Panel divided over compensation

The issue of a compensation culture generated fierce debate at a recent CILA forum, with the panel discussing its very existence and its effects on the insurance industry. Guy Anker reports

It was no surprise that the recent forum on the compensation culture, held at the Chartered Institute of Loss Adjusters' headquarters, threw up some lively debates. Not least because the expert panel included insurers, loss adjusters and insurance lawyers pitted against the president of the Association of Personal Injury Lawyers - a body that has vehemently defended its members against a barrage of criticism from the insurance industry, even blaming insurers for fuelling the 'myth' of the compensation culture.

Crucial issues, such as whether there has been a rise in claims and whether premiums had risen as a result, were all fiercely debated and, at times, opinions were voiced in no uncertain terms.

The discussion was led by CILA president Andy King and began with the time-honoured dispute about whether a compensation culture actually exists.

Paul Fegan, head of liability at the Association of British Insurers, stated that it does, despite arguments to the contrary.

"I say there is a claims culture. There are arguments to prove and disprove a case - the media has driven a set of statements saying there is a claims culture. Norwich Union conducted a poll that showed that 96% of people said they were more likely to make a claim now than 10 years ago."

One of the reasons Mr Fegan cited for a rise in claims was the differing economic situation of the present day compared to 20 years ago: increased prosperity has meant the value of claims has increased. Mr King agreed, saying the claims culture was not something "dreamt up by the media" and was a genuine issue for insurers.

Property market

Jonathan Clark, senior vice-president, business solutions group at Crawford and Company, pointed out, however, that as far as property was concerned we are seeing the lowest claims volumes in years. He continued by referring to one set of data that showed there was a compensation or claims culture; and one that said the opposite. He concluded that there is a compensation culture as "more people have developed a better understanding of their rights since the 1980s through to today".

It was no surprise that Colin Ettinger, Apil president, then highlighted research from Datamonitor that suggested there is no compensation culture.

He also pointed to the Better Regulation Task Force's report, which blames the "irresponsibility of the media" for fuelling the idea of a compensation culture.

This was rejected by two panel members. "I don't see how they've come to that conclusion," said Mr Clark. And president of the Forum of Insurance Lawyers Claire McKinney also criticised the report: "I think there is a claims culture and it partly comes down to claims farmers. In addition, the BRTF didn't state how many claims are not reported to the compensation recovery unit."

Mr Ettinger stressed that rather than talk about a compensation culture, society needs to focus on a safety culture. He said the only way to bring down the cost of claims is to promote better safety standards: "The Health and Safety Executive estimates that 70% of accidents at work are the employers' fault. And virtually all road traffic accidents are the drivers' fault, according to a discussion in the House of Lords. We need to make sure some of these accidents don't happen; therefore, there will be fewer personal injury claims."

While the panel agreed it was crucial to avoid as many accidents as possible, Mr Clark added that "life is a risky business" and it was up to society to determine what level of risk it is prepared to take. He said: "It's about balancing what society wants with risk management."

Mr King added that insurers have done much to promote a safety culture, saying they have informed employers and others that if they take the necessary measures they are unlikely to have a claim made against them.

One aspect the panel all agreed on was the need to change certain out-dated practices. Mr Fegan said: "It is appalling that we are tolerant of certain work situations like farms where, when there is an accident, people say: 'That's country life for you'."

Suzanne Kearney, managing director of Crawford and Company's casualty and speciality risks team, blamed the media for making people think there is an erosion of responsibility on the part of some employers.

Mr Ettinger then turned up the heat by arguing that most people are under-compensated at the moment. He said: "A survey from the Law Commission showed that people want their damages 50% to 100% higher. At the moment, the level of compensation isn't enough for them to meet their future requirements."

According to Mr Fegan, the issue is whether it is a genuine accident or whether the injury is caused by someone. If it is the latter, says Mr Fegan, people are obviously entitled to compensation, though he agreed it is up to society how much people receive. Mr Ettinger also suggested that premium rises had been dreamt up by insurers, but Mr Fegan rejected that, insisting premiums had risen as insurers were "adjusting premiums to a realistic level for the risk".

Cost spread

With insurers insistent that premiums have risen due to the rising cost of compensation, David Williams, claims director at Axa, justified the strategy by saying: "All we are doing is spreading the costs of what society chooses. Premium increases are justified but smaller businesses couldn't anticipate that. The claims framework includes costs that the man in the street does not know about. We take a long-term view to recognise the way things are going."

Ms Kearney insisted that the industry has a duty to inform society that if it continues to make compensation claims it is going to impact on premiums - something people are not always aware of. She said: "We have a responsibility to tell society what happens when we spread the risk."

