UK: Insurance Market Update - The Deloitte View For Non-Life Insurers

Last Updated: 24 February 2010
Article by Deloitte Financial Services Group

Most Read Contributor in UK, August 2017

Welcome to the January 2010 edition of the Insurance Market Update in which we focus upon issues in the general insurance industry. In this issue we focus on a recently published report by the Right Honourable Lord Justice Jackson following his review of civil litigation costs, the proposals of which, if implemented, could have a significant impact within the market.

This first ever fundamental review, focused specifically on civil costs, sets out a package of interlocking reforms which are designed to reduce litigation costs and promote access to justice. If the package of proposed reforms were introduced, Lord Justice Jackson anticipates that the majority of personal injury claimants would end up with more compensation under the proposals; that costs payable to claimant solicitors by liability insurers would be significantly reduced and that costs would be more proportionate because defendants would no longer pay success fees and after-the-event insurance premiums.

Whilst the timing of any implementation of the proposed reforms to the civil litigation process is uncertain, all stakeholders will need to consider the implications of the report.

As always we look forward to receiving your feedback. Your views, comments and suggestions for future themes or topics are most welcome.

Civil litigation costs – a new Decade


On 14 January 2010 the Right Honourable Lord Justice Jackson presented his report "Review of Civil Litigation Costs: Final Report".

Groundhog day

The personal injury landscape of the noughties will long be associated with the Woolf reforms which came into force in April 1999 when new Civil Procedure Rules were introduced aimed at tackling the problems of cost, delay and complexity in litigation brought about by excessive adversarialism. Protocols were introduced to improve pre-action contact and investigation by the two parties. These involved strict timescales throughout the claim process and procedures that varied according to the size of the claim.

In April 2000, legal aid for most personal injury cases in the UK was abolished, paving the way for the after-the event ('ATE') insurance market and the first wave of a new industry – accident management companies, though there were a few high profile failures. ATE insurance enables claimants to bring a claim without incurring personal financial strain and the policies are often associated with conditional fee agreements ('CFAs'). By 2002, evolving case law determined that both the success fee loading under the CFA and the ATE premium were required to be paid by the insurer if the claimant was successful.

In 2002, a Law Society study investigated whether or not the Woolf reforms had been a success. On balance that study and other surveys showed that they had been successful in making the litigation culture less adversarial, although all involved in the Law Society's study said that far too much time was being spent arguing about costs.

Fast forward to this new decade. If Jackson LJ's recommendations are adopted, the teens will long be associated with the 'Jackson reforms'.

This déjà vu of the personal injury landscape has further parallels with that seen 10 years ago:

  • in 2009 the Ministry of Justice paved the way for the introduction of new Civil Procedure Rules with effect from April 2010 which aim to tackle the problems of cost, delay and complexity in litigation for low value personal injury claims in road traffic accidents;
  • we are now experiencing the second wave of the accident management companies – the so-called claims farmers; and
  • satellite litigation and evolving case law still characterise the development of current claims issues such as Credit Hire and Periodical Payment Orders.

The report

With typical judicial flare, the foreword to the report is succinct in the extreme, barely stretching to 3 lines:

"In some areas of civil litigation costs are disproportionate and impede access to justice. I therefore propose a coherent package of interlocking reforms, designed to control costs and promote access to justice."

In contrast, the breadth and depth of the final report (a little more than 550 pages) and his preliminary report published in 2 volumes in May 2009 are breathtaking; 109 recommendations covering such diverse areas as small business disputes and intellectual property litigation. The list of organisations that Jackson LJ either met or who gave written submissions reads like a Who's Who of the so-called compensation culture.

The recommendations strike right at the heart of some of the biggest issues currently facing compensators of personal injury claims, be they motor insurers, medical defence organisations or public sector bodies, such as the NHS and local authorities. He tackles head on, the thorny issue of claims farming, recommending that lawyers should not be permitted to pay referral fees.

The major recommendations

The executive summary to the report identifies some of the major recommendations as follows:

  • Success fees and ATE insurance premiums should cease to be recoverable – CFAs, of which "no win, no fee" are the most common species are identified as being the major contributor to disproportionate costs in civil litigation. It is recommended that success fees and ATE insurance premiums should cease to be recoverable from unsuccessful opponents in civil litigation.
  • Increase in general damages – a benefit of the current CFA regime is that it is geared towards ensuring that claimants receive proper compensation, but this comes at a heavy price for defendants, who often have to bear a disproportionate cost burden. To balance the impact of the non-recoverability of success fees Jackson LJ recommends, as a complementary measure, that awards of general damages are increased by 10%, and that the maximum amount of damages that lawyers may deduct for success fees be capped at 25% of damages (excluding future care or future losses).
  • Referral fees – the report proposes banning the payment of referral fees by solicitors which Jackson LJ sees as a regrettable feature of civil litigation which adds to the cost of litigation without adding any real value to it.
  • Qualified one way cost shifting – Jackson LJ proposes that the personal injury claimant, if unsuccessful, should not be required to pay the claimant's costs.
  • Fixed costs in fast track litigation – costs for fast track claims (those up to a value of £25,000 where trial can be concluded within 1 day) should be fixed. If fixed costs were to be introduced the Advisory Committee on Civil Costs would be disbanded and be replaced by a Costs Council which would also review fast track fixed costs.

Forward looking

Pretty much nothing is certain. Jumping forward 10 years to the start of the twenties, will we look back on a decade which saw a new compensation culture with a coherent framework for personal injury claims with access for all to compensation delivered in a cost effective manner, or will we see an insurance market bedevilled by the unforeseen consequences of change, or will Jackson LJ's volumes of recommendations be shelved – to gather dust in the library of missed opportunities?

The Woolf reforms give us insight regarding the timeframe that any change might take. The Woolf inquiry published its final report "Access to Justice" in 1996; it was 3 three years later in 1999 when new Civil Procedure Rules were introduced.

What is certain is that market participants need to turn their attention now, if they haven't already, to the threats and opportunities the proposals herald:

  • business models and plans predicated on referral fees may have to be redefined or rewritten;
  • new funding products such as innovative before-theevent legal expenses cover may need to be designed and brought to market;
  • organisations, and not just insurance companies, will need to digest a new menu of 109 systemic risks, both upside and downside; and
  • the immediate concern for everyone will be to work out how to remain at, or in some cases get to, the table to engage in and influence the ongoing debate.


All businesses entered this decade facing the challenges thrown up by changes in the economic scenery rarely, if ever, seen before. Many businesses operating in the compensation landscape will take little solace from the familiar vista opening up before them – constant change.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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