix the process along with the fees.
The Chartered Institute of Legal Executives, meanwhile, argued that FRC for low-value personal injury cases has restricted smaller law firms from offering their services to the public and this would be made worse extending them.
It urged the government to consider the wider impact of FRC on the availability of legal advice to support people needing the justice system. Small local firms and specialists have been forced to turn away personal injury clients, CILEx said, because they could not handle the volume of claims required to achieve a balance between profitable and unprofitable cases.
“This leaves consumers with a limited choice of either larger national providers which handle cases in bulk or being forced to represent themselves. Ultimately the consequence is a reduction in both quality advice and access to justice.”
One decision we have had was the discount rate, with Lord Chancellor David Gauke surprising pretty much everyone by changing the rate from -0.75% to -0.25%, when some insurers had been confidently predicting a rate of 0% at the very least and reserving accordingly. The Association of British Insurers (ABI) has thrown a total wobbly at the decision, but its protestations that the MoJ had led insurers to believe the rate would be 0-1% are on the flimsy side. Mr Gauke took what he considered a “prudent” decision and plenty of people will applaud him for that.
The ABI has trashed the MoJ’s prediction that the new rate will save insurers between £230m and £320m, because of those who have been reserving in anticipation of 0%, but it is worth noting that not all of them did. The shoe is very much on the other foot for the ABI this time.
According to the annual review of the UK motor insurance sector carried out by Big Four accountants EY – albeit published before Mr Gauke made his decision – a higher discount rate, combined with insurers already starting to price in savings from the whiplash reforms, will start bringing premiums down this year.
The sector’s net combined ratio (NCR) for 2018 was 94.8%, the best result in 33 years of EY’s records. This means that, for every £100 of premiums received, insurers paid out £94.80 in claims and expenses. This was due to “premium strengthening” in 2017 and the likely increase in the discount rate, with insurers releasing reserves ahead of the announcement.
But it said prospects for motor insurers over the next two years looked “poorer”, with underwriting losses expected. EY forecast a NCR of 104.7% in 2019 and 107.6% in 2020, which it said partly reflected continuing high claims inflation and pricing in the anticipated impact of the whiplash reforms.
It explained that the Civil Liability Act should lead to fewer small bodily injury claims, and a reduction in claims pay-outs, but suggested that late 2020 was “a more realistic date for the reforms given likely delays to the new portal project”.
It continued: “Motor insurance pricing is, however, competitive and we expect that insurers will begin to price in anticipated benefits of these reforms ahead of their full implementation. We forecast that insurers will be phasing in the anticipated benefits into 2019 and 2020 rates. There is therefore a detrimental impact towards our combined ratio forecasts in 2019 and 2020, ahead of the full implementation.
“While we have not stated a precise figure, some recovery in the 2021 NCR is expected as these benefits are fully realised.”
These predictions follow the argument of insurers, who say the market is too competitive not to pass on savings. But claimant lawyers remain sceptical, and frustratingly it will not be until 2024 at the very earliest that the government will release the report required by the Civil Liability Act on whether this has actually happened. And even if it has not, it is not clear what, if anything, the government can do about it.
