Crash and capture: how insurers want to cut out lawyers from the claims process

Third-party capture is the surprisingly frank expression used by insurers to describe the process of dealing direct with accident victims to settle their claims unhindered by 'ambulance-chasing, fat-cat lawyers' - as they '¨call us.

The primary definition of 'capture' in the OED is 'taking into one's possession or control by force'. It's synonymous with detention against will, being at the mercy of and consequently at serious risk of abuse. It is no less so in the hostile landscape of liability claims and it is apt that insurers have chosen the term.

The central aim is to save money. The overwhelming majority of people probably '¨view that as a commendable aspiration, particularly in tough times, but saving money '¨is not an abstract concept. One has to ask for whom and at whose expense?

Question of degree

Insurers tell us that savings will be passed on to the motoring population, so that everybody who dutifully insures their vehicle will enjoy reductions in policy premium. Unfortunately, it's not so easy to follow the link between, for example, the huge cuts in portal fixed costs in April and a fall in prices.

The cynical expectation here is that savings in expenditure will mean higher profits. It's right that 'profit' is not a dirty word but there's a question of degree and the problem is in actually getting down to any reliable understanding of insurers' returns and the claim that changes being pressed on government will bring widespread benefits. The background to this altruism is the regular lament that road traffic insurers haven't made a profit since 1994. If one asks why they are still in the market then the wailing stops temporarily.

The simple explanation is that insurers have always made profit by investing the money that they receive in premia, for many years at double-digit interest rates. Those returns, on balance sheets somewhere, won't appear within the calculation of 'operating loss' of which the industry perennially complains.

Insurers need to do a lot more to convince anyone other than government ministers, anxious for growth in capital reserves and increased tax revenue, that there is any justification for sustained attacks on claimants and their advisers.

It is notable that the House of Commons' Transport Committee, in its July report, was unable to verify what we've thought were wild claims about whiplash adding £90 to the cost of a policy, even after hearing from leading figures in the industry. In contrast, the committee found: "It is apparent from the information now provided by the government that the number of whiplash claims has fallen since 2010-11 and is now lower than at any time since at least 2007-08."

Portal fee cuts

Who is to fund this largesse, you might ask. "Lawyers," cry insurers, "and quite rightly '¨so - they've been making far too much '¨money for years."

Portal fees were cut to 40 per cent of the original figure (negotiated by all corners of the industry) because insurers argued that claimant lawyers were already doing the work at that price. The rest of the fixed fee was often being trousered by insurers for the sale of the case, often unknown to the claimant.

I've seen work done by some of the firms who pay away 60 per cent plus of the gross fees and still make a margin on the work. How? Employ cheap, unskilled staff and let them get on with it. Simples.

In a case we took on just under three years after the accident, with no sign of proceedings, the client had been advised to settle for around £1,500 within months of the accident after a report from an 'agency' GP with a special interest in obstetrics and gynaecology. He declined. A couple of years later, having twigged that a report from an orthopaedic surgeon might aid an understanding of a cruciate ligament injury, the same lawyers offered (without instructions) to settle for four times as much. On this occasion they were fortunate that the defendants turned them down. We settled that claim at £12,500 - more than eight times the original figure the very low margin 'lawyers' recommended on the back of a useless report from a medical practitioner with no relevant experience.

Our client would have lost £11,000 - 88 per cent of his compensation - by being captured and channelled to incompetent representatives. Imagine what happens when there are no lawyers at all.

The Transport Committee recognised that competent representation may be "financially difficult" in small claims. Declining to support any increase in the small claims threshold at the present time the committee explained: "We believe that access to justice is likely to be impaired, particularly for people who do not feel confident to represent themselves in what will seem to some to be a complex and intimidating process. Insurers will use legal professionals to contest claims, which will add to this problem."

Anything but transparent

Insurers say they'll deal with unrepresented claimants fairly. They have a 'code' and the ABI says it will beef it up if government implements further attacks on legal representation. Don't believe it. The Law Society's recent "Don't get mugged" campaign is spot on.

It's not just that some insurers are not ABI members but the more fundamental expectation that they simply won't play. They compete "in a dysfunctional way that may push up premiums (sic) for drivers by £225 million a year" - the OFT concluded last year.

Referral fees, "rebates" to repairers, pre-med offers - all good reasons for this industry to be considered anything but transparent. The Transport Committee recorded at page 4 of its report: "We were surprised to hear that insurers will sometimes make an offer to personal injury claimants even before a medical report has been received. We also note that our previous recommendation on making the links between insurers and other parties involved with claims more transparent has been ignored. Insurers must immediately get their house in order and end practices which encourage fraud and exaggeration."

Not only does this practice risk more serious injuries being overlooked, but also serves the argument that claims cost too much, just as the long referral fee binge did.

It's another morally questionable expense engineered by insurance companies to support the argument that costs need to be reduced to help them, by one means or another, remove independent claimant lawyers from the picture. They'll keep the costs and the damages down.

In a blog post, Livin' Aviva Loca, I explained the story of my client who was tld she would not get more by using lawyers. Bad luck: it turned out it was one of my staff doing personal injury work. And in another post, Foxes and chickens, I talked about the young lady crushed by a bull and psychologically scarred. The "nice man" from the insurance company almost persuaded her farmer father to sign on the dotted line for £1,500 which the court later decided should be £35,000 - nearly 25 times as much!

Trusting insurers

These are real-life stories and many claimant practitioners out there can tell many more. The only solution other than lawyers to protect the victims, would be that society were able somehow to trust insurers not to take advantage of ignorance but pay innocent victims of accidents what the law says they are truly entitled to. Such behaviour is not consistent with much of the hard evidence of claims handling to date.

It's not consistent with forging signatures and falsifying complaints records for which RBS subsidiaries, Direct Line and Churchill, were fined £2.1m by the FSA last year. It doesn't fit with the arrogant determination to challenge and smash, if possible, rules by what I once heard a favourite at the insurance Bar describe as "unashamed and unabashed technical challenges" such as those a decade ago that so angered the Court of Appeal.

These are not people who will take any notice unless their business is threatened. See for example the comments of Lord Justice Longmore in Brown- Quinn & Anor v Equity Syndicate Management Ltd & Anor [2012] EWCA Civ 1633, a case alleging refusal of indemnity by BTE insurers: "The facts of this case have revealed that insurers exhibit an insouciance to their obligations'¦ which leaves one quite breathless."

Unfortunately, our government hasn't exactly been a champion of the individual. The Select Committee criticised the huddles between Cabinet and insurers in February 2013, with claimant voices shut outside: "We were disappointed to hear from witnesses from the legal profession that they had not been invited to the Prime Minister's summit and nor are we aware of any substantive contact with DfT ministers. This is particularly surprising given that legal reforms were clearly under discussion."

The agony is that our government seems set on a policy not of changing the law but of putting it out of reach of many. That raises serious constitutional questions though the administrative court has already said, on the APIL judicial review, that it's an issue for the ballot box, not the judiciary. Meanwhile, do we trust insurers to deal fairly with unrepresented accident victims? This is what the Commons'Select Committee think: "Transparency breeds trust and confidence in the market. Unfortunately, the motor insurance sector remains as opaque as ever." So that will '¨be a 'no', then.