Where did all the ethics go?

In September last year the Office of Fair Trading referred the UK's private motor insurance industry to the Competition Commission. The referral followed a study by the OFT in May 2012, which found that there were reasonable grounds to suspect that there are features of the insurance market that prevent, distort or restrict competition.

In other words: there is reason to think the insurance industry is not serving its customers well.

It's a year since the study that, in turn, led to the referral to the Competition Commission. Perhaps, if we look back at the study, we might find that insurers have started to get their house in order, ahead of the report of the Competition Commission in September next year?

Dubious Practices

Sadly, the short answer is 'no, they haven't'. The OFT, in its summary of the referral, put it thus: in focusing on "the provision of replacement vehicles and vehicle repairs", it was thought that "the insurers of drivers responsible for an accident ('at-fault' drivers) appear to have little control over the way repairs and replacement vehicles are provided to the 'not-at-fault' driver." The OFT  added that this "may enable the insurers of not-at-fault drivers, and others such as insurance brokers, credit hire organisations and repairers, to engage in practices which appear to result in the cost of replacement vehicles and vehicle repairs provided to not-at-fault drivers being higher than they might otherwise be."

What is meant by the use of the word "practices"? Let's be clear. This means the payment of referral fees. The Legal Aid, Sentencing  and Punishment of Offenders Act (LASPO) may have banned the flow of these between solicitors, claims management companies (CMCs) and insurers, but they are alive and as insidious as ever when it comes to garages, credit hire companies leasing vehicles to drivers after accidents and recovery companies.

A Conduit for Backhanders

If little, if anything, has really changed, there's worse. An (unintended?) consequence of the Alternative Business Structure (ABS) regime, which came into being in January 2012, is that insurers have a ready-made way of circumventing the referral fee ban: they can now simply buy or merge with law firms. The backhanders keep flowing.

It's not easy to discern in the terms of the OFT referral but there is clearly a huge question mark over the conduct of insurers and their representative body, the Association of British Insurers (ABI). The ABI has proved adept at spinning the yarn that 'compensation culture' fuels hikes in insurance premiums and makes our lives a hostage to unscrupulous bounty hunters who will issue a claim at the drop of a hat - and yet it is the ABI's very members who cause the 'blame and claim' syndrome in the first place.

These thoughts lead inevitably to a consideration of the ethical standards - or absence of them - at play among insurers. Time and again stories of outlandish litigation in the media turn out to be bogus or wildly exaggerated; time and again we encounter insurers blaming the increase in the cost of premiums on everyone but themselves.

In truth, investment income - which is what our premiums are used for - has flattened out because of the global recession and so insurers seek to ramp up their profits through a back door which has become nothing but a conduit for backhanders. It's a vicious cycle: as one insurer ups the ante, passing on costs to another, so does its competitor. And so on, and on - until, hopefully, the Competition Commission will do something about it.

Wishful thinking?

Meantime, as Duncan Minty's excellent blog recounts, insurers continue to fall short when it comes to acting ethically. This post, for example, reveals that a "survey by CSR Europe and KPMG of five European insurers and five European banks found that 80% had no ethical objectives or targets of any kind, while only another 10% had a qualitative target." As Minty notes, while admittedly a small survey it shows "that ethical objectives and targets remain a challenge for insurers."

From a claimant solicitor's perspective, I'm tempted to go further and say that acting ethically seems to resemble a brick wall for insurers. But bricks walls don't stand forever. Even the Berlin Wall came down eventually. Minty has produced a free e-Book on setting ethical objectives and targets for your business. Here's hoping that the CEOs of insurance companies download it, read it and learn from it. Wouldn't it be nice to think that they'll do so, ahead of the Competition Commission's report next year?

An ethical ABS is to be applauded - but there remain grave reservations about the regime

I've written previously of my reservations about the Alternative Business Structure (ABS) regime, first proposed by Sir David Clementi in 2006 and a fact of legal life for nearly a year and a half now. Because they enable insurers and claims management companies to own and invest in law firms, ABSs are the Trojan horse in the battle against referral fees. It seems that no sooner were referral fees been banned, than we have been confronted with the means to get round the ban and perpetuate the very problem the Ministry of Justice sought to curtail.

But last week, a story on the excellent Legal Futures website gave me cause for cheer. The Community and Law Service (CALS) in Leicester has become the first not-for-profit organisation to set up an ABS. CALS has been authorised by the Solicitors Regulation Authority (SRA) to launch Castle Park Solicitors Community Interest Company. Its profits will be channelled back into continuing the work of the charity.

