Will new Government policies be good for you?

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Claims, Liabilities, Trends and Solutions:

Will new Government policies be good for you?

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Nick Pargeter nicholas.pargeter@blmlaw.com

BLM EXPERTS

Terry Renouf terry.renouf@blmlaw.com Nik Stott nikolas.stott@blmlaw.com

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JACKSON OBJECTIVES

“ a coherent package of interlocking

reforms, designed to control

costs and promote access

to justice.”

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PORTAL EXTENSION &

CLAIMANT BEHAVIOUR

1. March 2013 = pre-Jackson spike

2. April 2013 = spike before MoJ staged fees cut 3. July 2013 = spike before MoJ protocol extended 4. Sept 2014 = spike before whiplash reforms?

Note the £136m windfall announced by Burford Capital

that results from the peak of activity in March 2013 – announced Law Society Gazette

The history of whiplash and its role as a driving force at the centre of the UK’s compensation culture is a complex one.

During the period from 2005 – 2013, the number of road traffc accidents on UK roads fell by 30%. However, safer roads and safer cars have not translated into fewer injury claims. Just the opposite: insurers witnessed a rapid increase in the number of bodily injury claims made, accompanied by an increase in the cost per claim of 73%.

This has been driven, in part, by a growth in the number of people who make an injury claim stemming from a single accident. From 2007 to 2014, Aviva witnessed an 11% increase in the number of injury claims arising from a single accident. In fact, from 2005 – 2011, the number of bodily injury claims submitted to motor insurers increased by 80%. This tapered over the next two years as the Government began to address the issue of whiplash, including the banning of referral fees which encouraged claims and the introduction of LASPO. Still, from 2005 – 2013 claims grew by 62% - while road traffc accidents fell by nearly one-third.

Insurers, for their part, did not immediately recognise this counter-intuitive set of events. From 2005 – 2008 motor insurance premiums in the UK actually marginally declined. But then from 2009 – 2012, insurers were forced to implement a steep rise in insurance premiums, which grew by 80% during this three year period. However when the Government introduced changes to curb this infation in 2012-13 (LASPO), insurers were very quick to respond and premiums have since dropped by around 14%.

However, as the number and cost of injury claims continue to climb, the premium benefts driven by the LASPO reforms are being eroded. The ABI Motor Premium Index showed that motor premiums rose in Q4 2014 by 5% over the previous quarter. Compared with other European countries looked at in this study such as France and Norway, it is clear the UK is alone facing the whiplash challenge. In our study of motor insurance premiums since 2005, and in spite of the cuts in premium from 2012 - 2014, the UK has risen far more than other major European countries. But this increase in the cost of motor insurance did not result in proft taking. In fact, the direct motor insurance industry did not make an underwriting proft from 1994 until 2014 – 20 years. Few industries have ever had to endure such a prolonged period of lack of proftability.

What has happened to motor premiums and claims since the LASPO Act of 2012?

Aviva’s Road to Reform 4

Insurers cut premiums by 14%

after ‘LASPO’ was introduced

Claims data from Datamonitor; accident data from Department for Transport 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 200520062007200820092010201120122013 250,000 200,000 150,000 100,000 50,000 0

Claims settled Accidents

Between 2005 - 2013 the UK motor insurance market witnessed a paradox:

Road traffc accidents

fell by 30% injury increased by 62%but claims for personal injury claim increased by 73%The average cost of a bodily

What makes the UK unique in its susceptibility to whiplash claims?

Aviva commissioned a report by Frontier Economics to understand what the UK can learn from injury compensation systems abroad that would help to address the growing number of bodily injury claims and the high incidence of fraud in the UK. Aviva does not agree with the oft-stated allegation that UK motorists have the weakest necks in Europe. It is our view that the UK system has been exploited and new guidance or legislation to address the issues we highlight is needed to restore the balance and stop the ‘have a go’ claim culture. As a society, the UK must now address the question at the heart of its compensation culture by learning from the experiences of other countries: do we want to continue to compensate every minor knock or bruise at the expense of ever-increasing premiums? Or should we alter our system and if so how could we do so fairly?

