Major disruption expected as Government shows its hand on reform of whiplash and the small claims environment
Until yesterday the burning question was what the current government were intending to do with the announcement by the former Chancellor George Osborne in last year’s Autumn Statement that there was an intention to remove the right to claim PSLA damages in claims for minor soft tissue injury claims (i.e. claims for minor whiplash) and to increase the small claims track limit for injury claims to £5,000. We looked at that announcement at the time in this update.
Even recently, after the Brexit fall-out had led to the election of a new Prime Minister and her appointment of a largely new cabinet including that of Liz Truss as Secretary of State for Justice, it was unclear whether and if so how the reforms were to be progressed. Mixed messages were being given out only a month ago as to whether the position taken by the MoJ in relation to the issue was either ‘no’ or just ‘not yet’.
The current government intends to proceed with a package of reform built on the Osborne proposals of last year, but now developed so as to include additional options including the potential for retaining PSLA for minor whiplash claims albeit at reduced levels which may assist in achieving reform, as well as potential future extensions of the current package. The detail is addressed below.
We continue to see the reform package as one that will be transformational on the claims market, compounding the need for further changes since those which have already been seen to have taken place since the Autumn Statement.
The MOJ press release
We now have our answers on the main points of principle regarding the proposed reform if not a full picture on all issues with the publication of the press release and then some hours later the consultation itself called “Reforming the Soft Tissue Injury (‘whiplash’) Claims Process”.
It was not known previously whether Ms Truss and her new colleagues both inside the MoJ and at the Treasury supported the Osborne line or were going to think differently. We now have a firm answer on that question: if anything Ms Truss not only agrees with Mr Osborne but thinks in more strident terms than him.
The firmness of view will be relevant when we take account of the parliamentary process ahead, as most of the new package will need primary legislation and therefore a majority in both Houses of Parliament.
The apparent strength of the Truss view can be seen from these quotes from the press release which are either attributed to her or will have been approved by her:
The current level of whiplash claims is “unacceptably high” and can be described as an “epidemic”
Claimants have been “exploited” by a “rampant compensation culture”
Claims have been fuelled “by a predatory claims industry” which “encourages minor, exaggerated and fraudulent claims”
The Treasury position
We knew of course that the stated aim of George Osborne’s announcement was to reduce motor insurance costs for UK citizens, alongside an intention to reform the compensation culture. It was clear that for the reform to continue to be seen as an appropriate one, the new team at the Treasury under Chancellor Philip Hammond needed to remain in favour.
Proof of continued Treasury support comes within the press release from another new minister, Simon Kirby, Economic Secretary to the Treasury whose remit includes the government’s strategic relationship with UK financial services including insurers. Probably the existence of that support rather than the words used by him are more important, though he refers to the aim of “tackling the incentives which have created this compensation culture” as well as the aim of saving money on motor insurance.
While the tone of the press release is strident, it can be contrasted with the more measured and thought out positions taken in the consultation itself.
While there is no proof, our expectation is that what has now been published under the name of justice minister Lord Keen is something similar to that which would have appeared under the name of Lord Faulks had the EU referendum had a different outcome, but with certain additions. Where we read early on in the paper that “This government, like its predecessor, is committed to tackling the high number and cost of (whiplash) claims” it is tempting to think that the words “like its predecessor” have been added in since Lord Faulks’ draft.
At another point, questions 1 and 2 of the consultation refer to the acceptability of a definition for whiplash claim to be included in the reform and said in the questions to have been set out in paragraph 17 of the consultation. The definition in fact seems now to be set out in paragraph 23. It seems that the reference to changed paragraph numbers was not followed through as the Faulks draft was updated.
We do of course have no track change version of the consultation document and cannot see whatever changes were made at the request of Ms Truss or Lord Keen. But we would not be surprised if some of the alternative options now addressed in the consultation had not been added to assist a future Bill’s parliamentary process.
If so, it follows that the government may in reality be accepting that assuming their reform proposals become law, they may do so in a form in which the lesser of two alternatives may have to have been accepted.
The reform package
The consultation is presented as a four-piece coherent package making up a new reform programme. But there is also encouragement to consider the parts of the package both individually and alongside other parts of it.
