Thursday, 29 August 2013

Hey diddle diddle..

I’d just gone on holiday when the report of the House of Commons Transport Committee, “Cost of motor insurance: whiplash” emerged but have now had time to study it. What a cracking good read, especially for those of you who wonder about the integrity of the statistics you hear and see about the cost of the ‘compensation culture’.

For a long time motor insurers have battered us with stats to prove that vast numbers of fraudulent claims are generating unnecessary cost to the motoring public, making fat-cat lawyers fatter and generally wreaking havoc within a system that the insurance industry could otherwise run in a scrupulously fair and efficient manner…

The Committee set itself the question, amongst others:

“Whether it is correct to say that the costs of whiplash claims add £90 to the average premium and, if so, what proportion of this additional cost is due to “exaggerated, misrepresented or fabricated” claims?”

Having looked at various data gathered by government departments the Committee observed:

“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.”

So, what did insurer representatives have to say?  Some of the exchanges between Committee Chair Louise Ellman MP and, first, James Dalton, head of motor insurance at the ABI are highly entertaining:

“Q147 Chair: …We have heard very loudly over a long period of time from the Association of British Insurers that a large proportion of claims are fraudulent or exaggerated. Are you telling me that you can’t give us a figure?

James Dalton: I can give you a figure for fraudulent claims.

Q148 Chair: What is that figure?

James Dalton: The figure for fraudulent claims is around 7%. That doesn’t take into account exaggerated claims. In terms of the issues that we are focusing on in this Ministry of Justice consultation in relation to improving medical evidence—

Q149 Chair: Mr Dalton, you are not talking to the Ministry of Justice; you are talking to the Transport Select Committee. I am putting a question to you because I want more information about statements that the Association of British Insurers, whom you are here to represent, has made.

James Dalton: As I said, 7% is about the number of known fraudulent claims, but we don’t know and it is very difficult to capture how many exaggerated claims there are very difficult to capture how many exaggerated claims there are.”

Perhaps David Fisher, catastrophic and injury claims technical manager at AXA Insurance might be more help:

“Q154 Chair: You are taking your information from your reading of medical reports rather than an examination of claims that have been made to your company.

David Fisher: Obviously all the claims will be examined.

Q155 Chair: Have they been examined?

David Fisher: Yes; well, not all the claims. We do sample claims and that drives the low-speed impact and the phantom passenger figure that I have given of 15%. Exaggeration claims, unless they go to court, are more difficult to identify.

Q156 Chair: But, in your evidence, your company or you talk to us about the compensation culture.

David Fisher: Yes.”

So, no. The Committee reached the conclusion that:

“There is no authoritative data publicly available about the prevalence of fraud or exaggeration and no consensus about what constitutes fraud.  The government has described the UK as the “whiplash capital of the world” but this cannot be conclusively proved or disproved from the information available. 

There is scope for the insurance industry to provide better data about fraudulent or exaggerated claims so that there is a better evidence base for policy decisions.”

It’s nothing new to those of us in the industry that insurers create their own statistics one way or another. Director of Claims at Aviva, Dominic Clayden was questioned by Karen Lumley MP:

“Q182 Karen Lumley: How do they get the information that these people have had accidents? Do they get them from you?

Dominic Clayden: No. Whether it is a claims management company or whatever, a fraud ring doesn’t—

Q183 Karen Lumley: I am not talking about a fraud ring; I am talking about people who get whiplash. How do people get hold of them?

Dominic Clayden: You are probably best to ask the people giving evidence later. My understanding is that it is by advertising.

Q184 Karen Lumley: You don’t sell details on to them?

Dominic Clayden: Not to accident or claims management companies, no.

Q185 Chair: Are you absolutely sure about that?

Dominic Clayden: Do I refer claims to solicitors? Yes.

Q186 Karen Lumley: Do you sell those details on?

Dominic Clayden: Not since the change in the law in that situation. I do not receive a referral fee.

Q187 Chair: But you did before then.

Dominic Clayden: Absolutely. We have been a strong advocate of the ban on referral fees and the reduction of the legal fees that go with it. It is the nature of the system. The reality is that, to remain competitive in a market where something is legal, we referred and took a referral fee. We still refer people to solicitors but we do not take a referral fee.

Q188 Chair: We have had quite a lot of evidence saying that insurers themselves often generate claims. The Government have said that they would like to see you, the insurance companies, address behaviours that encourage excessive and unnecessary claims within their own business models. It appears that the Government think that you are the people who are generating the claims. Are they wrong?

James Dalton: As Dominic has said, the system has changed very recently.

Q189 Chair: But before it changed you were guilty of this, were you?

James Dalton: The industry has long said that there is a dysfunctional compensation culture in the UK and that we are part of the problem.

Q190 Chair: What I am putting to you is that part of that dysfunctional system is the behaviour of the insurance companies. That is what the Government say.

James Dalton: Yes; and we have admitted that the insurance industry has played a part in that dysfunctional system, which is why we made a very strong case for the banning of the payment and receipt of referral fees.”

To put it another way, having been caught with their hands in the cookie jar, as Karl Tonks described it (See Business as usual) insurers have now cleaned up their act?

