Monday, 29 July 2013

Consumers deserve a better insurance industry

ABSs, as they are known for short, are in the news again following the application by Direct Line to the Solicitors Regulation Authority (SRA) for ABS status. As reported last week by The Law Society Gazette, Britain’s biggest car insurer intends to create a new, wholly owned law firm, DLG Legal Services, to operate in partnership with existing law firm Parabis.

If the application is successful - and there is no reason to suggest it won't be - it will result in the largest ABS to date.

There are various reasons for disquiet about the development - and, indeed, about insurers acting outside their remit generally. Before I explore them, let me first say that historically I acted for Direct Line. I'm not, though, penning this piece as a 'poacher turned gamekeeper' comment on the company. It is a reputable institution and I have no axe to grind with it. My concerns are with the ABS regime and with the conduct of insurers generally.

Conflict of interest

The Direct Line Group comprises various insurers. As such, it already provides customers of its own Direct Line, Churchill, Privilege and other insurance brands with some legal services in-house, as well as through outsourcing agreements with a panel of law firms. This brings me to my first reservation about Direct Line's application for an ABS: how will it not result inevitably in conflicts of interest, in acting as insurer and a claimant representative under the same and shared ultimate ownership?

Access to justice?

Direct Line maintains that its ABS application is based upon providing "access to justice", but how can sidestepping longstanding rules on conflicts of interest be commensurate with “access to justice”?

The company also says its move is "in the clear interest" of consumers. That strikes me as doubtful, for another key reason: ABSs might be renamed 'Awful Bits of Sidestepping' because they are a cast-iron way round the Ministry of Justice's ban on referral fees. When insurers and claims management companies can own and invest in law firms, they can handle PI claims from start to finish. They will therefore control the whole process. The raft of ancillary fees paid by those outside the legal profession, the likes of garages, reporting engineers, towing companies and trade unions, can just continue in another guise.