That said, while there is a difference between this approach and Sir Rupert Jackson who of course brought forward his “coherent package of interlocking reforms” as part of his desire to see everything enacted, we would expect government to want to achieve a result which includes all four elements of the package, even if some concessions have to be made in some of those four areas to ensure a parliamentary measure passes.
The consultation does not however specifically suggest that other reforms such as CMC regulation and improvements to the court process under Briggs should be part of this coherent package.
Of the four elements, the MoJ accept that three of them, excluding only the planned SCT rise, will need primary legislation in the form of a Bill to pass through the parliamentary processes.
The first element – removing or reducing PSLA in minor whiplash claims
George Osborne’s intention had been to remove PSLA rather than to reduce it. Perhaps the fall back proposal of a reduction is one of changes made post Lord Faulks in order to present parliamentary options?
In support of this proposed change reference is made to the “asymmetry of information” between claimant and defendant, on the basis that only the claimant will in fact know whether there is an injury, and if so how severe it is. It is noted that it is very hard to disprove a whiplash claim, and if contested, the likelihood is of increased total costs for the defence rather than substantially increasing prospects of success. So instead the defendant may settle such a claim without a contest and pass the cost on to policyholders, it is accepted.
So, the consultation suggests, it has become “culturally acceptable for claims to be made for very low level injuries, sometimes fraudulently”.
Unsurprisingly, it is proposed that the existing definition of ‘soft tissue injury claim’ used in the Pre-Action Protocol and with which we will already be familiar should be used in this context as well.
On a number of occasions in this consultation the MoJ are prepared to look ahead at the likely consequences of reform in one area, causing what they call “future claims inflation/displacement” in another. This seems to us to be an important lesson learned, that is the need to reduce the room for manoeuvre by the introduction of dubious practices where possible.
One such example of that approach is in relation to whiplash claims in which there is also a psychological element. The MoJ are therefore consulting on what seems to be their preferred option and which indeed to us appears a worthwhile one of including within their definition of ‘soft tissue injury claim’ those claims where in fact the psychological element is the primary element.
This would be to head off any increased tendency to try to avoid these processes by claiming a psychological element of the injury took the case outside whatever definition of ‘soft tissue injury claim’ was used.
What is a minor soft tissue injury claim?
On the key question of how to define ‘minor’ in this context, not unexpectedly the MoJ are proposing to use a period of symptoms and are also intending as their preferred option that that period will be up to and including 6 months.
They say that any longer period than 6 months would “have a disproportionate effect on genuine claimants with more significant injuries”, though they also consult on what seems to us to be a less likely alternative of 9 months.
The alternatives - removing or reducing PSLA
We now have new information in this area. Firstly that the MoJ are consulting between these two options, as well as the level of damages proposed if PSLA is to remain.
The government say that they believe that the level of compensation awarded to claimants in the case of injuries arising out of low speed RTAs is out of all proportion to the pain and suffering actually experienced.
They say also though that the original Osborne proposal had been met with considerable concern and had led to them considering an alternative approach as now presented. We would not be surprised if a reduction of PSLA were the ultimate outcome of this exercise.
Interestingly, the consultation chooses to overlook the 13th edition of the Judicial College Guidelines published last year and which included what seemed to be increases for low value injuries which were difficult to rationally explain. Instead, the 12th edition figures are considered.
Note is taken that minor whiplash valuations “should start at £200” which is presumably a reference to the bottom of the bracket for minor whiplash injuries lasting between a few days and a few months being “A few hundred pounds up to £1,705”. That figure is then doubled to reach the MoJ proposed valuation for minor whiplash injuries lasting no more than 6 months of £400. If a psychological element is involved then that figure rises to £425.
Some on the claimant side of the industry will no doubt argue that the figures suggested throughout are low particularly for the psychological element when compared to Judicial College Guidelines.
There is nothing directly in this part of the consultation about rehab being offered by the at-fault in place of care. It might anyway be more difficult to see that as being required if some compensation was payable albeit at a lower level.
Process for evaluating claims
Some further detail is given as to what the process would look like. The MoJ’s support for MedCo is very clear throughout this consultation and inevitably the new process would require a medical report to be obtained through MedCo, but no detail is given as to who would obtain it if the claimant was unrepresented.
Options are canvassed either of a report being obtained on a “diagnosis approach” only at the end of the 6 month process in order to consider whether the claimant was limited to whatever is the outcome of this exercise for injuries assessed as lasting not more than 6 months, or whether symptoms longer than 6 months were accepted by the expert so as to move the case into the next category of claim.
