How it works - car insurance

Own a car?  Well, hopefully you are in the majority who buy insurance.

Each year it costs you more than it did last year, despite the fact that you have had no claims, no speeding tickets and your “no claims discount” has risen.  The only way to cut the cost is to change insurer.

Bad luck – you have an accident.  Your car is damaged, somebody else’s car is damaged and it is the other guy’s fault.

If you have comprehensive cover, you will claim for the damage to your own vehicle on your own policy and leave it to your insurers to get their money back from the other side. If the car is a write off, then the insurers will pay you far less than you think it is worth in monetary terms.  Sentiment – forget that.

If it is repairable, the insurers will insist that you take it to one of their approved dealers. These people may be “approved” because they pay the insurers for the business and/or charge a discounted rate for the work they do.

They will be cheaper than your preferred garage, first, because the insurer puts more business their way and, secondly, because they will compromise on the repair. Where possible, approved manufacturers parts will be replaced by cheaper alternatives and luxuries like door safety bars can be dispensed with.

These approved repairers will be directed by insurers to buy their paint and other parts from specified suppliers.  Those providers then pay what is euphemistically called a “rebate” to insurers – millions of pounds a year (See Above the law).

If you need a hire car rather than a courtesy car, you will go to the company of insurers’ choice, even if that is not convenient to you.  You will get what you are given.  Why? Because the insurers have hammered the rates down so that the hire car companies need to look for savings wherever they can.  They are probably also paying a “rebate” (See Business as usual).

Did I mention that you were injured?  Oh, well you will have had a call by now from somebody who seems to know all about your business.  How can that be?

The chances are that you won’t have been told that insurers have passed your personal details to a claims management company (“CMC”).  They don’t make a big fuss about it because, guess what, the insurers just pocketed hundreds of pounds by selling your claim.

The CMC then adds its margin and sells your claim to a “panel solicitor” who is prepared to pay for it. Often the solicitor may have at this stage an outlay of £800, and they haven’t started work yet.  The value of the claim may not be a great deal more than that so how are they going to process it without running a loss, let alone making any profit?

The answer is that they give it to unqualified staff pushing buttons on software that does a very ordinary job within set parameters.  They are not going to take risks like issuing proceedings and insurers on the other side know that (see Peanuts).

The claim will settle for less than it is truly worth so that nobody in the process needs to waste more time working for the same reward of a pitiful fixed cost,  most of which has already been eaten up by the backhander that your own insurance company secretly trousered when selling your claim.

In many cases the referral elsewhere may have been entirely open because you bought from your insurer when you took out the policy (though you might not have realised it) what is called before the event insurance (“BTE”) supposedly to cover you for the cost of claiming your uninsured losses.

In many cases the costs of the solicitors appointed by the insurers aren’t covered by the policy at all.  What happens is that the preferred solicitors pay insurers a fee (surprise!) for the case and then they run it on a conditional fee arrangement in exactly the same way as we or any other independent would.

Technically, insurers will say that they cover any adverse costs i.e. the risk that the claim fails and the other side want their legal bill paid.  In reality this almost never happens.

So, you might wonder why you pay £20 or £30 when you take out the policy for this BTE cover?  The answer is it’s to help pay the insurers’ administrative costs in making sure that they pick up another referral fee when they email a copy of your claim form to their panel solicitor.

And that’s how it works.  The insurance company takes what a large number of lawyers would consider to be bribes, according to the Bribery Act 2010 from everybody involved (see Bribery - every step of the way).

Next year your premium will rise again, just like executive salaries and shareholder returns. Insurers will blame victims and lawyers for claiming compensation and the costs incurred whilst claims managers argue black is white to put off the day when they have to take out the cheque book.

This is why the Office of Fair Trading has described the insurance industry as “dysfunctional”.

Who's your friend?

Earlier this month we posted a news report of the Court of Appeal’s decision to direct an enquiry by the Criminal Cases Review Commission into the fairness of a criminal trial in light of revelations about social media links between a juror and the (convicted) defendant.

It had emerged that she and the juror in questions shared 22 mutual ‘friends’ on Facebook. There were said to be a number of other ‘small town links’ which at least gave an appearance of bias. See Jury trial in the Facebook era.

It’s the social media element which is of particular interest – to our senior judges and to the rest of us. We’ve seemingly navigated the choppy waters of tweeting in or from court and the obvious potential problems with that but do we now face a new dilemma?

There is no suggestion that the two women in this case were friends – in the real or virtual sense – or even acquaintances. The issue arises from the fact that they shared a number of mutual Facebook connections.

Where the two of them were not directly connected did either know that they shared these indirect links? No reason why they should unless perhaps they had trawled Find Friends for suggestions that would of course be based to a large extent on numbers of mutual acquaintances.

It’ll be noticeable that my terminology changes, as it does between social media platforms. On LinkedIn we have connections. On Twitter we follow and are followed.

“Friend” happens to be the Facebook handle. What does it mean to you? How does it compare with the definition of those with whom you choose to meet “in real life” and talk to socially on a regular basis?

I have friends, who are also “friends”, with many hundreds of Facebook friends. Often one wonders if they mean any more than a comrade in battle during the course of a Massive Multi-Media Role Playing Game.

What’s clear already is that being a friend of someone on Facebook is not necessarily an indication of affinity, though the two may co-exist. Being a friend of a friend of a friend may mean nothing.

Would knowledge of the tenuous link change that? Do those of us on LinkedIn draw any conclusions about any aspect of a person unknown to us from the company they keep, or the company their company keeps? Possibly.