Mr Williams then pointed out that the NHS absorbs some of the cost of rehabilitation and treatment. "Let's be thankful for the NHS - that the government takes some of the cost burden directly - otherwise we would have a bigger problem." He said one of the issues that creates high costs, that then leads to premium increases, is lawyers' fees. "Some 50% of costs are going in legal fees," he claimed.

According to Ms Kearney, Mr Williams' 50% figure was only the tip of the iceberg. In extreme cases, she suggested that up to 75% of fees are going to lawyers. Mr Williams claimed it was vital for lawyers to disclose their takings to create less ambiguity for the claimant and insurers.

"We always talk about compensation but lawyers' earnings need to be more transparent," he argued. "If we have more transparency, there will be a greater drive to efficiency. It will bring compensation to the claimant quicker."

That drew a prompt response from Mr Ettinger: "We are duty bound in certain circumstances where we have to disclose our earnings." A point with which Mr Fegan agreed: "I think there is transparency from lawyers."

Despite some of the panel criticising the part played by the legal fraternity in certain compensation claims, Mr Williams stressed they still had a vital role to play: "Whatever solution we go with, there must be intermediary lawyers to advise people."

Trevor Still, a partner at solicitor Lyons Davidson, agreed: "There will always be the need to point people in the right direction. The vast majority of claimants don't know they can claim and they need the guidance." Mr Ettinger, however, said lawyers need to be careful not to take-on "silly" cases. "The odd case creeps through where circumstances are ridiculous," he said. "Lawyers will not stay in business if they take on such cases."

As such, all those present were quick to denounce the practices of claims farmers that often bring on such cases. Mr Ettinger bemoaned the fact that such people give personal injury lawyers the unwanted tag of 'ambulance chasers'. He said: "They have penetrated the media and their methods leave a lot to be desired."

Press invasion

Mr Williams said adverts in the press and on the television for such companies gave the misguided impression that compensation represents a quick return and is "easy money". He cited a tabloid he had recently read, which published a double-page spread advising how to claim. "It was on the money page," he said. "What disturbed me most were examples of the large amounts of money the newspaper said people can make."

The panel all agreed rehabilitation was vital. Mr Clark suggested we could learn from European experiences: "We see parts of Europe getting people back to work in a more effective style," he stated.

Mr Still said the average French person does not think about lawyers in trivial cases, they instead think about third-party insurers. As a result, French people wonder why we have so many personal injury lawyers, he stated. Mr Williams added that insurers in the UK have a problem explaining to their French colleagues how long a personal injury claim takes. "They think we are rubbish," he commented.

He added that people who complain about the UK system should be thankful the US model is not used here: "The US way is not the right way. God help us if we ever go down that route." Mr Ettinger, however, maintained that there was something to learn from the US as it brings corporate businesses to justice, such as the tobacco companies. He added it is a pity this is not done in the UK as "big companies should be accountable".

While several of Mr Ettinger's views were not shared by the panel, he saved the most contentious opinion for last. After Mr Clark suggested the insurance industry has a profound role to play in society in that it allows people to take certain risks but have a back-up, Mr Ettinger said: "Insurance is just a money-making business."

This drew heated responses from the panel. Mr Clark replied: "It is designed to make a profit, but insurance also allows us to operate how we want.

As a result, we can get compensation if there is an accident." He added this is why the government looks to the insurance industry to provide "tolls to allow society to live as it wants". Mr Ettinger then argued that insurers are trying "to do claimants down", as they cost too much.

Mr Fegan insisted insurance has a social value, while Mr Clark reiterated that compensation is not just about money but about getting people back to work. "We do care about people and we don't want businesses to go bust."

Graham Cave, executive director, Chartered Institute of Loss Adjusters
Jonathan Clark, senior vice-president, business solutions group, Crawford and Company
Colin Ettinger, president, Association of Personal Injury Lawyers
Paul Fegan, head of liability, Association of British Insurers
Suzanne Kearney, managing director of casualty and specialty risks, Crawford and Company
Andy King, president, CILA
Claire McKinney, partner, Davies Lavery, and president, Forum of Insurance Lawyers
Trevor Still, partner at Lyons Davidson solicitors
David Williams, claims director, Axa.

I-r: Trevor Still, Guy Anker, Paul Fegan, Claire McKinney and Andy King
Kearney: encouraged spreading the risk news
McKinney: criticised claims farmers
I-r: David Williams and Jonathan Clark talk about rehabilitation
Colin Ettinger: higher compensation levels
Still: claims guidance is essential

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