We have already seen that increasing claims costs and frequency are directly linked to increased premiums. In fact, claims costs make up the great majority (76%) of motor insurance premiums.

Worryingly, the frequency of bodily injury claims have returned to their pre-LASPO levels. In 2011, prior to the introduction of LASPO, Aviva reported that third party personal injury claims accounted for 52% of its motor claims costs. As recently as April 2014 this fgure had dropped to 49%, thanks to the LASPO reforms. Yet less than one year later the increased number of bodily injury claims has pushed personal injury costs up again, which now account for 52% of Aviva’s total motor claims costs.

This is the proverbial writing on the wall. The reality of a claimant culture, is that insurance becomes so expensive that some people are excluded from being able to obtain it. In the case of motor insurance – a legally required form of cover – this could have devastating consequences for people relying on their vehicle to commute to work, or sole traders such as plumbers and electricians who rely on their vehicle as an integral part of their trade. It does not need to be like this. Not all countries have a ‘compensation culture’. This is particularly true in France, where the incidence of whiplash claims is around 3% of personal injury claims.

Aviva welcomes the introduction of independent medical panels later this year. As Frontier’s report shows, the most effective compensation systems focus on setting clear thresholds for compensation where the injury is proven to a set level judged by independent medical experts. This ensures that genuine claims are paid while limiting fraud and reducing or removing the fnancial incentives for third parties to unnecessarily attach themselves to a claim.

Conclusions from Frontier Economics Whiplash Report

Last year, Aviva witnessed a 21%

increase in organised fraud compared to 2013, which contributed to a record number of fraudulent motor claims.

Norway: most of the claims for minor injury are handled without the involvement of a solicitor.

Sweden: the de minimis threshold means that symptoms must appear and be assessed within 3-4 days of the accident .

Spain: has seen an increase in whiplash claims over last 10 years; ‘no win no fee’ and legal fees of 10% compensation paid gives lawyers an incentive to claim, fuelling a growing compensation culture.

Germany: the number of bodily injury claims has dropped in line with the fall in road traffc accidents.

France: whiplash claims are 3% of personal injury claims

May 10 Jul 10 Sep 10Nov 10 Jan 11 Mar 11 May 11 Jul 11 Sep 11Nov 11 Jan 12Mar 12May 12 Jul 12 Sep 12Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sep 13Nov 13 Jan 14 Mar 14 May 14 Jul 14 Sep 14 10,000 20,000 0 30.000 40,000 50,000 60,000 70,000 80,000 90,000 100,000

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SURVEY

1. Do you consider that there has been

an increase or a decrease in claims

volumes since April 2013?

Increase

52%

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SURVEY

2. Do you consider that there has been

an increase or a decrease in the cost

of each claim?

Increase

31%

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SURVEY

3. Do you consider that the extension in

the MOJ portal limit (to £25k)

and claim type (to EL / PL) has been

successful or unsuccessful in

promoting settlement and limiting

claims cost?

Successful

86%

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Nik Stott - Partner

E: nikolas.stott@blmlaw.com | T: 0151 471 5443

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PORTAL

Claimant Behaviors

Exit

Exceptions

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PART36, QOCS AND

FUNDAMENTAL DISHONESTY

Claimant Part 36 and the courts

Cashman v Mid Essex

QOCS: claimant behaviours

Full recovery

- Fundamental dishonesty –

Gosling v Screwfix

- Obstruction

– Howarth

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Nick Pargeter - Partner

E: nick.pargeter@blmlaw.com | T: 020 7865 3361

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BACKGROUND

Due to the reform of the civil justice system, claimant lawyers have

jumped from the sinking ship of whiplash claims to the oil tanker of

NIHD claims – a source of more claims and profit than they could

imagine

The MOJ felt unable to fix costs for low value disease claims because

of insufficient data

The Employer’s Liability MOJ Portal Protocol, which rewards insurers

who make a 30 day admission of liability by fixing claimant costs is

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BACKGROUND

The potential reservoir of claimants is very large

The MRC in 2001 found that 16% of men reported more than 10

years exposure. According to the Office for National Statistics, there

were about 30 million people in the UK workforce in June 2001.

