Last Thursday, the Ministry of Justice announced that it was pushing on with reforms to the personal injury claims process. John James, head of our Personal Injury department, sets out his opinion on the changes.
What are the reforms?
In brief, the main reforms are as follows:
People with whiplash injuries will receive a fixed amount of damages. These will depend on the time it takes to recover from the injury. The proposed tariff significantly reduces the value of whiplash injuries from their current level.
At the same time, the limit for cases being handled via the “small claims” process will increase from £1,000.00 in value to £5,000.00 for “RTA-related” claims only. This means that virtually all whiplash claims will now fall into the small claims process.
Further, the small claims limit is increasing from £1,000.00 to £2,000.00 for all other types of personal injury (e.g. accidents at work, slips and trips, medical negligence).
Finally, you will not be able to settle a claim for injury without first obtaining a report from an independent medical expert. You will not be permitted to negotiate settlement early in proceedings to try and speed things up – you must have your injuries verified by an expert.
What are the effects of the changes?
Currently, in personal injury claims, solicitors usually recover their legal costs from their opponent, the “at-fault” party. This means claimants generally do not need to worry about hefty legal bills at the end of the case.
However, in order to qualify to recover their costs, the value of the claim must exceed the small claims limit. If it is below the small claims limit, the solicitor is not entitled to recover any costs at all from the opponent. Even if the solicitor has issued the claim at Court, they will only be able to recover a very small amount of money. So, if the vast majority of whiplash cases now fall in the small claims track, why would solicitors take on the risk of handling your claim if they can’t recover their costs?
Therefore, as far as I can see it, there are only three real options available for handling whiplash claims:
Solicitors will have to start working for free (which seems unlikely!);
Claimants will have to pay their own solicitor’s fees; or
Claimants will have to start handling the claims process themselves.
Cutting out the middle man…
Given that the first option above isn’t going to happen, are the other two really plausible?
If the value of your whiplash claim is reduced, the cost of instructing solicitors to handle it will outweigh the value; thus completely defeating the object of bringing the claim in the first place. So option 2 is not a worthwhile exercise either for the claimant or the solicitor. That just leaves option 3: leaving claimants to fend for themselves against the insurance companies.
In its consultation response to the whiplash reforms, the government states:
“It is the Government’s view that low value RTA related PI claims are not so complex that claimants routinely require legal representation to pursue them.”
Whilst its faith in the public is admirable, the over-simplification of the claims process is extremely naïve at best, plain ignorant at worst. The government is suggesting that people will be able to navigate the claims process without any assistance. Unfortunately, however, even if the claim is straightforward, it will entail a lot of work and an in depth knowledge of the rules.
In my opinion, the vast majority of claimants will be too daunted or disinterested in handling the process themselves, especially if the financial award at the end is so meagre. It will be even more complicated if the insurer denies responsibility and starts defending the claim!
The government says that there is “a significant amount of help and support available to all claimants who act in person”. As a best case scenario then, it assumes every victim of an accident with a legitimate claim will act in person using the leaflets they provide. Again, this is terrifyingly naïve, for too many reasons to list here.
The House Always Wins
While claimants are likely to suffer under the new rules, insurers on the other hand look to benefit rather nicely.
Consider the following scenario: you are involved in a bog-standard road traffic accident which wasn’t your fault. You suffer neck and back pain which resolves in 6 months. The at-fault insurance company admits its driver was at fault.
The average value of a 6-month whiplash injury is £2,000.00
Solicitors are entitled to £600.00 in costs, including VAT.
The medical report fee is £216.00
Insurer pays out a total of £2,816.00 to settle your claim.
Whiplash injury is now worth £450.00
No solicitors’ costs payable because the claim falls under the small claims limit
Medical report fee is £216.00
Insurer pays out £666.00 to settle your claim
Total saving to the insurer under the reforms: £2,150.00
La La Land
The government estimates that the reforms will lead to savings of “around £1bn”. This apparently equates to a saving of around £40.00 per motor insurance premium. It also advises in its consultation response that it “fully expects these savings to be passed on by insurers to consumers.”
What the government conveniently omits whilst delivering its assurances is that Insurance Premium Tax (IPT) has been increased from 10% to 12%. So, on a £400.00 motor policy, the IPT increase reduces the overall saving of £40.00 to £32.00.
Further, and more significantly, the government has just announced that it is changing the formula for calculating damages paid to victims with long-term serious injuries. In response, the insurance industry has warned that premiums may rise by £75.00 per policy.
Ultimately, the combined effect of the proposed reforms is that motorists will pay an additional £43.00 per premium, and not make a penny of savings, as alleged by the government. In my opinion, insurers won’t see any reduction in their profits and motorists won’t see a reduction in their premiums.
The long and winding road…
The proposed reforms will not take effect until October 2018. So, if a solicitor is currently handling a personal injury claim for you, fear not – the changes will not affect your claim and it will fall into the “old” process.
Similarly, if you are unfortunate enough to suffer injuries in an accident before October 2018, we may also able to help you pursue your claim under our exceptional and competitive funding arrangements.
However, it is going to be very interesting to see how things pan out post-October 2018. We are looking at innovative ways of assisting claimants irrespective of the changes, to make sure no victim of a non-fault accident is deprived of their basic rights of access to justice.
For regular updates on personal injury law, why not follow John on Twitter: @jj_thePIman