Cold calling, insurers and the 'compensation culture'

Three people, including an employee of motor insurer LV=, have been arrested after a report of road accident victims’ details having been illegally sold to a claims management company.  The victims stated they were contacted by someone they believed worked for LV=, only to find their claims for personal injury, vehicle damage and courtesy cars had been passed on to an unrelated company without their knowledge.

It is alleged that the victims received compensation up to 40% less than that actually paid out by the insurer for their claims.

Clearly, if true, the allegations show straightforward criminality on the part of the few people involved in the scheme, and LV= is entirely blameless.  However, it shines a light on an area in which insurers’ practices have been largely responsible for damaging not only their own position, but those of accident victims.

Cold calling

Insurance companies following a road accident are in a powerful position.  Each driver involved generally reports the accident almost immediately.  They supply the insurer with their own details, those of anyone else involved in the accident.

The insurer is therefore in a position, almost straight away, to start telephoning people – both their own policy holder and anyone else involved – to start offering to repair the damaged vehicles, provide courtesy cars and so on.  Add in a financial incentive, for example if the garage or car hire company pays the insurer or offers them cheaper rates in return for being the insurer’s preferred supplier, and the sooner people start making calls, the sooner they start making money.

If you have been involved in a crash in the last few years, you may have been struck by the speed, or the sheer number of calls you started to get from people offering to sort out various different things for you.  That’s why!

Injury claims

One high profile aspect of this in recent years has been cold calling, or even cold texting, from people offering to help accident victims make personal injury claims.  In 2004 it became legal for solicitors to pay referral fees for new cases.  This was supposed to allow for things like traditional advertising by non-solicitors who then passed new work to law firms, or for solicitors to pay other local firms such as estate agents or accountants if they had a client who needed some legal work.

However, it quickly became big business.  Claims management companies sprang up, some very reputable, some not so, charging high fees to solicitors for high numbers of cases.  Insurers, with their access to the details of potential personal injury claimants, found they could make a lot of money either referring cases to solicitors prepared to pay the price, or by passing details (entirely legally) to claims management companies.

In evidence presented to a parliamentary committee, at one stage a full 6% of Admiral Group’s profits came from these kinds of referral fees.

In 2013 referral fees were once again banned.  However, by then changes in the law meant that solicitors’ firms could be owned by non-solicitors – including by insurance companies!  One way or another, the genie was out of the bottle.  The insurers had, and continue to have arrangements with law firms, garages and other providers to allow them to make some money from accident claims

The ‘compensation culture’

All of which feeds into the so-called compensation culture.  It seems to be taken as read these days that there is a compensation culture in this country, and that after almost any accident people are too willing to make a claim – even to the point of saying that they have been injured when they haven’t.  The story goes that with no win-no fee lawyers telling people they have nothing to lose by having a go, people who shouldn’t be making claims are being persuaded into doing so.

But the figures don’t bear that out.

The best figures available are from the Department for Work and Pensions’ Compensation Recovery Unit.  Whenever someone makes a personal injury claim, the defendant has to register that claim with the CRU, and the general type of case is recorded.  Reliable figures have been available since 2000, and are shown below.

The figures coincide quite nicely with the introduction of no win-no fee agreements, which started to be used by solicitors in significant numbers from around 2000.  Despite these agreements being used, the number of claims between 2000 and 2004 remained quite steady.

Then from 2004, referral fees were allowed to be paid.  Motor insurers were allowed to refer accident cases to solicitors for money, and road accident claims (the red line) took off.  The same evidence to the parliamentary committee referred to above showed that in 2013, seven out of ten people who made claims for whiplash had been contacted by an insurance company about doing so.

Non-road accident claims (the green line) including accidents at work, claims for trips and slips, and medical negligence cases, fell (to a great extent due to the closure of a large-scale compensation scheme for industrial diseases), and have remained fairly static ever since.

The difference is that in non-road accident claims, there is not usually an immediate report made to the insurer after an accident, and so no additional pressure on people to make claims.  ‘No win-no fee lawyers’ are still advertising to them of course, but it doesn’t seem to be making any difference.

It seems an odd sort of compensation culture in which people are making more claims for road accidents, but for other claims – such as those against employers, schools, local councils and businesses – the numbers have hardly changed.

Why this is important

If it were just a case of the motor insurers encouraging accident claims, there wouldn’t be that much of a problem.  After all, there isn’t any real evidence of a rise in the proportion of bogus claims, most claims are still genuine and the majority are paid by the insurers.  If the insurers were just encouraging genuine claimants to make genuine claims, surely that’s a good thing, and it’s what insurance is for.

But of course they don’t.  Insurance companies are extremely vocal about how there are too many claims being made, how it’s putting up car insurance premiums for everybody, and about how this country has a rampant compensation culture.

They have used the ‘compensation culture’ as a justification for rising insurance premiums.

They have put pressure on government to reform the law to reduce compensation payments, to make claiming more difficult, and by making accident victims pay part of their own legal charges, simply for the privilege of making the insurers put things right.

In 2013 a receptive government agreed, in the name of tackling the ‘compensation culture’ – a compensation culture that doesn’t appear to exist in any areas of personal injury law except the one fuelled by the insurers themselves.

Why don’t the insurers just stop encouraging people to make claims?  Unfortunately they are trapped by the financial logic of their business practices.  They make money from each claim they can encourage, and most of the time it is a claim for one of their policy holders, against one of their rivals.  Each individual case is a source of profit to them, even if as a whole, the practice is fuelling claims.

The unhappy result is that instead of putting their own house in order, insurers have taken to propounding the compensation culture myth that people are opportunistically making too many claims – but which the figures for non-motor claims shows to be untrue.  The fear of feeling part of the ‘compensation culture’ puts off many people from making genuine claims, sometimes claims for very severe injuries and lifetime disabilities.

The reality is that people who do make claims aren’t greedy, opportunistic money-grabbers.  You can’t win compensation claims unless someone has broken the law and inflicted an injury on you.  How can it possibly be right that someone can seriously hurt you, maybe cause you significant financial loss, and yet you are to be made to feel bad about taking legal action to put right the damage?

Genuine accident victims should go on pursuing genuine accident claims.  There is no need to feel pressured into using a solicitor offered through an insurer, where the priority is to make a quick profit and where there may be less incentive to do the job well.  Your local, specialist personal injury solicitor is there to work for you, not an insurance company.

Richard Moon

Senior Solicitor, Hunt & Coombs LLP

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This article has been prepared for general interest and information purposes only; it does not constitute legal advice and should not be relied on as such. While all possible care has been taken in the preparation of this article, no responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by the firm or the authors.