An advantage of this approach is said to be the certainty when the report would be obtained. But on the other hand there is an acceptance that sometimes an early report would be advantageous such as when there were genuine rehab needs.
The other option considered is that of a “prognosis approach” when the report would be obtained earlier in time, indeed much as reports are generally now, 3-6 months post-accident. However, in that situation, the disadvantage is noted of pressure being applied on an expert for a prognosis to be given of say 7 months.
This area is consulted upon. Nothing is said about altered processes for claimants representing themselves including within the portal. The document is light generally when dealing with changed processes which will be required in support of these proposals.
The second element – reducing PSLA in other whiplash claims
This area goes beyond George Osborne’s announcement. It is presumably the case that the MoJ thought they needed to go wider than their main reform affecting minor whiplash, and that any new regime needs to look at the next layer of whiplash claims as otherwise the forces causing “future claims inflation” will be working all the harder.
The following table appears in the consultation, effectively providing a PSLA valuation depending on the length of accepted symptoms where they are up to 2 years in length.
The data in the second column is from a combination of settlements recorded by COA and Colossus. That in the third column is from the JCG 12th edition, and the key new figures are in the final column. The £400 for cases of not more than 6 months is repeated, and increased figures are then given for higher bands up to the highest figure of £3,500.
There is a second table for those claims with a psychological element which involves a small additional sum which does not exceed £100 at its highest. The approach is presumably to see some psychological effects as necessarily being involved in a whiplash event, and that most claimants in this group will be catered for within the figures above.
The overall tariffs set out above essentially return the value in terms of PSLA perceived as appropriate for this sort of claim to levels last seen 10 years or so ago. One way of looking at it is that the upward pressures encountered over recent years which reached their peak in the largely unexplained yet significant increases seen in the 13th edition of the JCG have had to be rowed back upon through the current tariff proposals.
The third element – raising the SCT limit
The main issues here are both the type and value of claims to be affected by this reform.
In terms of the extent of the increase in financial terms, the government see an increase to £5,000 as proportionate, though also moot a higher figure and are consulting on the actual level. Though they note that this reform could be brought forwards independently, there is no mention of any intention to do so, and we continue to expect all parts of this reform package, if implemented, to happen simultaneously.
As to the type of claim to be affected, the consultation raises as alternatives either including all injury-related claims, or confining it to RTA claims only. Again, this approach allows room for manoeuvre as the reform package progresses.
If the increase were to be RTA only, then the likely displacement factor of activity into other types of claim including no doubt EL and PL is noted, as is the advantage of consistency across injury claims types. As the consultation observes: “a broken leg is a broken leg no matter if the fracture is the result of tripping or from a minor RTA”.
On the other hand, the MoJ rely in support of their proposed increase in the SCT limit in relation to RTA claims the fact that those claims will be valued by reference to the tariff set out. There are at least no current proposals to extend that tariff to EL/PL claims.
Any option to limit the increase solely to whiplash/soft tissue claims seems to have disappeared.
Other SCT changes
As with portal changes that would be needed as highlighted above, nothing is said at this stage about the changes that would be expected to be needed to the SCT processes to make them suitable for handling injury claims as a matter of routine. Instead the consultation asks how litigants in person can be helped in using the SCT without reference to any changes that might be desirable as to timetabling of disclosure of evidence for example.
The consultation does though note that some injury claims worth less than an increased SCT limit will nevertheless be suitable for allocation to the fast track, on the basis that other factors are also relevant to allocation and it is conceded that “if a claim is particularly complicated the court has discretion to move it to another track”.
As far as the potentially increased involvement of CMCs and indeed paid McKenzie Friends are concerned in re-entering this area, as it is put, particularly in the light of the SCT increase, the government is holding its cards close to its chest and all the consultation says at this stage is that the they are considering the issue, and they invite responses on what specific measures might be put in place.
The fourth element – ban on pre-med offers
This was also unannounced by George Osborne but is presumably seen to fit with the other parts of the package and would be brought into effect alongside it. It will therefore only be in place if and when the reforms pass into law, it is worth noting.