Applying the MRC 16% to half this figure (to roughly take account of

men) yields

2.4 million men

who have worked in a

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BACKGROUND

Policy and defence strategies

The driver of the increase in NIHD claims is financial - loss of lawyers’ income

The exceptional features of NIHD are being exploited for the economic benefit of claimant solicitors – claimant solicitors are avoiding fixed costs in low value injury

claims. The costs-saving objective of the Jackson reforms has been frustrated by

claimant solicitors drumming-up NIHD business as the new whiplash, and generating disproportionate costs.

NIHD claims are the new embodiment of the ‘compensation culture’. Claimant solicitors will attract little sympathy from politicians and public opinion (there is not the obvious sympathy that, say, asbestos claims, engender). Therefore seek aggressive strategies to reduce spend both on the legal front and the policy reform front.

A typical legal solution is to identify and defend a greater proportion of claims that have no legal merit.

The obvious policy reform which will require the approval of Government is to have

fixed costs apply to claimant solicitors handling NIHD claims. But there a number of

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NORMAL HEARING

Normal hearing is shown by a

relatively flat line with up to

20dB

loss over all test frequencies.

Regular noise exposure at 85dB(A)

LEP,d and above is considered to be

potentially injurious but not everyone

exposed to noise develops NIHD.

100 90 80 70 60 50 40 30 20 10 0 -10 -20 125 250 500 1000 2000 4000 8000 3000 Frequency (Hertz) Hearing loss (dBHL) 6000 12000

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TYPICAL NIHL

After 10 years of exposure to 85dB(A) for 40 hours per week about 15% of the population develop measurable NIHD. NIHD is usually bilateral and characterised by high frequency hearing loss which usually occurs first at

4kHz and then progresses into adjacent

frequencies. The loss at 4kHz progresses over

the first 10 years and then tends to stabilise.

NIHD is usually maximal at 4kHz and so there may be a characteristic dip or ‘notch’ usually at this frequency. Although NIHD is maximal at between 3 and 6kHz it probably affects all frequencies between 1 and 8kHz given

sufficient dose/duration of exposure.

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AGE ASSOCIATED HEARING LOSS

Once exposure to noise ceases the

NIHD does not progress further. Any

low frequency loss below around

1kHz is generally not related to noise

Age-related hearing loss starts from

around age 20 and accelerates with

age generally affecting all frequencies

causing maximal losses above 6kHz

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NIHL DIAGNOSIS

In many cases diagnosis is far less obvious than these audiograms and the audiometric presence of NIHD may be obscured by age related hearing loss and/or other causes of hearing loss

Many experts now follow the Coles Guidelines in determining diagnosis. (Guidelines on the diagnosis of NIHD for medicolegal purposes see Clin. Otolaryngol, 2000, 25, 264-273, R Coles et al.) This method compares an individual’s hearing levels with typical audiometric data from a population cohort that has not been exposed to noise – the differential is the starting point of a complex statistical analysis which diagnoses NIHD.

