Collision course: Future-proofing your personal injury business

The low-value personal injury sector is heading for a crash. And unlike in the relatively minor road traffic accidents that this part of the market is based on, the impact of the reforms about to hit the sector will be felt with bone-crushing force.

Firms that fail to take the right strategic steps to prepare for what is to come will suffer not just whiplash pain, but permanent and debilitating injury. So what precisely does the government have planned?

The reforms set out in the Civil Liability Bill, which received Royal Assent on 20 December 2018, will see a complete overhaul of the system for compensating soft tissue injuries. Whiplash lasting two years or less will be subject to a tariff system of compensation that is drastically lower than the amounts accident victims currently receive.

Compensation for whiplash lasting three months, for example, is expected to drop from around £1,750, to a paltry £225 – equating to £2.50 a day – under the tariff scheme. The pain does not end there, however. The reforms will affect non-whiplash injuries too, as government will be raising the small claims track limit from the current £1,000 threshold, up to £5,000 for road traffic accidents; and to £2,000 for other injury claims.

This is significant, because there are no recoverable legal costs in the small claims track – and so most claimants will be un- represented. The Ministry of Justice (MoJ) is working with the Motor Insurers Bureau (MIB) to build a user-friendly portal system to cope with the anticipated high numbers of litigants-in-person. To allow time for this to be set up, the reform package is scheduled to come into effect in April 2020 at the earliest.

Will it happen?

The first question on these bold reforms is, will they actually happen? If they didn’t, it would not be the first time government had drawn up legislation to tackle low-value claims, only for it to be left languishing on the statute books – take the NHS Redress Act 2006 as an example.

Indeed, these very RTA reforms have already been killed off once, when similar plans, originally announced by then Chancellor George Osborne in November 2015, were abandoned in the face of a general election. One could easily see history repeating itself.

But bar a major political event, the consensus among the experts is that these reforms are going ahead – and firms need to be ready. David Bott, senior partner of Bott & Co who also sits on the board of Portal Co, which manages the current portal system for low value PI claims, says his firm is planning as if these reforms will go ahead in April 2020.

“You have got to plan on that basis,” he says. “The biggest hurdle is the IT,” he continues. “But the MoJ is working hand in glove with the MIB to hit the deadline, and they are 100 per cent committed to that time-frame.”

Bott highlights the enormity of the task ahead, however. He says: “This IT project is potentially going to deal with half a million plus people per year, who are litigants-in-person. So the IT has got to be spot on.”

When the current portal was introduced in 2013, it was “clunky”, says Bott. But ultimately this didn’t really matter, because it was being operated by lawyers, and law firms were prepared to spend money adding their own interfaces to the system, to make it more user friendly for their fee-earners. The firms had to make the system work smoothly, because their business depended on it.

This time, it is completely different, says Bott, because it will be used by members of the public. “The MoJ has to put something in place that is as intuitive as what you would see from Apple or John Lewis. The expectation of the general public as to what this system will look and feel like will be immense. Mil- lennials are not going to accept something that won’t work.”

Aside from the IT project, bringing the reforms into fruition will also require sec- ondary legislation: statutory instruments for the whiplash tariffs and to amend the small claims track limit, plus a new protocol under the Civil Procedure Rules. The MoJ has agreed to ‘consult’ with the judiciary on the final tariff figures, but it is unclear how much scope – if any – judges would have to actually change them.

David Marshall, managing partner of Anthony Gold, says: “We can’t be sure about exactly what the reforms are going to look like until the regulations are in – particularly the tariff figures. [But] We should assume that the government will put forward the same figures that were stated in Parliament.

“No one should assume that they can continue doing what they are doing at the moment and still be in a profitable business when the reforms come in.”

In or out?

In the face of these reforms, lawyers active in the low-value RTA claims market have a big choice to make: are they in or out? Michael Williamson, founder of Williamsons, thinks the vast majority of firms will choose the latter.

He says: “I don’t think there will be a mass exodus from PI work more broadly, but there will be something similar from the low-value end of PI by tra- ditional law firms. It won’t be real lawyers doing this type of work any more... It’s a huge risk to carry on doing big volumes of low-value [RTA] work”.

Bott has calculated that the new tariff figures will require firms that want to stay in the market to be around four times more ef- ficient than they are right now. “I genuinely don’t see how the current models work with these tariffs”, he says – and his firm has won awards for its innovative use of technology to gain efficiencies.

But others are more sanguine. Adam Thorpe, litigation manager at Winn Solicitors, a big player in this part of the market, believes firms that want to remain have had plenty of warning, and are well prepared.

“There has been a lot of lobbying on the changes, but we are moving past that now,” he says. “There is still lobbying on the level of the tariffs. But now firms are focusing on the nitty gritty of how they are going to deal with these reforms. 

