News & Events 2010

Fire up The Quattro

From a legal expenses insurance perspective the Jackson Report is a bit like Ashes to Ashes. I feel as if we have been transported back to the late 1970s/early 1980s and DCI Gene Hunt is there to bash the living daylights out of these “scum” in the underworld of the After the Event (ATE) market.  

However I wonder if the created character of Hunt, having had the rough edges knocked off, is such a source of incorrectness. Likewise I dare to suggest that even from a defendant and legal expenses point of view it’s not quite as bad as the protestors make out.   

You can bury your head in the sand and hope that the changes may never happen as we have a new government on its way in with fresh faces. We have no certainty as to what its political make-up will look like. Neither do we know whether it, or the MOJ, will perceive these reforms as urgent in the light of the many pressures that it will face. Not the least of which will be the ability to govern with a small majority, or even in a short-lived minority position.  

Oh! DCI Hunt please let me join you back in the good old days when:-

*  Legal expenses covers were comprehensive with proper Before the Event (BTE) covers that were not cut back to satisfy the marketing and pricing needs of insurers carrying a poor protection of rights that is lost in the main package wording. Even these poor covers today are not cost effective from an underwriting point of view.

*  The in-house claims department of the legal expenses provider would take on the mighty insurer before the case went out to solicitors. This had so much scope for common sense, negotiation and mediation that was not developed primarily because of vested interests in the legal world, and complete lack of reform on the part of those responsible for legislation.

*  There was a decency of function before the arrival of the buyers and sellers of litigation, and the marketing of ancillary costs such as car hire, medical examinations and other expert witnesses. Many of these new arrivals have become opportunities that have been hijacked by defendant insurers themselves to improve their bottom line.

 

The Add-on Weakness of Access to Justice

My great fear is that unless the distribution methods - in particular those of BTE - are changed we will find ourselves back in the dark days before LEI came to the UK with one law for the rich, and very little justice for those in the middle.   And the poor will now be significantly worse off as the State Legal Aid they may have had recourse to in the 1970/80s does not exist now.  

Certainly claimant personal injury solicitors will claim that Lord Jackson’s civil litigation costs’ review will have a detrimental effect on access to justice. No longer would success fees (allegedly covering the cost of “lost” cases) and ATE insurance premiums be recoverable from the opposing party (in practice the defendant insurers).   

So the proposed reforms introduce ‘cost shifting’ for commercial claims and the loser pays. However there is qualified one-way cost shifting for personal injury and defamation claims.   

Contingency fees (where the solicitor is paid by way of a share in the client’s damages) are proposed to be permitted, however the losing party will pay costs as at present. Alternative dispute resolution (ADR) is to be encouraged, but should not be compulsory. Missed Opportunities & New Legal Structures

It seems to me a great pity that the opportunity has been missed to make BTE legal expenses insurance compulsory. Its affordability with significantly greater numbers of insured persons and the eradication of selection would make it possible to replace conditional fee agreements and ATE insurance at a stroke.   In addition to uncertainty about the implementation of the Jackson report we would be wise to start anticipating the outcome of the ‘Clementi’ proposals that will enable financial service organisations to obtain stakes in, or fully acquire law firms.   

The resulting legal structures do seem to fit in with some of the Jackson proposals. In particular the ability to negotiate with strength but with low cost common sense in-house methods will reduce legal costs for both defendant insurers and those plaintiffs with genuine legal rights to address. 
 

What to do now  

 

So insurance intermediaries, watch this space carefully as the flag of events is unfurled. Let’s see if there are opportunities for hybrid BTE/ATE products. After all, it’s all legal expenses insurance -whether before or after.   

In the meantime intermediaries will be doing their clients a big favour by encouraging them to purchase good and wide stand alone personal and commercial BTE covers to ensure funding is in force.   

Do not rely on the add-ons included with mainstream covers - you get what you pay for. If in doubt, take it out and substitute your own tailor-made cover. Do a proper broking job and you may be surprised to find that your insurance commission income will be improved.  

While we wait to see if we are going to get a ride in DCI Hunt’s Audi Quattro, or experience the ‘back to the future’ changes that the MOJ may introduce, it will do us no harm to reflect on the good things of the past - warts and all - because the present is a very unsatisfactory state of affairs.

John Mullin
writing in Insurance People, May 2010