Analysis: Is Scotland emerging as a heartland for personal injury claims?


  • Personal injury claims are on the rise in Scotland as they decline in England and Wales
  • The Scottish government has asked UK government to amend the Financial Guidance and Claims Bill to extend the regulation of CMCs to Scotland
  • Claimant law firms from England and Wales are said to be creating Scottish subsidiaries in order to take advantage of the lucrative PI market

The proposed Civil Liability Bill is set to introduce sweeping changes to the way soft tissue injury claims are paid out in England and Wales. In Scotland though, it would seem as though the effect of the whiplash reforms south of the border could exacerbate already rising fraud numbers.

According to a recent Freedom of Information request by law firm DWF to the Compensation Recovery Unit of the Department for Work and Pensions, personal injury claims have increased in Scotland while they have been decreasing in England.

In response to the FOI, the DWP said: “Grossing up for the current year i.e. assuming the rate of claim in 2016 continued to 31 March 2016, then the total claims in England were 897,086, which means claims in England have decreased by 4.5% over the period.

“In the same period, claims in Scotland have increased by 16.6%. There are now on average 7419 more claims a year in Scotland than there were four years ago. In other words there are 20 new claims a day compared to 2011/12.”

Claire Newcombe, partner at DAC Beachcroft said: “There currently isn’t as much fraud in Scotland but the government should be tightening up scrutiny on claims management companies because solicitors are identifying the effect of the reforms of the English market.”

“Solicitors are keeping track of the movement of phoenix CMCs,” she added, referring to CMCs that go into liquidation after receiving a government fine, before opening under a new name.

“Whiplash claims are their bread and butter, and they are coming up to Scotland because it is currently a more lucrative market for them. Fraud, in general, is moving north of the border and insurers need to be alive to that.”

Structural difference

The rise in personal injury claims in Scotland has shown up in DWF’s fraud figures; according to the law firm, the number of fraudulent cases it has encountered in the country has increased from 4% in 2015 to over 20% in 2016 and 2017.

Andrew Lothian, head of general insurance for Scotland at DWF, said that there is a stark difference in how personal injury claims are handled there, in comparison to England. Such differences are prompting rogue CMCs and fraud rings to move to Scotland.

“There are key structural differences between how personal injury claims operate in Scotland and England,” said Lothian.

“Referral fees are still permitted and CMCs are not regulated in Scotland. Costs there are higher in low value claims and there is an environment where there are higher margins and additional revenue streams – leading to more CMCs and fraud. The whiplash reforms in England and Wales reduce damages of low-value claims, so the two countries are separate. The knock-on effect of what’s happening in England and Wales means that there will be a squeeze to the North of fraudsters trying to cheat the system.”

Claims: in numbers

Between 2011 and 2016 the overall number of compensation claims in England and Wales decreased by 4%

There was a corresponding 16% increase in Scottish personal injury claims in the same period

Between 2008/09 and 2015/16 claims in Scotland have increased by 43% and over the same period there has been a 25% increase in the number of personal injury actions raised in Scotland

In England and Wales, claimant solicitors’ fees for low-value claims are fixed at £500

In Scotland a claimant solicitor’s average fee on a damages award of £1000 is just over £800 and for a £2500 award the solicitor averages £1200 in fees

In 2011/12, Scottish claims were 4.7% of the total in England

In 2017 the rate of claim in Scotland had increased to 5.8% of England

Percentage of fraud encountered by DWF grew from 4% in 2015 to more than 20% in both 2016 and 2017

The Civil Litigation Expenses Bill is expected to come into effect by autumn 2018

Regulation of Claims Management Companies in Scotland is set to happen in 2019

Fraud rings that earn a living by exploiting the system in England and Wales are being seduced by the allure of additional money in the Scottish system. Unlike in the South, CMCs can profit from the referral fees that still exist in Scotland and pre-medical offers are still alive and well. The Civil Litigation Expenses Bill that was pushed through the Scottish Parliament recently may help quell the rise of fraud in the region, but the rules that will be present in the Bill are yet to be outlined. At the time when the Bill was being passed, the Association of British Insurers, alongside insurance firms, lobbied the government to include an element of fixed costs in the legislation.

“The fraud problem in Scotland is going to get worse before it gets better. A lot would depend on what way the Bill comes into play,” said Alan Rogerson, senior claims manager at Aviva.

“Aviva was one of number of insurers, along with the ABI, that was keen to argue for a fixed cost element to be included in the Bill.

“If the courts don’t take action on this, they could be part of the problem. There are fixed costs for personal injury claims in England and Wales, but none in Scotland and we have seen the number of claims increase in the region.”

No risk

The Civil Litigation Expenses Bill, predicted to come into play by autumn 2018, will bring in Qualified One-Way Cost Shifting to personal injury claims in Scotland. That means successful claimants can recover their costs but if unsuccesful they are not liable for the defendants’ costs. But insurers believe that this will give rise to fraud and CMCs. Ultimately QOCS aims to take the risk out of claims litigation, but it is thought that costs will not be reduced and margins will remain the same.

