What the whiplash proposals mean for Legal Expenses Insurance - explained by Andy Talbot, Head of Sales at ARAG plc.

Those outside the legal and insurance worlds would be forgiven for knowing nothing about the government’s plans to reform the claims process. Whisked through ‘consultation’ in just a few weeks, the MoJ’s plans went from launch in mid-November to inclusion in the Prison and Courts Bill, published on February 23rd 2017.

The changes will increase the Small Claims Court limit for all motor personal injury claims to £5,000 and double the limit for all other injuries to £2,000, as well as introducing low, fixed payments for all but the most serious ‘whiplash’ injuries. They represent some fundamental changes to the justice system and are likely to have a major impact on injured parties, the courts and some law firms, but what do they mean for the legal expenses sector?

Andy Talbot, Head of Sales
Successive governments have backed LEI as a means of delivering access to justice, as legal aid has been withdrawn, especially since Lord Justice Jackson floated the idea, back in 2010. But I’m not sure politicians fully understand how it works.
The problem is always that those who struggle to access justice are less likely to have a legal expenses insurance policy.
They are the same people who will suffer most from these changes.

An increase in the Small Claims Court limit has been talked about for years, and is probably overdue. Doubling it will have some impact on non-motor claims costs but it shouldn’t be too dramatic. This is where most of ARAG’s BTE business is, so we’ll be watching with interest and keeping customers informed as the change approaches.

The impact on the market for motor legal protection will be much more significant. It’s estimated that the changes will bring about 90% of motor claims into the Small Claims Court jurisdiction, where costs are not recoverable. These costs will inevitably increase motor legal expenses insurance premiums.

Whatever the rights and wrongs of the status quo, it is difficult to overstate how significantly the reform will disadvantage people genuinely injured in accidents. They will have to trust the third-party insurer to admit liability as, even with the legal knowledge to do so, the cost of challenging an insurer’s denial would quickly exceed the potential award.

This will obviously make motor legal protection much more valuable, but also a bit more expensive, as the costs of challenging a contested claim will no longer be recoverable. Whether consumers will appreciate the increased value that LEI policies offer, because there will be no other means to pursue a claim, remains to be seen.

It is at times like these that ARAG’s focus on service and innovation serves us well. Whatever the finer detail of the reforms and however consumers respond, I know that my colleagues in our Product Development team will build the most attractive proposition available, that will add great value to our partners’ products.

As Head of Sales, I must admit to being slightly relieved that ARAG doesn’t have too many eggs in the motor LEI basket, as it is shaken up, yet again. On the other hand, I’m also excited at the opportunity the latest reform will present. Throughout the world, ARAG is still very much driven by its founding principle of providing affordable access to justice, and equally committed to our belief that investment in innovation and offering the very best service, is the most effective way of achieving that.