THE COUNTDOWN BEGINS: THE CIVIL LIABILITY ACT TO BE IMPLEMENTED ON 31ST MAY 2021

It’s been a long time coming, but after several years of debate and many extensions, the Civil Liability Act 2018 will finally be implemented on 31^st May this year.

The Act contains a range of provisions designed to tackle the endemic problem of false or exaggerated claims that cost the insurance industry (and by extension customers) billions of pounds each year.  Key to the Act are changes to the Ministry of Justice (MOJ) whiplash portal, an online process for all road traffic accident (RTA) claims within the small claims track.

The MOJ has now published its pre-action protocol and practice direction for the whiplash portal, giving much needed clarification to the industry as well as that all important implementation date.

One area that has sparked concern is the changes to the whiplash tariff and the potential for this to be abused by those claiming ‘tariff plus’ injuries looking to push the value of the injury past the small claims track limit of £5,000.  This increase would make the claim cost-bearing and more lucrative to pursue.  The addition of a staged award for minor psychological injuries also raises further questions due to a lack of clarity between tariff and non-tariff injuries.

The small claims challenge to legal expenses

From a legal expenses point of view, there were no unexpected surprises in the guidance. We already knew that the most significant challenge would come from the increase in the small claims track from £2,000 to £5,000 for RTA claims and the impact this would have on the market.

For claims made on or after 31^st May, claimant solicitors will no longer be able to recover all their costs for claims within the small claims track and will be limited to the recovery of a fixed cost which is likely to be a fraction of the full cost of the claim.

This leaves customers with two options:

• to bear the additional costs of the claim themselves, or
• to manage their own claim without legal representation, through the whiplash portal.

This sparked fears that customers could be left without proper legal representation if they had to make a claim.

Though the MOJ has stressed that customers will have all the necessary support needed to navigate the portal process, stating that the new system will offer “guidance and a telephone helpline to support unrepresented claimants at every step”, having seen the lengthy and complicated guidelines, we believe that the protection and expert legal support that motorists have access to with an LEI policy will be more valuable in a post-reform world.

A chance to innovate

With a predicted 97% of RTA claims falling within the small claims track after 31^st May, a greater volume of claims will be paid out across the legal expenses sector.

Legal Expenses Insurance (LEI) is currently considered a low-cost add-on product, one that we believe relatively few customers fully understand the value or purpose of.

The challenge now is to ensure that end-customers know how important LEI is. We see the reforms as a great opportunity to rethink LEI and develop new models that will give our customers greater value, with innovative digital features and services that go beyond litigation to provide them with support in other legal matters.

What is Arc Legal doing?

Though the implementation date has only just been confirmed, we’ve been working on a solution for the post-reform world for several years to ensure we can provide claimants with the high-quality legal support they need whilst allowing us to control and maintain our cost efficiencies.

Via our partnerships with specialist lawyers, we’ve introduced an option for customers to ‘self-service’ certain aspects of their claim via an online platform, as well as flexibility regarding the point at which a claims handler is assigned to the claims handling process.

Our solution offers a competitive price point without stripping out areas of cover that will leave claimants unprotected should they need to make a claim.  This practice of offering cheaper, but ultimately inadequate cover is something we have observed in the market, and we continue to caution brokers to check policy wordings carefully.

What should brokers be doing for their customers?

The more informed the broker, the better guidance they will be able to offer their customers about the importance of LEI, so we urge brokers to keep clear and open lines of communication with their providers, take the time to find out what solutions they have in place to support customers after the end of May, and carefully review policy wordings to make sure they offer all crucial elements of cover.

Here are a few other areas brokers should explore when considering a new LEI provider:

• What customer value measures does the provider employ?
• Is there full transparency in the assumptions that underpin the pricing – both cost and revenue?
• What ability do you have to choose and manage the supply chain yourself?
• Check for conflicts of interest – is the LEI provider independent, or do they have a financial interest in the claims supply chain?
• Beware of models where servicing Small Claims Court PI claims is a necessary evil to access other accident management services.
• Check the solvency of the underlying insurer.
• Check the terms of the binding authority between the supplier and the insurer, to ensure that there are no separate agreements for the supplier to carry any of the risk for paying claims themselves.

If you would like any more information on the Civil Liabilities Act 2018, or would like to talk about our new service models, please contact richard.finan@arclegal.co.uk.