The MoJ estimate on the basis of anecdotal evidence the origin of which is unstated that 10% of whiplash claims settle on the basis of a pre-med offer. They believe the practice should be stopped as it encourages “minor or even fraudulent claims to be made”. Enforcement methods are being consulted upon.
They believe that increasingly insurers can and should have confidence in the quality of medical evidence obtained through MedCo. They do though have sympathy as to insurers’ position where medical evidence would otherwise be obtained long after the event in late presented claims.
It is worth noting that no changes to the limitation period are envisaged in the current proposals although question 10 gives respondents the ability to put forward suggestions for tackling late notified claims.
Their current intention is to introduce a pre-med ban only for RTA claims, and they see the benefit of introducing it more widely as debatable. Of course there is the point that at least currently, MedCo has yet to take on any role beyond RTA claims, though with the renewed support now being expressed for it by government that may return to the agenda shortly.
Perhaps unusually, the consultation then ranges over other related matters which add to the costs of civil litigation and which it is clear that the government desires to control. These are effectively indications of potential future projects.
Those listed include:
The possibility of requiring either the immediate reporting a potential claim for whiplash or that medical treatment was obtained within a specified period
The potential development of the currently proposed tariff based system of compensation into a points-based process as used in some European countries
Control of future rehab costs to avoid adverse behaviours in the rehab market
Consideration of alternative models to reform credit hire
If the consultation is taken at face value it seems to indicate an intention to finalise a variety of outstanding issues involved in this type of claim. We have highlighted for a number of years the increasing frequency and concern around commercially driven rehabilitation which has been noted here.
A number of scenarios are modelled in view of the options presented. References are made to both direct savings in relation to reduced payments on damages and costs as well as to those arising indirectly as a result of fewer claims being pursued.
Taking into account the full package with the SCT rise affecting all injury claims, but with the tariff system in use for minor whiplash claims, the expectation is of a saving to insurers of £1.3bn, of which £1bn or 85% would be passed onto policyholders by way of lower premiums.
As to the position of lawyers, medical experts and CMCs affected, no figures are given as to an economic effect, instead the assumption made is that those people affected would find “alternative economic activities of equal economic value”.
Likely future steps and implications
The consultation is only open for a relatively short period, until 6 January. Claimant representatives will have anticipated part of what we have seen yesterday but are likely to want to be as vocal as they can be in response, and have already voiced concerns at responding in such a short space of time to what is undoubtedly a comprehensive consultation document.
After the consultation closes and a government response is given, a Bill will be needed and it will need to find both parliamentary time and a successful passage. Brexit related factors will influence both. Opposition must be expected, indeed Christina Rees, shadow justice minister, said at the MASS conference on Wednesday that Labour would oppose what was then expected to be a Bill based on the Osborne proposals. An important issue is the voting intention of some Conservative members of both Houses but the presence of alternative options for reform including the retention of some PSLA for minor whiplash is noted.
That said, political times remain turbulent in the post Brexit era, and the potential for further high level ministerial changes including at the MoJ, which in turn may alter priorities again, has to be recognised.
The time for implementation of the proposed reform package is not addressed directly; there is only a reference to “as soon as possible”. This is now unlikely to be until well into 2018 it seems to us.
The effect on the injury market from these reforms would be very substantial indeed. It is difficult to see a new economic model for minor whiplash claims in view of either the withdrawal or the substantially reduced PSLA proposals which seem likely to be affecting those claims with not more than a 6 month diagnosis or prognosis. Special damages will still be recoverable but those claims are unlikely to be brought in anything like current volumes.
However, EL/PL claims within a raised SCT limit of £5,000, as well as RTA claims where PSLA remains recoverable at what are thought to be appropriate levels, or where there are sufficient special damages, may still remain attractive to claimant lawyers working on a contingency fee basis, with their fee being deducted from damages. In the case of whiplash claims claimant lawyers will have to work out whether to take on a claim within the first 7 months when the risk will arise of that claim being given a 6 month period of symptoms and so be classified as a minor whiplash claim.
There is direct recognition by government this time of the likelihood of reform in one part of this claims market leading to pressures elsewhere. Indeed a number of examples are noted and addressed. Is this a worthwhile step on the way to strategically planned reform?
And MedCo has a firm vote of confidence. The importance of its ongoing work on collecting data is recognised and its role is likely to widen in the years ahead.
All in all, these proposals, if passed, will make major changes in all aspects of the claims environment.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.