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ABI CLAIM DATA

Insurers have seen a 50-100% increase in NIHD claims over the last 12 months. The ABI noted 26,211 NIHD claims paid in 2013 There were around 7,500 NIHD claims

notified in 2001. This figure has steadily

increased with around 55,000 notifications

in 2012. There were about 80,000 NIHD

claims notifications in 2013

2013 settlement data from the ABI showed that average damages paid in

NIHD claims was £3,100 (£3,900 gross damages) and average claimant

costs were £10,400 Less than 8 8-10 10-12 12-14 14-16 16-18 18-20 20-22 22-24 24-26 26-28 More than 28 18% 12% 14% 14% 11% 8% 6% 6% 3% 3% 3% 5%

This marginal disability and diagnosis highlights a

significant trend in recent NIHD claims; that the

proportion claiming a low level of NIHD (up to 14dB)

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REPEAT AUDIOMETRY

A key strategy for identifying claims which have

no merit and therefore making no payment; this

relatively easy-win approach has already been adopted by many on NIHD claims

Audiometry is simply the recording of the claimant’s hearing levels at various noise frequencies. These recordings, plotted on an audiogram, are often the totality of the evidence upon which the diagnosis of NIHD is made, and the extent to which noise damage has affected the claimant’s hearing

If an audiogram is prepared by an audiologist which accords with the standards laid down by the British Society of Audiology then reliable conclusions can be made from those hearing threshold levels. However,

audiometric readings performed by claimant firms

are often undertaken to an exceptionally low standard by untrained staff

120 110 100 90 80 70 60 50 40 30 20 10 0 -10 250 500 1000 2000 3000 4000 6000 8000

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REPEAT AUDIOMETRY

For this reason, many insurers demand a repeat audiogram before any payment of damages. There is no obligation on a claimant pre-litigation to be tested by a defendant’s audiologist, but refusal potentially has both cash flow and costs

implications for claimant solicitors

BLM’s NoiseAssist is a claims handling tool, developed in accordance with the ‘Coles Guidelines’. Using hybrid tables of data, the tool calculates the claimant’s age associated hearing loss and subtracts this from the total hearing loss, clearly illustrating the claimant’s level of noise induced hearing loss. The tool also

allows the handler to compare the results with MRC data, test for limitation, and identify any non-organic hearing loss. Handlers familiar with this tool are quick to identify grounds for retesting

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REPEAT AUDIOMETRY

On 42.5% of claims, noise damage is not confirmed by a 2nd audiogram and the

claim defended. Although, this scheme is at a relatively early stage, it suggests repeat audiometry is reducing the number of paid claims by up to 40%

This clearly justifies a policy (with some exceptions) not to settle any NIHD

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THE CLAIMANT LAWYERS

Walker Prestons Leo Abse & Cohen Asons Quindell Heptonstalls Roberts Jackson Walk er Pr eston s 50 100 0 150 200 250 300 350 400 Number of Claims Heptonstalls Rober ts Jackson Leo Abse & Cohen

Ason s Roper Jame s MRH Thomas Eggar Hampson Hughe s Mercur y Legal Irwin Mitchel l Michael Le win Wixted & CoVe rsus La w Thompson s Chance Hunter Zenith Eaton s Joeseph Frasie r Imperium La w Quindell Settling at Nil

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LEGAL SOLUTIONS

De Minimis

Otological Norm

Loss Restricted To 4khz Or 6khz

Additivity of NIHD And AAHD

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THE DYSFUNCTIONAL

SYSTEM FOR NIHL

Reform and adaptation of the civil justice process

There are two problems:

1. The civil justice system allows claimant lawyers to be paid costs wholly disproportionate to the value of damages. The direct cost is obvious. The indirect costs is that claimant lawyers can afford to make large number of claims which have no merit. And these have to be handled. These claims are

generally made out of ignorance . Good claimant firms will have a better

filtering process and will have a lower proportion of claims that fail (nil claims)

2. NIHD claims often involve several insurers. The process currently in place to achieve consensus amongst insurers to enable a combined approach for settlement the claim is disproportionate to the sums at stake. The process often involves several insurers separately assessing the value of a claims when some contributions may be worth no more than a few £100s. This causes