Er, well…no. The Committee went on to hear about pre-med offers and reported:

“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.  If not, the government should take steps to protect motorists.

Although it may make economic sense for an individual insurance firm to settle a claim without medical evidence or to pay out even if fraud or exaggeration is suspected, the industry as a whole is damaged, and motorists pick up the bill in the form of higher premiums.”

Still market-making, then. Little surprise that the Select Committee was sceptical about insurers’ claims that premia would fall as a result of the costs cuts they had urged upon Government:

“We recommend that the Government explain how it will monitor whether or not motor insurers honour their commitment to ensure that any cost reductions resulting from proposed legal reforms are passed through to consumers in the form of lower premiums.”

Will the ABI respect the view of a cross-party select committee? Apparently not. Dalton insisted in his blog following the report “We don’t need the Government to monitor whether insurers are delivering on our commitments..”

No, they don’t – because they already have ministers prepared to shut out any other views and dance to insurers’ tune. Not only was the Committee surprised at what the Government had been prepared to do without any reliable statistical basis, but it said:

“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 big agenda here is to raise the small claims limit and get lawyers off the scene so that insurers can take advantage of unrepresented claimants and undersettle their claims (see Whiplash backlash). The Committee recognizes the serious menace here:

“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.

It would be financially difficult for many solicitors to assist litigants fighting personal injury claims using the small claims procedure, given the limited fees available.

…we are concerned that some claims management firms might find a way to enter the process, fuelling another boom in their activities.”

This has so long been the agenda of insurers. Third party capture is another subject in itself but for an overview on the importance of the small claims limit see Five grand.

Anyone who thinks perhaps this may have been a catharsis should take into account the claim by Dalton in his post-roasting blog that the report “reflects how finely balanced views are on whiplash reform”.

And this truly is the problem. Little wonder that the verdict of the parliamentary select committee is:

“Transparency breeds trust and confidence in the market.  Unfortunately, the motor insurance sector remains as opaque as ever.  This needs to change.”

And the cow jumped over the moon.

Wednesday, 7 August 2013

Zero hour

The media debate over zero hours contracts has finally erupted.

The headlines seem to be that it represents exploitation by unscrupulous employers.  There are sorry tales of vulnerable youngsters kicking their heels at home, or wherever, waiting for a phone call to tell them when, if at all, they will be required to work.

From what I have seen and heard there is an inference at least that the employees are obliged to keep and make themselves available and not to decline any offers of work. This apparent inequality is presumably the perceived evil of the whole concept.

I don’t think that the world is getting a true picture here, or that is it anywhere near as beastly as the media (and those feeding them) would have it. 

I have been involved in these flexible working arrangements for over three years, both within my own business and on behalf of clients.  Last year we litigated to a full tribunal hearing a claim from a ‘consultant’ that he was in fact an employee at the time my client terminated a signed contract that plainly recorded that he wasn’t.

It wasn’t quite so simple as that though at the end of the day he failed.

Employment - and to an extent tax - lawyers have been wrestling for years with the distinction between a contract of service and a contract for services.

Every now and again the senior courts have produced a judgment that considers key factors such as personal service, control and mutuality of obligation.  Most employment lawyers will probably agree that noble efforts have generally resulted in the conclusion that every case turns on its own facts.

Not a great deal more clarification has emerged from a spate of recent  cases that culminated in the highly entertaining, er, position of lap dancer Nadine Quashie who, ultimately, was not employed by 72 year old dad, Peter Stringfellow.

It is perhaps a little simplistic but legal analysis identifies an employment contract at one end of the scale, an independent contractor arrangement at the other and somewhere in between this zero hours concept.

In many situations it is like the proverbial elephant – you will know it when you see it.  If you called a plumber, to fix your pipes, you wouldn’t expect him to claim subsequently that he is entitled to employment rights.

There are definitions of these arrangements that occupy the twilight zone in between but to my mind they are somewhat fickle because of the variety.  One of the difficulties one has in conducting any legal analysis is that the labels used may not be accurate.

What one person thinks is a ZHC may be a consultancy agreement or an employment contract in the eyes of another and vice versa.

But let’s get back to the point of this alleged scandal - the notion that people are being chained to a post or locked in a room until they are needed and then let out and paid (no doubt a pittance) for doing only as much as the gangmaster requires.

First, I doubt that in many if any cases that is actually what is agreed, whether it is verbal or in writing.  Far more likely that there is entirely even-handed mutual lack of obligation.

In other words, whilst there may be no guarantee of work, there is probably also no obligation on the worker to be available. 

Secondly, that may be a choice that the worker makes – because there is nothing better at the present time.  Of course, they would like a full time job that pays even when they are sick, on holiday or sat at work with nothing to do.

The reality is that employers in the current climate can’t afford to run businesses in that traditional manner.  Within many legal practices over the last two or three years there has been a shift to the use of independent consultants who work for two or more firms, neither or none of which is able to offer a full time position or even commit to relatively certain part time employment.

In my experience this works happily enough.  The workers are only too glad of a structure in which they can secure a full week’s work, whether it be at two, three or more locations.

