Wednesday 25 May 2016

Add-ons continue journey into the unknown

It’s now almost three years since the FCA called for evidence about add-on mis-selling. Several banks and credit card companies plus certain insurance intermediaries were singled out for criticism; fi nes and refunds followed. Then the whole general insurance market found that add-ons were under scrutiny.

Of five key products* in their study, GAP (guaranteed asset protection) can no longer have its purchase concluded at the point of sale and pre-ticked boxes (opt-out) are banned on all. ARAG remains very much in favour of this latter action whilst reserving judgement on some issues – where  we have no role – and actively opposing the initial ‘sunlight’ proposal to identify a core measure of value through publication of claims ratios.We take the view that including legal expenses and assistance products as an integral policy feature  makes more sense at this time than ever before. The alternative opt-in method of sales risks individuals missing out on vital insurance protection. It also adds to the complication of determining the correct point in the sales process to introduce the question of policy enhancements.

Go to paragraphs 2.16 and 2.17 in FCA Policy Statement 15/22 and it’s in black and white; because there is no optionality in what is called an unbreakable bundle, “the ban on opt-out selling will not apply”. However, if there is a menu of covers for the customer to select, the ban on opt-out selling does indeed apply. (www.fca.org.uk/your-fca/documents/ps-15-22-general-insurance-add-ons-expectations-case-studies)

To assist consumers to make value-judgments when buying insurance and taking on board industry responses, the FCA has been persuaded to take forward a scorecard approach to include claims frequencies, claims acceptance rates and average claims payouts, potentially with the inclusion of an average premium metric as their preferred option. The scorecard data is intended to be a market transparency remedy, rather than point-of-sale disclosure to consumers.

While claims ratios may be suitable as a value-measure for some general insurance products, for legal expenses policies high claims costs do not necessarily refl ect good consumer outcomes because cases where cost recovery is achieved return low or zero claims ratios and an excellent outcome for policyholders. Focusing on claims ratios (or any other ratio) risks deterring customers from selecting the most suitable product to meet their demands and needs or from seeking wider information on products.

The FCA announced a pilot starting this Summer covering a small number of products over two one year periods with the objective of obtaining further evidence of the eff ectiveness of the scorecard remedy. The FCA say they will continue to engage with stakeholders on the pilot design ahead of its launch. With such diverse proposals, consultations, bans, new ‘best practice’ and so on, we have produced a series of advice notes and background information that is available from our account managers.

A further FCA focus is on renewal pricing disclosure. The inference here is that new customers may be treated more advantageously than loyal ones; existing policyholders may be encouraged to shop around if they know how much the premium has increased since last year. The FCA  will require that loyal customers of more than four years are prompted by a message advising them to shop around. The FCA has trialled such measures in behavioural research that has been published.

Will small claims get bigger as whiplash ‘disappears’?

The Chancellor’s Autumn statement packaged a higher limit for small claims with the cessation of legal remedy for soft  tissue claims. The stated objective is a crackdown on fraud and claims culture. 


Back in February, MP Frank Field asked whether there would be an impact assessment over plans for raising the small claims limit to £5000. Justice Minister Dominic Raab said the government will consult on the detail of the new reforms “in due course, including any necessary safeguards”.
When the impact assessment is published alongside the awaited consultation, the question is whether anyone will be in listening mode.

Although brokers may welcome increases in the small track limit because it reinforces the need for BTE cover, it’s another blow to lawyers. They have had to face a series of changes including the predictable costs regime, online portal, removal of uplift  on CFA cases and the prohibition of referral fees. But the real losers are legitimate claimants – the vast majority of people who are substantially disadvantaged following a lower value non-fault injury. They would have to pay their own legal fees in road traffic  or other injury claims or more likely, go unrepresented.

According to APIL (Association of Personal Injury Lawyers), typical injuries likely to fall within the proposed limit are crush damage to a hand, collapsed lung, food poisoning causing hospital admission, reconstructive surgery for a fractured cheekbone, minor facial scarring or loss of part of a finger.
None of these is insignificant but the key question is whether the claimant can afford to instruct a legal specialist to pursue a just remedy. And whilst fraud and vulture-like claims management companies undoubtedly exist, the extent of their impact on motor premiums is disputed. Whiplash claims have fallen for the fourth year in a row.  According to the government’s Compensation Recovery Unit, the number of whiplash claims fell by more than a third since 2010/2011, yet the insurance industry has not delivered on its promise to reduce premiums – despite buoyant profits.

New solution for commercial property owners becomes instant hit

Since its launch just a year ago, Commercial Property Owners’ Legal Solutions (CPO) has proved an outstanding success story. You may remember it was created in response to broker demand. It combines the core elements of two existing policies that have been tailored and expanded to fi t the precise needs of commercial landlords with property in the UK.

“We didn’t need much of a fanfare to launch CPO”, comments ARAG Head of Sales Andy Talbot. “Brokers had high expectations we could deliver, and they had the clients already. Not only did we deliver, but interest mushroomed. This year’s sales are likely to double the highs of last year”.

CPO brings together cover for residential let property disputes with that of commercial legal expenses insurance. Additional cover has been included for disputes relating to commercial leases or the letting of holiday accommodation, should a broker’s portfolio require such protection. It is rounded off  by access to fi ve free helplines – legal, tax, counselling, redundancy and crisis communications – plus an online document resource.