If any such influences seem possible then it must follow that perceptions of potential influences are likely and the CCRC will surely conclude that guidance is needed. Perhaps that will mean that our courts again have to catch up – learn how to scrape the data that is freely available or have the means to access for these purposes. Another human rights issue.

Who’s your friend?

Above the law

Channel 4’s Dispatches report on Monday evening may have opened a few more eyes to the grubby antics of the insurance industry. There is a danger also that many have come to the conclusion it’s just how they operate and as long as there is still an affordable premium available, that’s all that matters.

The problem is far deeper than that.

Harry Wallop’s report highlighted in particular two practices which many people might reasonably call “scams”.

Many of us have had the experience of getting the car repaired after a collision.  Often, particularly in crisis period, we prefer to give the business to somebody we know and trust, who might well be the appointed dealer for our car’s manufacturer.

That’s fine because (probably) when we were sold the policy it was on the basis amongst other things that we could choose our repairer etc.  In reality it doesn’t happen because insurance companies insist that the vehicle goes to one of their “approved” specialists.

Is this because, like panel lawyers (see Panel beater) they are better than everybody else?  No, it is because they do what they are told by their paymasters.

As the Dispatches programme revealed with first-hand evidence from people in the industry, that may go as far as compromising on safety features and using non-manufacturer approved parts to save money.

Beyond that, insurers are making money by insisting that their pet panel beaters purchase parts, including paint, from specified suppliers and nobody else.

The reason is that insurers then receive from the paint suppliers what is benignly described as a “rebate”.

Take a look at the definitions within the Bribery Act 2010.  The key provisions are summarised in my blog Bribery - every step of the way..  How can anybody say that the system of rebates is not plain and simply a practice of paying and receiving bribes?

The other charming practice that was covered, again with the assistance of direct evidence from people in the industry, was that of inflating repair charges within “no fault claims”.

It’s simple enough.  In most accident claims, one or other driver will be responsible.  One is “at fault” and the other isn’t. The insurers of the “at fault” driver are going to be paying for the repairs, but the repairs are organised by the innocent driver’s insurance company.  That insurer pays the repair bill and then, you would expect, claims back the cost from the “at fault” insurer.

No, they claim back the cost and more.  In other words, they add a margin to their actual outlay and make a profit. It’s estimated to manufacture £225 million a year (adding to the cost of your premium).

One such disputed claim was dismissed and harshly criticised by a county court judge in 2011.  It grabbed the attention of the Office of Fair Trading, leading to the observation that the industry was “dysfunctional” and a reference to the Competition Commission, which is ongoing (see Business as usual).

The insurers who were on the wrong end of that decision in 2011 appealed to a High Court judge and succeeded.  It is thought that there is going to be a further appeal, but it is also said that since then more insurers are looking to formalise these arrangements which the High Court appears to have sanctioned.

The decision seems bizarre to many people including lawyers I know.  It looks to most of the world like an inflated claim.

Ironic that insurers are apparently feeding off each other with these inflated claims whilst at the same time now routinely and vigorously pursuing jail terms for accident victims who are said to have exaggerated their claims against insurance companies.

One rule for one and one rule for another?

These organizations already operate above the law.  With the present assault on the civil justice system they are now aiming - and seemingly succeeding with the assistance of our impoverished and supine government – to raise themselves up above the clouds.

Court short

As the Government plans yet more measures to elbow lawyers out of litigation, how is the Court Service shaping up to deal with a tsunami of inexperienced and anxious users?

Last week, we sent a chasing letter to a county court to be met with the following message – (which wasn’t tailored to the festive season, incidentally):-

“This email box is accessed daily.  In accordance with HMCS policy, your email will be dealt with or responded to within ten working days following the date of receipt.”

That translates to as many as 16 calendar days during most of the year and probably three or four weeks at the turn.

The purpose of the letter was to enquire why we still haven’t had any response to a request for default judgment that was filed three weeks ago.

Yes, I know about Christmas, but this should have been dealt with more than a week before. Sadly, the experience of this particular court as well as others – is that dealing with routine matters inside a fortnight is considered a noble aspiration.

I distinguish routine matters because if it’s more than mechanical, you just know that it will take far longer than this with the explanation (sorry, expectation that you will work it out for yourself) that it was more complicated than the norm.

Routine communications needn’t take a fortnight or more to process.  There shouldn’t be any acceptance in this industry that it may take that long.

The Court Service has done this for years.  I remember the prolonged cris-de-coeur from another local court years ago to the effect that they were three weeks behind and we should bear with them. It became their service standard for years.

Similarly, my first firm used to have a much admired associate or legal executive whose reputational headline was that he had a permanent typing backlog of three weeks. People thought that was impressive.

Quite a few lawyers have woken up now.  Insurers haven’t because they don’t want to.  Delays mean that you hang on to money and earn interest for longer.

The Court Service still doesn’t get it.  Our chums in Salford seem to have settled down into a routine 10 day “backlog” with the expectation that the entire civil litigation world will come to see that as the benchmark. This is without complications such as those I wrote about in To me, to you

As I observed to that local court manager years ago, if it is possible to work consistently x days or weeks behind schedule then you ship in extra resource for x days or weeks, get back up to speed and stay on the pace.

The likelihood is that will never happen because there is an ingrained, deep-rooted philosophy that these turnaround times are acceptable. So, if they ever get these services up to speed, the majority (not all) within the system will coast until their backsides are once again on fire and they are falling short.

There’s a New Year resolution for you HM Court Service – excepting, excusing and acknowledging the minority of conscientious stars - buck it up! 

Happy New Year.