A brave new world?

Major changes are afoot in the injury claims market '“ and, despite dire predictions and concerns from some in the legal profession, these may well be for the better.

For years now injury compensation has been a double-edged sword: defending the requirement for a healthy legal services market providing independent advice to claimants in need and, on the other, cutting into revenues and profitability needed by injury solicitors to maintain proper levels of client care.

While it has become something of a popular sport to complain about rising levels of claimant legal costs, very little of this so-called rise ends up in the lawyers' hands. Squeezing profit margins too tightly only results in reductions in the quality of staff and service levels, and this cannot be in the public interest.

In fact, it is the level of extraneous claims transaction costs that appear to be at blame for the explosion in claims costs in recent years. The advent of case referral fees has driven firms' legal costs up and profitability (and therefore quality levels) down. Coupled with this are all the litigation 'add-ons' that have become commonplace in the modern system in recent years. Expensive after the event (ATE) cover for inter-party costs risks that rarely, if ever, materialise; medical agency fees; funding disputes and drawn out costs assessments all of which add to the size of this peripheral expense.

And as if to rub salt in the wounds, to these costs are added the delays in the current claims process and claims settlement. It all adds up to a system that leads to:

• delays and unacceptable frustrations for claimants;
• reduced profits and cashflow for lawyers, and;
• excessive third party transaction costs for insurers.

It is hardly surprising therefore that all this has led to calls from all sides for reforms and a plethora of proposals and ideas from lawyers, the insurance industry and consumer groups '“ and the soon to be seen consultation paper from the Department of Constitutional Affairs (DCA).

Market reform

Amid all the general wailing and gnashing of teeth over the threat of outside competition entering the legal market, regulation of claims management and imminent announcements from the DCA, LawAlliance and InterResolve have devised the bodily injury claims to improve the way victims of accidents can resolve their claims as well as increasing the lawyers' profitability. Claims are processed in a completely new way that benefits claimants, insurers and lawyers alike.

LawAlliance which now numbers around 70 law firm members countrywide recognises the need for change. A change to the costs and speed and efficiency of settlement, focussing on the need of the claimant rather than those of the lawyers, the middlemen and the adverse interests of the insurers.

Of course, none of this would work if there was not a real desire from many within the insurance industry (including the self-insured sector) to treat and compensate the genuine claimant as quickly as possible. Consequently a number of insurers and self-insured companies have signed up to the LawAlliance InterResolve scheme.

Under the terms of this arrangement, the participating insurer or defendant gets early notification of claims, considers liability within just a few weeks, offers rehabilitation (sometimes before a liability decision is finalised), pays for the medical evidence organised by InterResolve and, if liability is conceded, an early settlement offer followed by early low-cost mediation where necessary. If the claimant's recovery is incomplete, the settlement can be delayed to await the outcome of the prognosis period.

The claimant's agreed special damages can be paid in the meantime and where any dispute arises between the parties, Inter-Resolve team are there to help find a solution wherever possible (including full mediation when necessary).

Where there are serious issues over liability or quantum in more complex cases, a variety of ADR findings are available to deal with these issues.

Whilst the claim remains in the scheme, the claimant is not exposed to any adverse costs risk nor will he or she be liable for any disbursements, avoiding the need for ATE and the time intensive research necessary to establish such need.

Benefits for all

As the path to resolution of the claim is so much clearer, the costs are fixed (under a specific matrix) at a level which is demonstrably proportionate but entirely profitable given the vastly reduced amount of fee-earning time required to achieve the goal of settlement whether in minor or more serious claims. These fixed fees apply to employers liability (EL) and public liability (PL) as well as road traffic accident (RTA) claims.

The InterResolve scheme is entirely compatible with the civil procedure rules (CPR) in both word and spirit and the time savings leave lawyers being paid for what they are best at, advising their clients, not acting as administrators.

The transaction costs savings to insurers is encouraging them actively to promote the scheme and introduce unrepresented claimants to InterResolve and on to LawAlliance, which then distributes them equally among the member firms.

No referral fees are payable for any claim introduced directly to LawAlliance via InterResolve. As the scheme grows therefore, so will the flow of 'free' cases, further improving profitability and service levels for claimants.

Claimants benefit from earlier settlements and better service, lawyers from improved profitability and insurers from the removal of unnecessary transaction costs.

A large volume of claims has already been put through the scheme and 2007 is likely to see rapid growth.

Like it or not, until the scheme grows, referral fees are a commercial reality and both the fee and conditions imposed by the referrer may render it impossible for certain claims to benefit from the scheme. It is however, designed to make it attractive for member to use the scheme wherever they can, even if a referral fee has been paid. And, whilst claims which have commenced under the scheme are not irrevocably tied into it, the arrangement anticipates that it will rarely be in the interest of any of the participants (including the claimant) to allow the matter to return to the traditional litigation process.

It takes time and evidence to show the benefits of change to both sides of the industry. However, according to LawAlliance and InterResolve, many insurers and defendants have been trying out the scheme before fully committing themselves through LawAlliance members (with their clients' agreement) proposing the scheme to their opponent.

The success of the scheme has directly led to a number of insurers devoting considerable time to it and proposing a similar arrangement to non-LawAlliance members. Firms should not be surprised then if they and their client are approached to try it out.

LawAlliance says it wants only firms that are committed to providing high quality service. To apply, the firm must have at least one member of Association of Personal Injury Lawyers (APIL) or the Law Society's Personal Injury Panel or be a member of Motor Accidents Solicitors Society (MASS) or Forum OF Insurance Lawyers (FOIL). More than that however, the firm must be dedicated to promoting the interest of its client through early rehabilitation and swift claims processing. There is no limit as such to the membership and the more members that are attracted, the bigger the scheme will become, so any firm large or small with the right expertise is welcome.

No doubt the forthcoming consultation between the industry and the DCA will see wide ranging debate and possibly an even greater focus on this scheme. But real change has already started. The brave new world has even now begun and all key stakeholders are already reaping the benefits.