CALS gets there first

Image by JosephGilbert.org

CALS has beaten the application by Islington Law Centre to establish a not-for-profit ABS, which was made last November. Castle Park and CALS will not be sharing office space; from its premises, Castle Park will provide legal advice on family, immigration and employment law. Its intention is summed up by Glenda Terry, head of finance and administration: "We set it up because we wanted to have the facility to provide good-quality legal advice and representation mainly in the areas going out of scope of legal aid. We have pitched our fees competitively and hope it will be attractive to those on low to medium incomes."

This is a laudable aim, and one which will help to mitigate the effects of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO), which, for me, remains one of the most poorly conceived pieces of legislation to have made it onto the statute books in recent years. Legal aid has been decimated by LASPO, so too the ability of solicitors to bring meritorious claims for impecunious clients. The emphasis is on commodification and wholesaling, rather than considering and caring for an individual's needs.

Helen Grant misses the point

It is no use hearing Justice Minister Helen Grant acknowledge that LASPO's reforms to civil justice will bring "some pain initially and uncertainty for a while." The fact is that LASPO's provisions will have a dire effect on those who need legal advice, making it commercially impossible for many solicitors to represent them.

At least, though, CALS and Castle Park have used the ABS regime to counter LASPO. Here, utilising the ABS model ensures that paid-for services are introduced alongside traditional free services. Castle Park will thus generate income for CALS, which offers free housing and debt advice. In time, it is hoped that CALS will become less reliant on government funding and grants.

The ethical underpinning of both CALS and Castle Park is welcome, not least as insurers continue to push for ABS status so that they can, in effect, become law firms themselves. The SRA has already approved the creation of Admiral Law and BDE Law, joint ventures between insurance giant Admiral and law firms Lyons Davidson and Cordner Lewis. Ageas, which jointly underwrites Tesco's car insurance policies, has set up a venture with New Law, the PI firm based in Cardiff. Direct Line has got an application for an ABS in the pipeline, and the SRA says there are 104 similar applications currently being processed.

Not only do such ABSs allow insurers to refer claims to lawyers, but conflicts of interest are surely inevitable in this changing legal landscape. It is only a matter of time before an ABS law firm represents a client who is insured by the parent insurer.  It will be interesting, when this scenario comes to pass, to see what the Justice Minister and the SRA make of it.

The ABS Regime: who watches the watchmen?

The Alternative Business Structure (ABS) regime has been with us for a while now. First proposed by Sir David Clementi in 2006, ABSs became possible at the beginning of January last year. It was then that the Solicitors Regulation Authority (SRA) began accepting applications for ABS status.

A year later, the SRA announced that 454 firms had applied for ABS status. In a press release dated 11 January, it stated that "some 117 firms have completed the submission of all necessary information and 74 licences have been granted ... a further 19 [are] close to completion."

ABSs on the rise

No doubt the numbers have increased over the past few months. No doubt, too, that this will please the government. It has long trumpeted ABSs as a force for good and a means of driving "greater efficiency", especially in criminal legal aid. Speaking about this sector, the Lord Chancellor, Chris Grayling, recently declared, as reported by Legal Futures, that "we are proposing a model of competitive tendering, where solicitors’ firms must compete to offer the best price they can for work in their local area. This will mean successful firms expanding or joining together, to achieve economies of scale which can be passed onto the taxpayer in savings to the public purse."

Consolidation is the name of the game

Consolidation, motivated by the desire to save £220m from the legal aid budget, is the name of the game, as heralded by Jack Straw in a speech in March 2009. Inevitably this will change the legal landscape as we know it - though I will add that the advent of so-called 'Tesco law' is far from universally applauded - I continue to have a major concern about ABSs and their impact on the personal injury arena. In a nutshell: they could serve as a way round the Ministry of Justice's ban on referral fees.

As I've said before, ABSs are Trojan horses in the battle against referral fees. They enable insurers and claims management companies to own and invest in law firms, thereby circumventing the laudable effort to rid us of referral fees and what the government condemns as 'compensation culture' (though this is, as none other than the Master of the Rolls, Lord Dyson, recently observed, a perceived compensation culture, not an actual one). 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.