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SOLUTIONS

There are four solutions

1. A voluntary handling protocol agreed with the capable claimant firms

This solution involves engagement with claimant solicitors. An agreement is

made with the leading claimant firms that the MOJ EL Portal stage 1 fixed

fee is increased from £300 to say £1,500 (payable if an admission is made within 30 days) provided that the claimant`s solicitor supplies the defendant with a pack of agreed information at the time that the claim is submitted

The pack of information would include a witness questionnaire designed

by defendant solicitors/insurers; an HMRC schedule, claimant`s medical

records and an audiogram. The audiogram would be obtained by an approved audiologist

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SOLUTIONS

The scheme will depend on a sound working relationship (i) between insurers

and (ii) between insurers and claimants’ solicitors. A model will need to be

devised which shows to claimant’s solicitors that there is a net gain (or at least a

similar level of profit) when the following are all taken into account: i. The loss of income as a result of more fixed fees

ii. Cash flow benefits from fixed costs paid much earlier than

conventional claims

iii. A reduction in the expenditure of pursing fruitless claims as a result of defendants making early and lasting 30 day admissions/repudiations

iv. The inevitable streamlining of the claimant lawyer market – those that are outside the scheme with fall behind the market

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SOLUTIONS

2. An insurance industry protocol for the agreement of contributions and delegating settlement authority for NIHD claims

The IDCWP/ABI NIHD Handling Guidelines should help expedite

inter-insurer agreement on individual claims. But, there is not wholesale agreement from the run-off market and the safeguards surrounding the delegated

authority still makes the process complex for the level of handler likely to be involved

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SOLUTIONS

3 Fixed costs for NIHD claims - the most straightforward policy solution

and favoured by the ABI

This requires engagement from the Gov’t (MOJ). Fixed costs will have to be imposed. It will require gathering data (the ABI has already initiated research) from both the claimant and defendant side. The Gov’t will need to resource a consultation process. Unlike whiplash claims, there is very little political capital in the pursuit of lower claimant costs for NIHD claims

It had been the intention for fixed costs to apply to disease claims. But the MOJ decided that there was insufficient data on which to base a matrix. It makes sense to attempt a fixed costs matrix for NIHD alone as there is now

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SOLUTIONS

4 An MOJ EL Portal and Protocol for NIHD claims – relatively

straightforward for single defendant claims, but complex for the majority of

NIHD which are multi-defendant

Significantly claims exit the portal because the defendant doesn’t have

sufficient information to make an informed 30 day stage 1 liability decision.

The MOJ portal protocol does not require a claimant to supply:

i. the HMRC employment schedule often the only proof of employment ii. Any medical report – causation is impossible to assess without this

iii. Medical records to determine date of knowledge for limitation iv. Evidence of breach of duty e.g. witness questionnaire

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A WARNING FROM HISTORY:

UK ROAD ACCIDENTS & PERSONAL

INJURY CLAIMS, 2001-2013

4,000 4,500 3,500 3,000 2,500 2,000 1,500 1,000 500 800,000 900,000 700,000 600,000

Numbers of personal injjur

y claims notified (cour

ce:CR

U)

Numbers of incidents & traffic miles x 10 tp pow

er 8 (sour

ce:

DFT)

EL claims, claendar year (CRU, weighted) Seriously injured (x10) 500,000 400,000 300,000 200,000 100,000 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

PL claims, claendar year (CRU weighted)

2013

Slightly injured (x100) Traffic - vehicle miles x 108 Killied

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ABS CHANGING CLAIMANT SECTOR

PSD

7% _{Irwin Mitchell}

6%

Slater & Gordon 5%

Parabis 4%

Minister Law 4%

Slater & Gordon 12% Irwin Mitchell 6% Parabis 4% Minister Law 4%

Current Market Share Market Share Post Acquisition*

*Information from Slater & Gordon internal management data. Based on share of Uk personal injury market. *Information originally published by Slater & Gordon for the Australian Stock Exchange

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PRIZE

DRAW

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