“The reason brokers like the policy is that they no longer need to consider what type of property owner their client is eg. residential or commercial, they can issue the same wording to all. We can also add in cover for unoccupied properties too”.

Another glimpse of ATE’s future

We continue to demonstrate commitment and security to our solicitor partners by producing a new ATE policy that covers firms rather than individuals. Our new product gives firms the certainty that all of their clients are covered.
It operates very much like a general insurance broker’s mandatory scheme where all clients enjoy the same level of cover. The main advantage is that premiums can be extremely competitive as they are based on the fi rm’s claims experience. As a bespoke policy, we can design the cover to reflect the firm’s appetite for risk, with various excesses available. There is no requirement to issue a separate policy for each client.
Administration is equally straightforward and can be linked to the fi rms case management system.

No longer a pipe dream, the first Scottish firm’s policy has already been written.
For further advice on our suite of ATE products please contact Mike Knight - 07795 636391 or mike.knight@arag.co.uk

Thursday 19 May 2016

Taxpayers money wasted on ATE premium challenges

The NHS shouts about the cost of legal fees in clinical negligence cases but is silent over its invariably unsuccessful challenges against ATE premiums. Some costs fi rms appointed by the NHS Litigation Authority (NHSLA) routinely enrich themselves – at the taxpayer’s expense – by raising challenges that are invariably without merit and oft en repeat arguments that have been rejected by the courts on numerous previous occasions.


 As a leading provider of insurance cover for clinical negligence cases, ARAG deplores the expensive and time-wasting tactic on such challenges. Two recently concluded cases underline the point.
Axelrod v University Hospital of Leicester NHS was set to be a fairly straightforward claim with an early Part 36 off er to pay compensation of £3,000. Mr Axelrod sustained a leg fracture during a football match and underwent surgery during which screws were inserted to stabilise the fracture. Unfortunately one of these was too long, causing cartilage damage. Using an ARAG ATE policy to pursue his claim, he found the costs lawyers for the NHSLA challenging the recoverability of the premium on several grounds.

A Deputy District Judge initially disallowed the ATE premium, on the grounds that it did not insure the claimant against liability to pay for an expert report into liability or causation. It took an appeal to show that the policy did indeed cover such risks. The NHSLA costs solicitors then raised three further technical arguments about the wording and information contained in the ATE policy. Again, the court held that the premium was recoverable in full.
In another claim, where a Mr Hughes was a victim of assault that injured his ankle, a negligent procedure to later remove screws from his lower leg bones required further work to rectify the damage. It was nearly a year aft er the actual assault and emergency treatment at the defendant hospital that he was fully healed.

Liability was admitted and a Part 36 off er of £18.000 was accepted.
While the Axelrod saga caused the South Tees Hospital NHS Foundation to withdraw a similar issue over compliance, their solicitors wanted to look at reasonableness and proportionality of the premium - another familiar objection. The court was bound by established law to find that the ATE premium was reasonable and proportionate so it was allowed in full. There were inevitable costs to all this argument. A reassessment of costs led to an increase being awarded for the provisional hearing, bringing them to £2,525, and the oral hearing costs were agreed at a further £1,838.

Monday 16 May 2016

Highlights, challenges, opportunities and successes



The legal landscape faces continual change and ARAG is rising to the challenge of tighter
regulation on several fronts.
Fixed fees, virtual courts plus new ways to address issues regarding sales, complaints and compliance are just some of the ‘what-if’ scenarios we have been investigating. A professional organisation can counter the negatives and turn them into positives despite the energies expended on seemingly unceasing consultations and compliance. The latest FCA requirement is for transparency and engagement on renewal letters, showing last year’s renewal premium plus a reminder for loyal customers to shop around.

ARAG continues to strive for exemplary service and in addition to accolades from the industry has just received commendation as an ‘outstanding’ place to work in a study of UK businesses published in the Sunday Times.

ARAG keeps on scoring, despite the goalposts being moved on a regular basis. As we get ever-closer to our tenth anniversary in September we intend to maintain our focus, using innovation to meet regulatory changes. We have been heavily involved in consultation with government over a variety of issues facing the legal world, the sales journey for consumers, transparency,  recovery of fees and so on. Whatever the timescale, more fixed fees are on the horizon and we have a number of projects in progress looking at the various options.

Currently we are also advising on the start-up of a new ARAG operation in Canada where the legal system and culture is broadly similar to that of the UK, and at home we have introduced some novel approaches to the ATE system in terms of efficiencies and underwriting.

Our partners need to know that they are also working alongside a solid business, so I am delighted to say that our provisional results for 2015 show a significant increase in premium under management to counter the negative eff ects of the post-LASPOA trading environment. We will once again be returning a substantial dividend to our parent company.

Another significant change is that a founding member of the ARAG UK team, Head of Claims Paul Upton, is moving on to the sun and sea of the Algarve.  Paul must be credited with formulating and shaping the claims strategy that has put the customer at the heart of our organisation. His departure can also be viewed as an opportunity to develop some fresh ideas and he will remain with us on a consultancy basis.

On a final note from me, it is perhaps an appropriate time to draw attention to the evolution of the ARAG logo; this, from Summer 2016, will no longer feature the crossed swords. Nevertheless, ARAG UK is very much an industry voice and we continue to maintain the right of access to justice for all our policyholders.