Moreover, I have recently encountered conduct that shows just how ethically suspect some insurers can be – and how their own behaviour is what fuels our 'compensation culture'.

Quis custodiet ipsos custodes?

Recently a colleague of mine was involved in a road traffic accident. The other driver opened their car door into the side of her as she drove past.  Doing so made quite a mess of the front wing of the car and my colleague was understandably shaken up.

The other driver's insurer made contact with my colleague within 24 hours. Remarkably, despite her not even mentioning any injury whatsoever, the insurer made her a pre-medical offer of £2,000. My colleague did not provide any response to the offer as she was more interested in ensuring that she had use of another vehicle.  The next day the insurer called to increase the offer to £2,400, and also make an offer for her son of £1,500.

My colleague was unlikely to have made a claim at all. And yet she finds herself offered nearly £4,000 in PI compensation.

Who, then, is really fuelling the so-called 'compensation culture'? Surely it couldn't be the insurance industry? Could it?

(For those who don't know their Latin, I'm no expert either. But 'Quis custodiet ipsos custodes?' means 'Who watches the watchmen?' It seems appropriate here.)

Praise Be: the OFT has a go at Backhander Britain

At last, a breath of fresh air in the debate about the insurance industry. It came last week in the form of the Office of Fair Trading’s report on private motor insurance. Make no mistake: for those of us who have been banging the drum for reform, the OFT’s report was just what the doctor ordered, all the more so because it came in the midst of a barrage of spin about supposedly bogus whiplash claims and their dire effect on motorists’ premiums.

But the OFT report is not merely welcome because of its timing. Its clarity and sense are as impressive as its provisional decision to refer what it describes as the “dysfunctional” UK market in private motor insurance to the Competition Commission for full investigation. Transport Committee chair Louise Ellman applauded the report, describing it as “a major step forward” and declaring that the Committee ought to engage in the ensuing consultation process with a view to making “the strongest possible case for the referral”.

It is to be hoped that referral duly comes to pass. The insurance industry has mutated into an industry where profiteering sometimes seems to be the insurers’ sole motivation. Karl Tonks, the chairman of the Association of Personal Injury Lawyers (APIL) summed up this highly regrettable state of affairs:  “What the OFT calls ‘dysfunctional’ and ‘inefficient’ actually reveals a host of grubby practices to line insurers’ own pockets, to the tune of an extra £225 million on car insurance premiums last year.”

This is the truth that the insurance industry dare not allow to be uttered. Premiums keep rising and insurers blame everyone but themselves for what is happening. The reality is that real change – to the consumer’s benefit – entails a root and branch reappraisal of how the insurance industry operates. This, in turn, entails confronting the unpalatable fact that here, in a core service sector which affects us all, backhander Britain is alive and well.

Thankfully, the OFT report begins the process of tackling this. It reveals the shoddy practices that those of us who practise in this area see all too often, including the ramping up of repair costs and the charge of hiring replacement vehicles. In effect, insurers collude with vehicle hire companies and repairers (for example, paint and car parts suppliers) to inflate charges, and why? Because they’re in for kickbacks – and because higher costs for a claim will help to dent a rival’s profitability.

The OFT report is welcome, but any investigation by the Competition Commission won’t begin until autumn and may then take up to two years. Why not, in the interim, a voluntary abolition across the board of the insurer practices uncovered by the OFT?

We can be justly proud of Queen Elizabeth II and last weekend’s Royal Jubilee, but Backhander Britain is not something to proud of. Hats off to the OFT for lending significant authority to those of us who’ve had enough.

The insurers’ lot in life

Since the advent of the 2008 financial crisis, we are reminded on a near daily basis the weaknesses of free-market capitalism. Stories of sky-high pay, greed and commercial practices – which are geared to the benefit of the few and at the expense of the many – habitually occupy the public consciousness.

While the most common focus may be on banking, the personal injury system is just as riddled with the worst excesses of capitalism. No more so is this apparent than in the auctioning of personal injury cases.

Some of you may have read my remarks on this practice in the media this week, to refrain it is the ‘referral fees’ model brought to its logical and most dehumanising conclusion, essentially insurers conduct referral fee auctions amongst solicitors for bundles of cases. The ‘price tag’ of these case bundles is likely to be influenced by the degree of injuries sustained by specific cases, essentially putting people’s misery up for sale to the highest bidder.

