The deadline is looming for the government’s personal injury reforms. While the changes don’t come into effect until April 01, 2020, any policy bought from April 01, 2019, will technically be impacted.
The move is part of the Civil Liability Bill, which makes a number of changes that are designed to reduce fraud in motor insurance, including capping the amounts claimants can get for whiplash injuries.
The changes also mean that the small claims limit for RTA personal injury claims will increase from £1,000 to £5,000, and solicitors will receive less in fees when representing clients for whiplash injuries.
According to Richard Finan, director of Arc Legal, these changes will have a negative impact on brokers. This is partly because solicitors are going to be relying on legal expense policies (LEP) to get fees, which will pay out a lot less than the previous model where the legal team that won a personal injury case would also win their fees back from the insurance company.
“For brokers in terms of revenue it’s an adverse impact,” he explained. “The level of income that they’ve been able to earn from solicitors through claims commissions is significantly reduced or removed altogether because there isn’t that level of profit in the solicitor’s fees anymore to pay them.
“And then of course their LEP premium is going to have to increase to pay the solicitor’s costs. So, they lose the solicitor’s business over here, and then they are going to have to pay more for their legal expenses policy. They’re in a lose/lose situation.”
The news isn’t so negative for insurers though. Finan says they will be in a better position than before, despite losses in some areas.
“Insurers on the other hand, their costs will increase,” he said.
“However, they’re benefiting as a defendant insurer from the upside of this. So, they’re no longer having to pay out costs where their customers caused the accident, and the compensation they’re paying out is significantly reduced as well. So, while they pay more over here, they’ve got more of a saving over there.”
The reason for this, the director said, is because due to the new tariffs for whiplash injuries, many injured people will be getting a lot less money than they might have before.
“We have a rule within legal expenses insurance about proportionality,” Finan said. “We won’t pay a solicitor more than they’re going to get for the customer. So, if the customer is going to get £235 in compensation, we’re not going to pay the solicitor more than that.
“At the moment the basic level of fees the solicitor can get back from the third-party insurer start at £500 – so, at a minimum, a law firm will be earning £500 to £550 for a case. They’re now no longer going to be able to get that from the third-party insurer.
“They’re going to come to us as the legal expenses provider to pay those fees. And we’re saying that’s fine, that’s what the policy is here for, but we’re not going to pay you £550 to get £235 so you’ve got to do something different.”
Overall Finan believes the firms that will succeed will be the ones that look at the new model and really change their business, work out ways to streamline and innovate.
“The firms that I think will do well will embrace this,” he explained. “They’ll say let’s start with a clean sheet of paper and write the process from start to finish in the new world. The difficultly is the rules of the new world are not yet known.”