Information gleaned from DWF’s FoI shows that, compared to England and Wales, where claimant solicitors’ fees for low value claims are fixed at £500, in Scotland a claimant solicitor’s average fee on a damages award of £1000 is just over £800, and for a £2500 award the solicitor averages £1200 in fees. This would illustrate the margin for claims in Scotland under the current system.

According to Rogerson, QOCS may not be enough to stamp out fraudulent claims and it will still result in a surplus of money in the system, giving way to a lucrative market for fraudsters.

He said: “Insurers are worried about the problem getting worse and we are waiting to see what the rules will be in terms of fundamental dishonesty. There was a lot of evidence during committee stages that QOCS could lead to a rise of CMCs and rogue elements. There will be a line in the Bill similar to fundamental dishonesty that means that the claimant will lose the claim if they are fraudulent in one element of the claim.”

Another key factor leading to the problem in Scotland is that CMCs are unregulated. However, the Scottish government has asked the UK government to amend the Financial Guidance and Claims Bill so that CMCs in the region will be scrutinised and regulated by the Financial Conduct Authority.

“What the insurance industry wants to see ideally is that the regulation of CMCs is balanced,” said Alastair Ross, assistant director, head of public policy at the ABI (Scotland, Wales & Northern Ireland).

“We don’t want to see a lighter touch in Scotland compared to in England or Wales, because that is what is currently leading to the increase in fraud. Running a fraud ring or a phoenix CMC is much more attractive to do in Scotland and CMCs can still refer claims to solicitors in Scotland for a fee. We welcome the government’s decision to regulate CMCs.”

But the industry is foreseeing the UK regulation of CMCs coming into effect in 2019. So there will be a window of opportunity for these rogue companies to carry out fraudulent activities and reap the benefit. In the meantime, the Scottish government is working with its Nuisance Calls Commission to put an emphasis on the need to ban cold calling.

“According to research from Which? nuisance calls are higher in Scotland than anywhere else in the UK and insurance and personal injury claims were second most common nuisance call,” said Ross. “The Scottish government is trying to bring in call barring, and the ABI has been engaging in conversations on this.”

As it stands, cold calling is becoming a major problem in Scotland and claimants are being pushed into making fraudulent claims and there is nothing in place to protect Scottish consumers.

“We continue to see, and have been for some time, claimants being incentivised to sign on with CMCs and make fraudulent claims. They are being pushed into this activity via cold calls and there is a striking lack of protection for consumers. CMCs are very nimble and can shut down and open up under new names. The government is concerned about cold calling at the moment and is trying to tackle the issue.”

Although the Scottish government is working to tackle the issue of spurious claims, its problematic attitude and belief that there is no compensation culture seem to complement the claimant lawyers who continue to turn a profit on personal injury claims. In Scotland at the moment, claimant lawyers are still able to make a profit from whiplash claims, meaning that they are currently able to work the system.

The incoming QOCS may make claimant lawyers feel even more comfortable taking on higher value claims without costs being levied against them.

QOCS will make personal injury lawyers feel more comfortable and take on cases with confidence, without costs being made against them,” said Lothian.

“It will incentivise lawyers to take on higher value claims and still make money from it. There has been an increase in claims litigation and not all of these claims will find the fault sitting with the defendant. Personal injury lawyers, therefore, need to insure that their processes are robust enough to weed out fraudulent claims, because incentives to commit fraud in Scotland are greater than in England and Wales.”

Chasing margins

With whiplash reforms sweeping England and Wales, the personal injury market isn’t as lucrative a market as it has been before for claimant lawyers and CMCs alike. As a consequence, claimant lawyers in England and Wales are seeing their profit pipeline being squeezed. Tony Newman, head of motor claims at Allianz, warns that Scotland could see a myriad of claimant lawyer firms setting up subsidiaries in the region.

“It’s important that the Scottish parliament balances the right of the motor insurance consumer with the right of access to justice,” said Newman.

“Ultimately, CMCs and claimant representatives seeking higher profit margins may set up north of the border and Scotland needs to consider this consequence. I believe it would be preferable to have a common and balanced response to a common issue.”  

Rogerson added: “Claimant solicitors haven’t changed their behaviour yet in Scotland, with regards to whiplash claims. There’s evidence that some personal injury firms in England and Wales are setting up subsidiaries in Scotland and looking to exploit the additional money, by the way of referral fees and additional costs. If their profits are being squeezed in the current operating system of England and Wales, they will move elsewhere. This could spur on CMCs.”

Insurers are still waiting to find out what form the Civil Litigation Expenses Bill will take and how it will affect whiplash claims. The Bill is likely to come into effect before the FCA begins regulating Scottish CMCs and there is a long way to go before an equal playing field for personal injury compensation is established. Until then, it would seem that fraud is continuing to penetrate north of the boarder and the problem is set to get worse before it gets better.

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