I was compelled to speak out on this issue as it has become clear that the referral fee ban contained in the LASPO Act has done nothing to curtail this practice. Insurers, and others, continue to make hay while the sun shines ahead of the ban in April 2013. The Government and public are distracted by talk of ‘whiplash epidemics’ and the need to reign in ‘ambulance-chasing lawyers’. Blame for the ills in the personal industry market is spread far and wide, but little is placed at the door of the insurer. It is my hope that by shedding some light on this practice, the microscope of public scrutiny would focus sharply on the amorality of the insurance industry’s treatment of accident victims.

I don’t believe that the insurance industry is staffed by those lacking in moral conscience. It is not the people within the personal injury system who are found wanting, rather it is the mechanics of the industry itself which are so geared towards commoditisation and profiteering that the human element is all but removed. Like in banking, the rights of the individual and concepts of morality are often lost in a morass of spread-sheets, mathematical formulas and clever business practices all designed to accentuate the bottom line. At the end of the day we are talking about people who have been hurt, sometimes catastrophically. This fundamental misstep is not only a direct threat to access to justice for injured people, it is also a key reason behind the escalation of motor insurance premiums for all.

Make no mistake, I am not advocating reversion to an agrarian economy, nor harking back to some mythical golden-age where insurers were an unbridled force for good. I am simply saying that a conscious needs to be injected into the system – call it conscientious free-market capitalism or whatever you like – where the drive to an ever greater bottom line is tempered by equal thought for the public good. Such a step-change could result in insurers working with, not fighting, solicitors to create a framework where access to justice and the rights of victims of accidents are protected, while the costs in the system are minimised and fair returns are commercially generated.

These aims are of course not mutually exclusive; however the mentality present in the insurance industry, exemplified by these auctions, is not conducive to the construction of a fair and equitable system. I have written repeatedly of the need for personal injury solicitors to recognise the dysfunctions in the system and strive for higher professional standards and the same retrospective and reform needs to be undertaken by the insurance industry. Then and only then will the holistic reform which the personal injury system sorely needs become a reality.

Principles lost? The loss of professionalism in the personal injury system

In 1992 Lord Benson stated there were nine key principles of professionalism to which lawyers should adhere. Two, in particular, should be second nature to lawyers: the principle that ‘ethical rules and professional standards ... should be higher than those established by the general law’ and the principle that legal practitioners ‘must not allow themselves to be put under the control or dominance of any persons or organisation that could impair that independence’.

Regrettably, adherence to these principles is not always second nature, especially if we take a bird’s eye view of the personal injury sector. Here, as well as potentially referral fees – which the government intends to ban – there are a myriad of other practices which conflict with Lord Benson’s principles. Alternative Business Structures (ABSs) have been heralded as signalling a brave new world but they create a route to absolute ownership by insurers, who then effectively bypass the referral fee issue and achieve wholesale ownership of the entire process, from providing insurance as an indemnity insurer to solicitors making the claim against the third party. The government’s failure to any action given that ABSs will have this effect is symptomatic of a worryingly piecemeal and uncoordinated approach to the referral fee problem.

Some might say that the Legal Aid, Sentencing and Punishment of Offenders Bill (LASPO) will reform the personal injury sector. It professes to ban referral fees but, given the loopholes carved out in various places, is likely to be a paper tiger. Moreover, simply banning referral fees will not show insurers, CMCs and indeed some solicitors the error of their ways; in all likelihood, it is likely to push the practice further into the shadows. New practices will inevitably be devised which will share the detrimental and profit-driven features of referral fees. Some in the PI industry have already described to me the receipt of calls from CMCs offering to sell information with regard to prospective clients under the guise of ‘marketing information’ – a euphemism for ‘referral fee’. 

It was the proliferation of referral fees – and their associated, seemingly endless ancillary services such as car hire and medico-legal services – which have done so much damage to the PI system. Wedded to these are the advertising campaigns which CMCs and some solicitors have embarked upon. Not only do they sail dangerously close to inciting litigation, they cheapen the legal profession to such a degree that the title ‘ambulance chaser’ is not an entirely inappropriate label. Add the sale of personal data and underhand marketing tactics such as spam text messages, and we are faced wholesale systemic failure in this vital branch of the law.

If we want to grapple seriously with all the issues, we need wholesale cultural change. The government’s piecemeal, reactive approach is flawed. The interests of the public and victims of accidents must be the priority in the minds of all professionals, with profiteering stamped out.

