The legal system in Britain currently means that all personal injury claims have to go through the courts individually. Many personal injury claims crawl through the courts at a snail’s pace. The result is lengthy and expensive court costs, and for every £1 that is given in compensation, it has been estimated that the legal profession gets 40p. These costs have risen at such an exponential rate that the British legal profession gets around £2 billion a year just from playing its part in personal injury claim court cases. These costs have to be covered by the insurance companies, and such is the cost to them that it is estimated that £200 of the average yearly car insurance premiums is to cover these legal costs.
It is because of this that the Association of British Insurers is proposing that personal injury claims should be taken from the courts, and instead into an independent arbitration system. This would set compensation payouts for different types of injuries, and would follow on from a similar system started in Ireland in 2004. There, legal costs resulting from personal injury claims have been decreased by 75%.
At the moment, personal injury claims go to court and are considered individually. If the arbitrator proposed by the ABI is set up, reference payments for each type of injury would make a huge difference to the time and effort involved in a court case. Using the Irish system as an example, a back injury that recovers within a year is allocated the equivalent of £11,000 and a neck whiplash injury, also recovering within a year, would receive a compensation payout of the equivalent of £9,400.
Ian Crowder from the AA has pointed out that the new proposals will take the lawyers out of the loop altogether, resulting in a massive cut in costs. He added: “There’s no doubt that the soaring costs of personal injury claims has been a significant contributor to insurance premium inflation. If they could be brought under control, premiums could be cut,” something that would be welcome by all parties. Well actually, there’s one party that wouldn’t be so pleased: the British Association of Personal Injury Lawyers. They have already lodged their objections, based on their belief that the injured would lose their right to an individual hearing and payout based on the particulars of the case. They referred to research they carried out which showed the initial offers by the insurers to be around 50% of the final compensation agreed. They also pointed out that 66% of defendants at first denied liability, which is what led to a court case in the first place.
The legal profession’s objections have not been found to be a problem in the case of the Irish experience since arbitration was introduced. Compensation values in Ireland are still at similar levels to payouts following court cases, with the added bonus of receiving the payout up to 3 times more quickly, and with legal costs slashed significantly to a quarter of the previous cost.
It could be an exciting time – we have seen car insurance premiums rise and rise over recent years, it’s about time we saw a fall.