Jack Straw - Insurance Industry in firing line over referral fees

Is Jack Straw right to criticise Claimant solicitors for the “spiralling costs” of Insurance?  Ivan Moody believes there may be other reasons for the increase in our premiums

 Jack Straw this morning commented on the spiralling costs of insurance premiums due to the insurance industry’s “dirty secret” - referral fees. Mr Straw raised the issue of insurance companies selling on details of their customers, who were then bombarded by texts and telephone calls. This does encourage claims and this then leads to arguments of a “compensation culture”, but evidence suggests that road traffic accidents are the only area of personal injury claims to have significantly increased in recent years. If you were seriously injured or could not work and had a legitimate claim to fund treatment or claim your lost earnings, why should they not be entitled or able to pursue this? We should be looking at those people who cause the accidents and ensuring that genuine claims are dealt with quickly and efficiently.

I do not want to see my Insurance Premiums rise any more than the next person but we need to analyse why they are increasing. One of the major reasons for increase in premiums is the Insurance Companies themselves. The Association of British Insurers support Jack Straw in his plea to ban referral fees and also complain about the level of solicitors costs. The reality is that in many cases the reason costs increase is the failure by Insurance Companies to investigate properly or at all. They often delay admitting liability, and the worry is that this may be in the hope that the Claimant will either go away or accept a substantially reduced sum. Many of our clients at Nockolds do not have much or any spare money and Insurance Companies play on this. They drag out the claim process trying to wear them down so they will accept less than they are entitled to.  This inevitably increases the costs.

The court rules (Pre Action Protocol) allows Insurance Companies 3 months to investigate claims but often they fail to respond within this period. What options are open to the Claimant in these circumstances? They can continue to wait, issue an application for pre action disclosure or issue proceedings. All of these are likely to result in extra costs unless they do just sit and wait for the Defendant to make a decision but why should a Claimant wait when the Defendants have breached the pre action protocol, and they do not have money coming in as they cannot work or need treatment which has a long NHS waiting list?

I recently acted for a client in a simple claim where he broke a finger when falling of his bicycle after riding over a pothole. The Local Authority passed my letter of claim to their Insurers who acknowledged the letter and then took no steps. The 3 months period soon expired and I was left with a quandary. My client had undoubtedly suffered an accident but I had no idea whether the Council were going to rely on the Defence that they had a reasonable system of inspection and could not have known that there was a problem or danger as it had developed since their last visit. I therefore had to issue an application in the local court to force the insurer to respond and provide the information needed.

The court issued my application to be heard 2 months later and I immediately sent this to the Local Authority and their Insurers. I received no response. The hearing date was fast approaching so I prepared a witness statement explaining the steps I had taken and the lack of response from the Insurance Company. I sent this to the Insurers but received no response. I therefore had to attend court when rather predictably, no one from the Defendants attended. The court agreed that the insurer should have provided this information and also ordered the insurer to pay the costs of the application. I sent out the order to the Insurers and they sent me a cheque for my costs but did not provide the information ordered by the court or given a response to the claim. I was therefore forced to issue another application which resulted in another costs order against the insurers.

This claim has now settled but due to the inefficiencies of the Insurance Company my costs were probably at least double what they should have been. All because they failed to follow the court rules! 

This is not an isolated example and although some Insurers are capable of complying with the Pre action protocol the majority either end up having to ask for an extension of time or just ignore the time limits. It therefore ill beholds Insurance Companies to complain about the costs of or the amount of litigation when these are not solely due to ‘greedy claimants and solicitors’. 

So Mr Straw whilst some Claims Referral Companies may use unscrupulous tactics this is not the major reason for the “spiralling costs of Insurance”. The government should look at the existing Pre Action Protocols to see whether anything more can be done to ensure that Insurance Companies comply with their obligations. If they investigated matters in a timely and proper manner it would undoubtedly result in very many more claims being settled at an early stage saving Insurance Companies and therefore their clients’ lots of money. Proposed reforms do not address this issue at all.

Also, the recommendation to ban referral fees, contained in Lord Jackson and Lord Young’s reports last year, appears to be sliding down the priority list.

Is Mr Straw saying that a person who finds out they have a legitimate claim albeit through unscrupulous “claims farmers” is not entitled to compensation? By all means legislate to ban the unsolicited texts, emails and telephone calls but raise people’s awareness of how and when they are entitled to claim.

Finally I am not sure what Mr Straw means by high pressure tactics used by Claimant Lawyers. If he is saying that firms like Nockolds pursue claims with vigour and will endeavour to ensure that our clients obtain the compensation they are entitled to then we are guilty as charged!

Ivan Moody 27^th June 2011

Ivan Moody (profile) Monday 27th June 2011
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