The Civil Liability Act : Creating a Darwinist landscape
Fraud Aware March 2019
After much debate (and much more delay), the Government’s much-vaunted whiplash reforms are upon us in the form of the Civil Liability Act 2018 (CLA). We have been here before of course (twice in my career), first with the Woolf Reforms and then LASPO.
So what’s different this time? And how do we predict the reforms will impact the behaviours of those individuals and organisations who exploit road traffic collisions, and those who create wholly fictitious claims?
Much ado about nothing
Significantly the CLA removes further costs from the process for low value RTA injury claims via both recoverable costs for legal representatives and damages themselves. Of course, cost was taken out of the process last time and the frequency of claims was not impacted over the long term.
So, given the opportunity to implement a whiplash ban has been lost, it is pertinent to ask whether merely removing more cost deters claimants and, crucially, claimant law firms from representing them. My own view, shared by a large number of insurers I have spoken with, is that whilst there may be a short term period of adjustment, the frequency of claims (and by extension, fraudulent claims) in the medium to long term will not diminish.
Fit for purpose?
The decision to create a tariff which makes all whiplash injuries compensable, and to create a portal which allows litigants in person to present their own claims, will do nothing to prevent either the frequency of claims or the gaming of tariffs. We are already seeing prognosis creep and that will continue, just as it did after the introduction of the £1,000 threshold for fast track PI claims post-Woolf; the five week injuries we saw then disappeared overnight. So with a tariff to be aimed for, our necks will become collectively weaker and the sweet spot of a 13 month injury may well become the default prognosis, with nearly £2,000 to aim for and more if ‘exceptional circumstances’ apply. Which they probably will. A lot.
In reality most claims involve a single claimant who also has a claim for vehicle damage. Importantly it is this aspect the claimant market is focussed on and, whilst some tech-ready firms will offer an online service (PPI anyone?), the industrialised claimant compensation market will adapt its processes to focus on credit hire, credit repair and other vehicle-related heads of loss.
The reforms in practice
Sadly, for fraud that means business as usual. Whilst there are fraudulent whiplash claims, the key feature of premeditated RTA fraud is the inclusion of a vehicle damage claim and, almost inevitably, a credit hire claim. If the claimant is impecunious so much the better, and of course if the fraud is planned the claimant almost certainly will be. If the claimant is impecunious and drives a specialist vehicle - for instance a ten year old private hire taxi with 180,000 miles on the clock - bingo!
Provided the associated vehicle damage and credit hire losses exceed £10,000, which they frequently do, it doesn’t matter that the whiplash claim is tariff-based as the claim has exceeded the SCT threshold. Attempts to circumvent the tariff through additional injuries and lingering minor discomfort beyond two years will almost certainly also become a feature. In either scenario, we can expect the court in many instances to value the injury at over £5,000.
And, of course, there is money to be made in the system as it is currently constructed. Whilst legal costs are not recoverable, the claims are still likely to be processed by representatives, just as with PPI claims. So the challenge for insurers is to identify those questionable claims at the earliest juncture and validate them. On one construction, claimants may have little appetite to battle on with a low value claim. On the other however - and I think this is more likely - there is no disincentive for a claim to be taken to the small claims track and a claimant to take their chances on a causation case.
A call to action
There’s no doubt the landscape may change. Indeed in so many respects it already has. The removal of costs for the lowest value tranche of cases and the introduction of a tariff for whiplash up to two years may seem like a seismic change, but in reality the claimant market has already adapted. This is definitely going to be survival of the fittest; and the fittest are match-ready.