After a 7 week consultation period followed by a further 7 weeks’ consideration of the responses to the publication “Reforming the Soft Tissue Injury (“whiplash”) Claims Process”, the Ministry of Justice (MoJ) recently published its intended new reforms.
The government’s aim in introducing a new claims process is to reduce the number of minor, exaggerated and fraudulent compensation claims for road traffic accidents (RTA) related soft tissue injury claims, by making the financial gains less attractive. In doing so the government anticipates saving the insurance industry £1bn per year. These savings should be passed on to consumers, whose motor insurance will reduce by an average £40 per year.
But what are the reforms and what effects might they have?
A tariff is to be introduced, setting fixed amounts for injuries that last up to 2 years. Divided into 7 bands (such as 0-3 months, 4-6 months etc.) the compensation payable is lower than the current Judicial College Guidelines (JCG) used to assess awards.
The small claims court limit for RTA claims for soft tissue and minor psychological injury is to be increased from £1,000 to £5,000. This is the first such increase in 25 years. Using the small claims court reduces the amount an insurer has to pay in costs for a claim.
There will also be a ban on settling claims without medical evidence.
How does the new scheme work?
Currently anyone making a claim for injuries sustained in a road traffic accident may access a specialist lawyer to bring a claim for more than £1,000. The Claimant’s lawyer’s costs are generally paid by the Defendant’s insurer when the claim is successful.
For example, in an average RTA injury claim of £1,850, the Claimant would receive between £1,400 and £1,570 after a deduction for legal fees (depending on the percentage agreed). The lawyer would receive other fixed costs of £500. All payment comes from the insurer, and in this case would be around £2,350.
Under the new proposal the Claimant would act for himself through the small claims court. There would be no lawyer to pay, but the Claimant’s award (for an injury expected to heal within 3 months) would be only £225. Again this is paid by the insurer, and represents a saving of £2,125.
Claimants who still wish to employ a lawyer to handle the claim on their behalf may find there are none willing to act, since the fee would be a maximum of £56.25 (based on 25% of the award of £225).
How does it impact on Claimants?
The highest financial impact is on Claimants with minor injuries that are expected to last only a few months.
For example, a person who has sustained a soft tissue (or whiplash) injury in an RTA, which will take 6 months to heal, will receive only £450 in compensation, compared with JCG recommended sum of up to £3,630.
More serious injuries, which may take 2 years to heal, will receive only 56% of what they might have been entitled to under the existing system.
What might the wider effects be?
Since there will be a reduction in legal fees, (when negotiated as a percentage of the now much lower award) a higher number of injured people may have to either act for themselves or be represented by paid non-qualified litigants in person or claims management companies.
With no costs to be incurred there may also be an increase in trivial injury claims for the fixed £225 tariff, although medical evidence will still be required to support these claims.
More details are likely to emerge before the measures are introduced on 1st October 2018