The Introduction of Alternative Business Structures Within The Insurance Sector May Restrict Access To Justice
Ownership of legal service providers – previously restricted to lawyers – is now open to anyone deemed "fit or proper". The Law Society has long been in favour of open markets and competition. Indeed Robert Heslett, president of the Law Society of England and Wales has said on record that he believes the advent of ABS’s will ‘be good for solicitors, for the users of legal services and for UK plc.
When looking at this from a cost saving point of view, the advent of ABS’s may well seem appealing as a means of stripping out some of the layers of cost within the process and enabling the insurer to take control of the process. However, when looking at this from the viewpoint of Claimant, a different picture emerges.
Potential Issues of Insurers Introducing ABS’s
1. Conflicts of Interest
The first potential issue that arises surrounds the solicitor working within an ABS in which a liability insurer has an interest, and where that solicitor is handling a personal injury claim on behalf of an individual. It is clear that a solicitor cannot act where they may have, or there is a risk that there may be a conflict of interest with the client, or indeed where there is a conflict of interests between two clients.
The claim that has been referred to the solicitor will be a claim against a third party. One may assume that there would be no obvious conflict of interest with the particular insurer involved in the ABS or any client. However, it is not quite as simple as that. Indeed the motor claims market is dominated by a handful of insurers. For example, Royal Bank of Scotland Insurance (RBSI) Group has about 30% of the market share, primarily through subsidiaries Direct Line and Churchill. Essentially this means that if you are insured with RBSI there is approximately a one in three chance that the person you are involved in an accident with will also be insured with RBSI.
This would undoubtedly mean that there would be large number of claimants who will find that they are represented by a solicitor who is directly employed by the insurer who will ultimately be paying out their claim. The obvious question here is how confident can such claimants be that the solicitor's focus will be on maximising their damages, rather than on minimising outlay on the claim on behalf of his insurer employer?
Further to this, we must consider a case where one insurer insurers both vehicles in an accident and where there is a catastrophic injury on one side but a minor whiplash injury on the other. Could the claimants be sure that liability would be dealt with fairly given that the insurer would have a direct interest in minimising the overall cost of the claim?
2. Third Party Captures/Assistance
Under the current system insurers are already attempting to take control of claims in the initial stages of notification in order to prevent claimants from acquiring appropriate legal advice. This practice is known to claimant lawyers within the industry as ‘third party capture’ and to insurers as ‘third party assistance’ and is now a routine part of the system, particularly in straightforward whiplash injury claims which account for the majority of personal injury claims.
Under this practice an insurer will make contact with the injured claimant immediately on becoming aware of a potential claim, and will offer a sum of money, usually between £1,000 and £1,500 in a straightforward whiplash injury claim, in full and final settlement of the claim. The major benefit of this approach is that it saves the cost of obtaining medical evidence and undoubtedly reduces the amount of damages that would have been paid out should a medical report have been obtained in a lot of cases. Claimant lawyers have argued that this practice deprives claimants of proper legal advice on the value of their claim and obviously undervalues claims. The latter point is not necessarily true, as insurers will no doubt be paying out sums to individuals who may not have progressed a claim as far as to get a medical report and those whose injuries would not merit such an award of damages. For insurers however, this is simply a rational way of dealing with low value claims as it undoubtedly reduces cost as they are able to settle claims without having to pay legal costs and without the claimant becoming aware that their claim may be worth more than the sum offered.
However, under the proposed insurer-owned ABSs, which would see solicitors working in house to deal with such claims, further questions arise. Any solicitor working under such guidelines and asked to follow such policies risks not only having to answer some challenging questions from his client, but also the possibility of a professional negligence claim if they have not or appear not to have settled a claimant’s claim at an appropriate level.
ABS’s then will no doubt provide opportunities for insurers to take control of the claims process and there may well be cost savings. However, they pose some worrying problems for the clients of these businesses, who are entitled to be sure that they are receiving independent, impartial advice from the solicitor who is representing them. For the solicitor involved, it may be difficult to reassure a client that notwithstanding his close relationship with an insurer, his ability to act in the best interests of the client is not impaired. A functional civil justice system must involve freedom of choice of solicitor & access to independent legal advice. It is yet to be seen whether this will be maintained but on the facts it seems unlikely.