“At Winns, we have been looking at how we can reduce friction with other parties such as the courts, medical agencies, and insurance companies. It is about how you deal with claims on a day-to-day basis.

“We already have an efficiency mindset pre-reforms, but now we’re looking to be the absolute best that we can be in that regard.’ Thorpe adds that there is a “big technology push” across the RTA industry, with developments that could significantly affect claims handling. One example is the increasing use of ‘telematics’, where claimants have a box fitted in their vehicle that records their speed and other data. This can speed up the claims process.

Marshall points out that it is “far from certain” that the market will not be able to adjust to these changes. He says: “Law firms have been very adaptable, particularly in the PI space, where there have been a huge number of changes coming at us for the last 20 years – and this may be the biggest yet for this part of the market.

“There are half a million people who experience whiplash injuries every year, and it doesn’t seem to me that the number of these accidents will reduce. It may be that claims management companies and law firms may have to work even more closely than they already do.

“But you will have to have scale, because the margins on an individual case will be very low. The obvious way to remain viable is to spread your costs across a large volume of claims. That is better news for the bigger firms."

Marshall adds that as general damages are reduced, law firms may start to focus more on special damages related to the whiplash claim, such as vehicle repair, loss of earnings, or rehabilitation costs.

Unintended consequences

One potential unintended effect of the whiplash tariffs is what defendants have termed ‘prognosis creep’ – with claimants more inclined to assert that there was, for example, an injury to the bone rather than a soft tissue injury; thereby taking the claim out of the scope of the tariffs. Arguments of this type are likely to rage for the first few years of the new whiplash regime, with insurers inevitably taking a tough stance to preserve the effectiveness of the reforms.

On the other side of the coin lies another problem, which could have a knock-on effect on PI firms doing higher value work. Richard Brooks, partner at Royds Withy King, says: “From our perspective, doing mostly multi-track work with claims of £50,000 or above, we are concerned about the unintended consequences.”

Brooks points to a scenario in which an unrepresented claimant makes a whiplash claim through the new portal process. As they had no legal representation, there was no one there to warn them that there were signs that their injury was more serious, and it would be better to wait and see how their physical situation develops before settling their claim.

When their medical condition worsens, they find it is too late to achieve fair compensation. Can insurers be trusted to re-open the file? Brooks finds that doubtful, although Bott adds that insurers have promised to “play nicely” in this regard, and not hold claimants to a full and final settlement if their injuries turn out to be more serious.

New opportunities

So while some firms are planning to use scale and efficiency to make a go of things in the brave new world, what options are there for firms that lack the size and strength to stay put?

As mentioned above, the new £5,000 small claims track threshold will only apply to RTA claims, not to employers’ liability and public liability cases; while in RTA, there will be a carve out for vulnerable road users such as cyclists and pedestrians. The small claims threshold for all these cases is expected to be £2,000; so that leaves a good number of low-value PI claims that will still fall within the current fixed-costs regime.

Could a greater focus on EL / PL claims be a good move for firms looking to diversify? Potentially, yes – but Marshall has some words of warning.“You can only do an area of work if you have got expertise in it, or invest in that expertise through training,” he remarks.

“What we have learned through some of the earlier changes – where everybody decided they were going to become a clinical negligence expert or industrial disease expert – is that sometimes there is a reason why no one else wants to take on a claim. You can spend a lot of hours under a conditional-fee agreement and then find there is nothing in the claim.

“EL claims have remained fairly static, but PL claims have dropped off alot from their peak. I suspect that’s because they are difficult claims and it can be hard to establish liability. In claims against the Highways Agency, for example, there is a statutory defence that it has taken reasonable steps to maintain the highway. Pre-LASPO, the risks were to some degree compensated by the recoverable success fee, but that is no longer the case."

Noise induced hearing loss and holiday sickness claims are other areas that initially saw a surge in numbers, but have proved difficult to run. Outside the personal injury space, any area of civil litigation could be an option, including commercial litigation or landlord and tenant.

Bott’s firm has proved adept at pioneering new areas of law, carving a lucrative niche from flight delay compensation. He says: “What we have been doing for the past ten years is to position ourselves as a consumer law firm, as opposed to an RTA PI law firm.

Our skills are about working for an individual against a large organisation; and these are transferable skills.” He adds: “A lot of law firms haven’t innovated in the past. But if you are like everybody else, you are going to struggle. You are going to have to invent your own model and potentially even create your own law. 

“You need to innovate and even to crusade. On the flight delays work, we had to go to the Supreme Court to make that work, and we’re going to the Court of Appeal next year. “You have to really commit to innovation. You need a whole new mindset".