For some insurers the Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act was a significant step in the journey towards what they perceived as a fairer system whereby claimants could no longer pursue compensation at no personal financial risk to themselves.
The question remains however whether a claimant's access to justice is impinged by a system that minimises the ability to seek expert professional advice on complex legal matters due to fixed recoverable costs available to claimant lawyers. By reducing the recoverability of costs and therefore the cost of litigated matters against insurers, it would stand to reason that insurers would see a cost saving which would be passed on to the policyholder by way of lower premiums.
It is possibly too soon to accurately assess the affect of LASPO on insurers' bottom line figures, as they will still be managing the influx of pre-April 2013 claims as claimants rushed to beat the implementation of the new regulations.
Figures released at the end of 2013 suggested a significant fall in the average cost of a comprehensive policy, with insurers perceived to be gambling on the predicted cost savings of LASPO. However, the Government's widely unexpected move not to increase the personal injury small claims limit from £1,000 to £5,000 is likely to affect the costs savings predicted by insurers as an increase in the limit would have encapsulated high volumes of claims, particularly Road Traffic Accidents, and insurers would have expected further costs savings with solicitors being unable to claim costs in those matters. The Ministry of Justice's decision came after warnings from the Transport Select Committee that previous regulation changes needed time to take effect before further changes should be considered.
From a broker's perspective on LASPO, the abolition of the recoverability of ATE premiums and the introduction of solicitors taking 25% of a claimant's damages if funded by a Conditional Fee Agreement, brings about a need for brokers to be aware of the funding of litigation and that impact that this may have on the customer's requirement for cover.
While there hasn't appeared to be an immediate migration, the changes may bring about the rise in popularity of Before The Event (BTE) legal expenses cover as claimants seek to avoid reductions from their damages as they become more educated as to the impact of the new regulations. The BTE market is therefore likely to evolve to meet the claimant's needs with a focus on product development.
By Mark Fenning, Business development manager and associate solicitor