ABI and Compensation Culture

19th October 2011

The Law Society has accused the insurance industry of spreading obfuscation and confusion about the existence of a compensation culture.

The row surfaced following the publication of a report by the Association of British Insurers (ABI), which calls for an end to the UK’s ‘have a go’ compensation culture. The report also urges the Government to implement Lord Justice Jackson's proposals to reform the compensation system in full, via the Legal Aid, Sentencing and Punishment of Offenders Bill, which is being scrutinised in Parliament.

According to the ABI, the growth in spurious and exaggerated personal-injury claims and excessive legal costs has resulted in higher costs for consumers, local authorities and the NHS, as well as making it harder for genuine claimants to obtain compensation.

The report describes employers’ liability claims as one of the key drivers of overly bureaucratic approaches to managing health and safety. It explains: “Responsible employers seek to prevent injury and ill health and recognise their responsibility to make amends rapidly where significant harm does occur. However, their focus on managing risk is distracted by a proliferation of small claims that, in the current system, are simply not cost-effective to defend. These claims are encouraged by claims management companies and trade unions, fuelled by referral fees.”

Commented Otto Thoresen, ABI’s director-general: “Compensators, such as insurers, retailers and local authorities, are committed to paying genuine claimants as quickly as possible. But, too often, this happens despite the system, not because of it. People can get more money quicker by claiming directly from insurers, but ambulance-chasing lawyers can still manipulate the system.

He described the Legal Aid, Sentencing and Punishment of Offenders Bill as providing “a much-needed opportunity to mend our broken compensation system to ensure a better deal for genuine claimants, taxpayers, local authorities, the NHS and businesses alike”.

Responding to the report, the Law Society described it as “entirely self-serving to the insurance industry” and accused the ABI of pumping up the myth about a “so-called compensation culture”.

Said the organisation’s chief executive, Desmond Hudson: “Only a year ago Lord Young, in his report to the prime minister on these issues, found that there was no such thing as a compensation culture. He found, instead, that there was a perception of such a culture – often fuelled by misreporting and assertion.

“Given that the [Young] report is so recent, it is bizarre that the ABI should fuel this misreporting and spread obfuscation and confusion on serious issues of public debate.”

Hudson went on to highlight the negative consequences that the Society believes the Legal Aid and Punishment of Offenders Bill will have on access to justice. “While we agree with the ABI’s report that there can always be improvements to the system – and we believe, in particular, that claims management companies have no useful role to play in the system – the current government proposals in the Legal Aid and Punishment of Offenders Bill will mean that many victims will lose their opportunity to gain the compensation they deserve. As a result, many will end up on state benefits, causing a drain on the public purse rather than claims against insurers.”

He added: “It is also wrong to suggest that people do not need lawyers. Without an independent lawyer representing them, victims are at the mercy of insurers, who have every incentive to pay as little as possible, irrespective of the real needs and rights of the victim.”

Entitled ‘Tackling the compensation culture: The Legal Aid, Sentencing and Punishment of Offenders Bill’, the report is at www.abi.org.uk/Publications/57764.pdf