Cynics might say such a utopian ideal for the PI system is unattainable. However, I would counter that it can exist if we rediscover and implement Lord Benson’s wisely drafted principles.

What underpinned Lord Benson’s approach is the notion that to be professional is to act in the public interest. The barometer by which he proposed to measure the standard of the profession is the degree to which individuals and their governing body act ethically. These principles should be the foundation of reform, and, even more important, practice. If the mindset of all the participants within the personal injury system is focused on acting ethically in the public interest, there will be no need for ‘catch-all’ regulation. Although a minority may still exploit loopholes in the system and evade regulatory oversight, they will eventually be stamped out by market forces. In fact if you speak to potential private equity investors in the profession, they see the value of retaining and emphasising professional standards.

Such a picture may seem uncharacteristically optimistic from someone who has written of his dismay about our industry and current efforts to reform. However, for every organisation or individual I have encountered who has displayed contempt for the public good, I have met dozens more who wish to do the best for their clients. It is because of this that I am certain that our profession and the industry can save itself from ruin and regain the principles which have been lost.

For any readers who are APIL members it is intended to publish a fuller article on this subject in the May edition of Focus, or if you are not and prefer please let me know and I will provide a full copy of the article.

Will the brave new world of Alternative Business Structures undermine the government’s objective in banning referral fees?

At long last, the Solicitors Regulation Authority has announced a date for the application process for those wishing to avail themselves of the Alternative Business Structure (ABS) regime. Appropriately enough, the date is 3 January, the first working day of 2012. After what seems an age since Sir David Clementi first proposed them (six years, in fact), the new year thus ushers in the brave new world of the ABS.

Is it, though, a world which we will like? I am not so sure. ABSs were much trumpeted following the passing of the Legal Services Act 2007, given that they will revolutionise the way in which solicitors run their businesses and allow non-lawyers to own and invest in law firms. Many high street sole practitioners and some small firms, fearful of the advent of ‘Tesco law’, were quick to sound a cautionary note over the ABS regime, but they are not the only people who have reason to worry. Those of us who believe in the legal profession, especially in the personal injury sector, also have cause for concern.

Image courtesy of the Travel Blog

For me, ABSs are Trojan horses in the battle against referral fees, in particular, and the sometimes over aggressive and unprofessional approach to PI marketing. They enable insurers and claims management companies to own and invest in law firms, thereby circumventing efforts by the Ministry of Justice to reform and improve the personal injury sector – because insurers and claims management companies could, in 2012, now start handling PI claims from start to finish. They will therefore control the whole process. 

Antony Townsend, the chief executive of the SRA, is looking forward to the new world, saying, in a press release dated 1 December: “We welcome the news that we will become an ABS licensing authority from 23 December. This is a milestone that we have been working towards for nearly two years.” He goes on to add that “the public can have confidence that ABS providing reserved legal activities will be regulated according to the same rigorous professional standards as traditional law firms.” 

But how will the ABS regime tackle this issue? There is also a raft of ancillary fees paid by those outside the legal profession, the likes of medico-legal companies, garages, reporting engineers and towing companies. These bodies all habitually pay referral fees, thereby fuelling a vicious circle of money generation around some personal injury cases.  What does the SRA intend to do about this, and the fact that these companies are likely to apply for licenses to set up ABSs? 

There is, though, still time to deal with this issue. The ABS regime gets underway from 3 January, but it does not emerge complete and fully formed. The date represents the start of the application process, but it is thought that actual ABS licences will not be awarded until late February at the earliest. It is to be hoped, between now and then, that a way is found to ensure that the brave new world of ABSs does not undermine that part of the government’s commitment, namely profiteering out of personal injury claims, which many of us support. It is further to be hoped that the professional conduct of cases by the solicitors profession is fully recognised and protected in this short period,  and not fatally undermined.

From cash-for-questions to referral fees: a short history of institutional dysfunction

The Leveson Inquiry is gripping. All manner of the great and the good seem to be involved in the government’s quest to unravel the culture, practice and ethics of the press. Yesterday Hugh Grant gave evidence; later this week Steve Coogan, J K Rowling, Max Mosley and Garry Flitcroft will appear. We’re only at the outset, too: this one will run and run.

