Pulling the plug

The pilot scheme to streamline employers' liability claims has been dropped by the Department for Work and Pensions after the Trades Union Congress pulled out. Guy Anker reports on the issues surrounding this controversial move

The Department for Work and Pensions' decision to scrap its fast-track pilot to streamline employers' liability claims has left the market in limbo - with insurers, trade unions, claimant solicitors and policyholders unsure about what will happen next.

Many blame the Trades Union Congress for pulling out at the eleventh hour despite months of hard work. Indeed, the DWP openly charged the TUC with ruining the initiative when it announced it had terminated the project (PM, 7 April, p3).

Although the DWP wants to revive the pilot in a different form, other ideas put on the table include insurers conducting independent investigations to cut costs or turning to the Department for Constitutional Affairs' action group on the compensation culture for alternative ideas.

Where did it all go wrong and what next? The original pilot, to assess 1000 claims of up to £10,000 in 12 regions to cut unnecessary costs, was due to start in the second quarter of 2005. The TUC pulled out after objecting to the "high" limit, and because the process was legally binding to claimants.

No alternative solution

The DWP initially insisted, after Post Magazine exclusively revealed the TUC had exited the scheme (PM, 24 February, p1), that it would press ahead without the trade union body. It eventually gave in earlier this month, however, sparking disappointment from all concerned.

Royal and Sun Alliance, for example, expressed dissatisfaction with the current state of affairs. A spokeswoman explains: "We are frustrated at the position, given the time and effort put into designing a pilot process that looked to achieve quicker and potentially better outcomes for claimants, at lower frictional costs."

While some are annoyed with the status quo, others question the TUC's motivation for pulling out. Andrew Underwood, president of the Forum of Insurance Lawyers, declares: "It is strange that they pulled out at the eleventh hour, as it was only a pilot."

When asked if the TUC was simply protecting its own commercial interests by backing out of the pilot, Zurich's UK technical claims manager, Steve Thomas, insists: "I would not disagree. I would not be surprised if they felt it was correct for them to continue under the current system."

Mr Thomas also criticises the TUC for failing to come up with an alternative solution. "It simply gave its reasons for pulling out in a letter at the last minute but never put any proposals forward of its own. It was only a pilot so there is no reason to pull out - pilots are there as a test, as opposed to setting the permanent way ahead."

The TUC has not responded directly to any of the accusations it now faces.

Instead it provided its response in a pre-prepared statement, although it did give some hope by offering support to limiting costs in future: "The pilot did not work for us but we want to find a way to improve access and keep costs down, so we would be interested in talking to the partners," the statement says.

In fact, as soon as the DWP revealed it was scrapping its initial pilot, it revealed plans to revive the scheme in a different format. Within a week of its decision, letters went out to key stakeholders indicating it wanted to start again. It insists it will initially speak to the TUC, to get the trade union body back on board, before engaging with the insurance and legal industries.

Driving down claims costs

A spokesman explains: "We believe it is important to continue to involve all stakeholders to find a different way of improving the claims system. Officials at the DWP will begin discussions initially with the TUC, and the pilot board will then meet to see what can be achieved."

Of course, the DWP pilot is not the first scheme to drive down claims costs in EL cases. The insurance industry seems to have been fighting, ever since the phrase 'compensation culture' was first uttered, to cut costs.

Moves to raise the small claims limit for personal injuries from £1000 to £5000 are currently on the agenda. The campaign, led by Norwich Union, maintains raising the limit will mean fewer lawyers, resulting in lower costs.

While Norwich Union has put its hat into the ring concerning future moves, it is not convinced that saving the DWP pilot will be achieved quickly.

Director of technical claims Dominic Clayden believes the issue went on the backburner after the election was called, and so would not be debated again until after parliament reconvened this week.

Mr Underwood questions how any future initiative could work unless the DWP gives in to the unions. "Only time will tell if the pilot works, but it is hard to see how, unless the DWP backs down to what the unions want."

The lack of faith in restoring the pilot has prompted many insurers to attempt to solve the problems themselves. They are exploring the possibility of conducting individual studies from some of their non-trade-union cases.

