Claim Technology is an insurtech start-up whose Claims-as-a-Service platform enables insurers and their supply chain to create digital, touchless claims processes in the cloud, without needing to change legacy claims systems.
1. Do you think the reforms will have the desired effect on reducing the cost of claims?
The cost of a personal injury claim is a function of the number of claims, the compensation cost per claim and the cost of additional fees such as legal costs or medical reports. The government’s hope is for claim numbers to fall by reducing the financial incentive of a successful claim (current average of £1,850) to a tariff system (starting at £225) and by removing the legal costs that a solicitor firm can recover (a current average of £925 per claim) for claims under £5k .
The actual reduction in claims costs will be more muted for the 50% of claims covered by a BTE legal expense policy (50% of the market). Whilst compensation and legal costs will fall the number of claims will remain stable. In the non-BTE market, whilst compensation will decrease, CMCs successfully advertise for travel delay compensation schemes which are in the hundreds rather than thousands of pounds, so claim numbers may not fall as much as hoped.
2. What are the potential unintended consequences?
The government’s intention was that by reducing claims costs, customers would see a reduction of £50 in their annual motor premium. This has now been reduced to £35, and predicted to be only £16 by Access to Justice. There is no obligation for insurers to pass the savings on, although some have committed to doing so. And with motor insurers suffering loss ratios of over 100%, why should these savings have to be passed on? I don’t foresee a reduction in premiums.
I see it as inevitable that any decrease in costs will be offset by an increase in enquiries as insurers have to deal with uninformed litigants in person pursuing claims that would not have been taken on by solicitors.
As money is taken out of the system, we will see both exaggerated injuries that fall outside of the tariff definitions, and intermediaries chasing marketing fees and commissions from other parts of the insurance chain, such as credit repair, credit hire and medical reports, all of which increase insurer costs.
Lastly, unless much smarter fraud detection solutions are in place, there is the risk that a rise in online claims will initially serve the interests of fraudsters, not insurers.
Instead of claim numbers falling, we may see claim numbers rising as solicitors are replaced by well-positioned CMCs.
3. How will this impact the consumer?
Motor premiums might not fall, but the premium cost of a BTE policy will rise as insurers either transfer the cost of the legal service onto the policyholder (a cost which is currently covered by the at-fault insurer) or act to restrict/remove personal injury legal expense cover altogether. It is highly conceivable that a majority of would-be claimants will not be able to pursue a claim via their insurer (since this is an uninsured loss), won’t be able to access high-quality legal services as solicitors exit the market, and won’t be confident enough to pursue their claim via the MoJ’s litigant-in-person portal. I recommend that customers shop around to ensure that their legal expense policy continues to provide value-for-money and a route to justice that is appropriate for them in the event of needing to make a claim.
4. What impact will it have on Legal Expenses insurance
LEI insurers face a challenge. How can they offer valuable policy benefits without increasing their premiums and losing existing customers? Can they offer customers greater choice, where claimants choose to either entirely self-serve their claim, self-serve their claim with access to free legal advice, or continue to enjoy a traditional solicitor-managed process? The key to all of these value propositions is re-imagining the technology that supports the claims process and being able to deploy a digital customer claims capability directly to claimants or to a law firm panel, such as the award-winning digital claims platform from insurtech disrupter Claim Technology.
5. From your perspective in their current form, are the reforms a good thing or not?
The reforms are a step in the right direction but didn’t go far enough. Why did the reforms focus on removing just the legal supply cost from the system? By keeping money in the system for repair, hire and medical reports, the industry will continue to maintain a dysfunctional myriad of marketing fee and commission schemes as well as insurer behaviours that are at the core of the problem the reforms were meant to solve.