The lack of mutual obligation is on the face of it a weakness, but in reality a strength.  What happens is that both sides build a bond of goodwill and cooperation which is potentially stronger than any written contract.

A worker who turns down assignments on a regular basis can only expect that the employer, who has no duty to offer work, will tire of rejection.  Similarly, a consultant who is not fed regularly will forage elsewhere.

The reality of the young kids waiting for the phone call from Burgerland or wherever is probably that they have no choice but to be at beck and call, because there is nothing else available.  If there is something better on offer then they should go get it.

In my experience there are many plus points to flexible working arrangements that, whatever the precise terms or labels attached, don’t amount to employment contracts.  Aside from the creation of opportunities where none would otherwise exist, there are spin-offs such as the sense of fulfilment and self-respect that individuals enjoy within their micro-businesses.

One suspects that the most enthusiastic contributor to the debate – whether or not the input is visible –will be the Treasury, having felt the impact in cash flow terms of many tax payers switching from Schedule E to Schedule D.

The climate is changing, we are told, and it may be commercial forces rather than political debate that see a swing back towards more familiar master and servant relationships. Ironically this will be at a time when our government has to a large extent destroyed the measure of security that was for employees its most coveted feature.

Saturday, 3 August 2013

Never walk alone

The Association of British Insurers ("ABI") is all in a fluster about the Law Society's ("LS") "Don't get mugged by an insurer" campaign, designed to raise awareness of the dangers of dealing direct with insurers to settle injury claims.

ABI Director-General Otto Thoreson has complained that the LS initiative is "little more than public name-calling". Ironic that, given the ABI's record, including such recent references to "ambulance-chasing lawyers" as that of Thoreson's eminent colleague Nick Starling only three months ago - see Better deal for claimants etc

So, they don't like it when the boot's on the other foot. Perhaps it's fitting, in the context of a debate focussed largely on motor insurance, that Mr Otto Thoreson is an anagram of 'tormentors hoot'

But all this fuss distracts from the message, which is hugely important, that accident victims who use a lawyer recover two or three times more money on average than those who handle it themselves.

This isn't particularly surprising. Sure, many of us enjoy a spot of DIY here and there but we can't all be experts. Some folk think they can negotiate the best deal going - and they'll probably live in bliss afterwards. Most recognise that they know nothing about the law or its processes.

Inevitably then it's an uneven contest, injured Joe Public v professional claims handler. If both sides play their best game who's going to win? Who's going to get thrashed?

This is the point at which you have to shut your eyes ever so tightly and believe...

Insurers have explained time and again that it's fine - nobody will get stung - because they will deal fairly with claimants and ensure they get what they are entitled to as a matter of law.

Never mind the (allegedly) rising costs of dealing with claims, overheads, the demands of shareholders in a lean market. The expert claims negotiators will shut those things out of their minds even when faced with the opportunity to pay only a third or less than a case is actually worth because the DIY claimant doesn't know what he or she is doing.

Still have your eyes shut tightly? Can you smell something typically rural?

OK, well open them now. The reality is that insurers will make a buck wherever they possibly can. See for example How it works - car insurance, Above the law, Business as usual.

Last week, Which? reported on the latest sneaky add-ons - Which? warns on car insurance extra fees.

These people will indeed mug you if you're in strange territory and don't know what you're doing but because they have more neck than a bag of giraffes they insist to our gullible government that they will deal fairly with unrepresented accident victims.

I have never had a case yet where I haven't recovered more money than an accident victim has been previously offered in the course of dealing direct with insurers or using one of the panel firms who pay (sorry, I mean used to pay, of course) referral fees to buy the work. Usually, it's a lot more - proving the point of the LS campaign.

The dangers of trusting and dealing with these entirely self-interested people are starkly illustrated in such cases as that featured in Foxes & chickens. "Such a nice man, he was". Mugging an injured teenage girl of over £30,000, he was. Despicable.

Ordinary folk believe the lies and there's nobody able to watch and listen to what goes on in every situation. See Livin' Aviva loca.

Running a DIY injury claim is like taking a night stroll through the rough end of a strange town. If you don't get robbed, it will be a small miracle. Don't go there without a guardian.

Never walk alone.

Friday, 2 August 2013

A bit of how's your father...

Congratulations night club tycoon Peter Stringfellow - a dad again at the age of 72.
Kids are the very best thing to have in life, no doubt about it. I also subscribe to the view that by and large you can't get enough of a good thing.
But I'm not inclined to have more now - and I'm 20 years younger than the colourful son of Sheffield. It doesn't seem to me a responsible thing to do.
A couple of years ago - when my (also younger) wife was toying with ideas of a fourth - I looked at it from the point of view that I'd be eligible for state pension by the time my child was mid-teens and at the height of awareness, fitness etc.
I'm giving away no secrets but plainly 'er indoors is not 40 years my junior. At 32 or thereabouts, Bella Stringfellow need have no worries about chasing toddlers in her bathchair.
But what about her old man? Will he - at 88 years old - be on any level with his 16 year old daughter?