Mr Clayden explains: "We have an obligation to help policyholders to ensure people get proper compensation. We could take our experiences of the proposed pilot and use it for our customers and lawyers who are happy with it."

Axa is making similar noises. "We are continuing to talk to policyholders that are not connected with the unions and are still interested in how the scheme can help them," reveals head of liability claims and professional services Matthew Scott. "So we are continuing to promote the aspects of the pilot that can be used."

Mr Thomas adds that Zurich, which claims to be one of the insurance companies most instrumental in forming the initial pilot, could even continue its independent investigations regardless of whether the DWP resumes its pilot.

"We could still take the best parts of the DWP work, such as early notification and investigation, and increased rehabilitation, and embrace parts of that against a backdrop of our practical cases. As long as the two don't prejudice each other they could both run in tandem."

A more radical view is that put forward by Mr Underwood. He believes that the DCA's compensation culture joint action group can provide alternative ideas. With a membership of almost 30 government, public and private sector bodies, it will advise an inter-departmental ministerial group, which would now be chaired by Constitutional Affairs Minister Harriet Harman.

Quicker claims systems

A number of other discussion forums are expected to spin off the main group to look at specific issues such as claims processes and rehabilitation.

"That is an obvious place for ideas to spring up to tackle EL claims costs," argues Mr Underwood. He also maintains that introducing "fixed transaction costs for all EL claims" will make "things more efficient and cut out duplication".

Lawyers' fixed fees have already led to a reduction in claims costs, according to some experts. Last October, they were introduced for the estimated 48,000 annual claims brought under conditional-fee agreements for accidents at work. Lawyers will now receive a set 25% of their base costs in cases settled before trial as reward for gaining compensation, rising to 100% if the case goes to trial. That could yet be extended, as talks have already begun to enforce fixed success fees for EL disease cases.

Yet while several ideas are on the table, Alistair Kinley, policy adviser for liability at the Association of British Insurers, insists it is in the industry's best interests for the pilot to go ahead, regardless of other initiatives. He explains: "We would prefer it if another pilot got under way but if not then we will have to look at other options, such as insurers going alone. It is an important piece of reform so we would not want to lose it."

The theme that the initial pilot is full of useful ideas is echoed unanimously by other market experts. Colin Ettinger, immediate past president of the Association of Personal Injury Lawyers, expresses "disappointment" at the pilot's failure but is also optimistic that the pilot can get going again in some shape, although he argues that now is the time to iron out any difficulties.

"There are attractive features as the government has been looking for quicker claims systems. It would also mean giving the claims system a better reputation if changes were made for the better, as injured people would get rehabilitation quicker. As we have a chance to re-assess things, there are some issues we have - such as insurers wanting direct access to injured people to cut out the lawyer."

Mr Thomas warns that if the pilot is saved, its plus points must not be watered down. "There are so many good points that came out of the original ideas, even though some were diluted. It is important that no more are diluted by the government, trade unions or anyone else."

Keep claimants aware

Another plea to insurers comes from Quest Gates' head of liability division, Chris Lewis, who calls on the industry to ensure it keeps claimants aware of ongoing processes. "The insurance industry needs to ensure claimants understand insurers' equal desire to settle claims fairly and promptly - we need to build up a level of trust. It would help if we were able to communicate directly with the one party that has so far been left out of the loop - the injured party."

Yet even if the pilot is resumed, it will still take time for its effects to be felt, given the fact it is only a pilot. It is clear that many issues still have to be resolved before the government gets its way. It first has to win over the unions and get the TUC back on board, given it was such an integral part of the initial scheme, and will hold so many cases that can be tested under the new system.

However, as Mr Underwood asserts, that will not be an easy task given the TUC had issues with the details of the original pilot, and because of the current suspicion of the union's motives that is almost unanimously evident.

Mr Thomas concludes: "We will be supportive of the DWP, as a lot of good work has already been put into the original pilot that we don't want to see lost. It is, however, difficult to predict the future and whether the pilot will actually happen."


Proposed ideas to reduce employer's liability claims costs

- Pilot revived - process potentially slow due to the General Election.

- Insurers conduct independent investigations using the best features of pilot.

- Department of Constitutional Affairs action group on compensation culture provides ideas for an improved claims system.

- Fixed fees applied to all EL cases.

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