At the same time as Lord Justice Leveson, sitting in the Royal Courts of Justice, does his best to deal with the phone hacking scandal, a mile or so away in the Old Bailey a jury is hearing evidence in the trial of Gary Dobson, 36, and David Norris, 35, who are accused of the murder of Stephen Lawrence in April 1993. The jury will reach its decision in due course, but the facts of this case are already well-known. Indeed, the tragic murder of Stephen Lawrence and the resultant bungling by the police led to an Inquiry led by Sir William Macpherson, whose report was published on 24 February 1999.

The Macpherson report developed the notion of institutional racism, which it defined as follows:
The collective failure of an organisation to provide an appropriate and professional service to people because of their colour, culture or ethnic origin. It can be seen or detected in processes, attitudes and behaviour which amount to discrimination through unwitting prejudice, ignorance, thoughtlessness and racist stereotyping which disadvantage minority ethnic people. It found that institutional racism was prevalent in the Metropolitan Police Service (and other services), and had played a role in the flawed investigation into Stephen Lawrence’s murder by the police.

More recently, we have seen the scandal of MPs’ expenses. Jumping back a quarter of a century, there was the notorious cash-for-questions debacle. And to return to the present, there has been justifiable public outrage at the outsize and disproportionate scale of bankers’ bonuses.

All of these things, it seems to me, bear a relation to what ails the personal injury sector. I have written often on the many problems which beset this industry. They may not amount to outright criminality, as in some of the analogies above, but they are significant nevertheless and range from the issue of referral fees to a pervasive lack of market transparency, to blatant profiteering, via victim auctions and the endless merry-go-round of commissions, to endemic conflicts of interest. Again, while not criminal acts they are they connected to phone hacking, institutional racism, cash-for-questions, MPs’ expenses and bankers’ bonuses because in each instance malpractice has become systemic. It becomes second nature to those working in each particular sector or industry. They get away with it, and keep getting away with it, for so long that in time they don’t even recognise that their conduct is wrong.

I think, then, that what we witness periodically is institutional dysfunction. Hopefully the Leveson Inquiry will enable the media to put its house in order; similarly, it seems there is now a strong following wind to enable the personal injury sector to reform. But change will only be accomplished via a holistic approach, like that of Macpherson; one which acknowledges that the whole needs to be tackled, rather than just its isolated constituent elements.

As I have said, one means to reform is to embrace the notion of professionalism. This is a subject in itself (what is it, indeed, to act and behave as a professional?) but one thing goes with the territory as much as ethics, honourable conduct and fair play: the idea of accuracy. Accuracy of information, accuracy of intent, accuracy of advice.

Accuracy, too, in the figures disseminated by insurers. Of late, they have been in the habit of saying that insurance premiums have risen between 30 and 40 per cent, because of ‘compensation culture’. They haven’t.  The true figure, according to an analysis of the Association of British Insurers own figures by the Access to Justice Action Group, is around 4.8 per cent for cars and motorcycles. If the figures for commercial and other vehicles are added, insurance costs actually fell by 3.3 per cent. Getting this right – dealing only in the true facts – would be a big step forward in the drive to resolve the problems in the personal injury marketplace.

Change is in the air, but could we do more?

Here’s a story that I only wish was apocryphal. Regrettably, it’s not. In fact, it’s the sort of conversation that we've probably all encountered, at some stage or another.

A group of lawyers from a personal injury firm were out for a drink. They had just attended a conference on the Jackson Review and the myriad of impending changes to civil litigation, not least in the fraught arena of costs. One might expect them to be rather preoccupied, given the impact the changes will bring on their livelihoods.

Not a bit of it. The group was sanguine to a man, ready to take on whatever came their way. It might have been possible to construe this as evidence of an admirable ability to adapt to change, to roll with the dice and serve the law and their clients come what may, were it not for what animated their equanimity. Which was, as one of them put it: ‘Who cares how the system changes? We’ll still find a way to make our money.’

Far-fetched? Sadly not. This is how some in the legal profession think. They’re not interested in their clients; all they care about is making as much money as possible. And they don’t mind if they bend the rules along the way.

This kind of lawyer is not confined to the personal injury sector, but arguably seems even worse when met in this environment. The idea, for example, of victim auctions – of lawyers bidding among themselves to secure the highest value personal injury cases, not because they care about the victim but because they see him or her as a cash cow – is not only anathema to right-thinking members of the profession but also unpalatable to anyone with a sense of morality.

What, though, can be done about this sort of thing? Yes, we need to continue to press the government to consider the full gamut of issues in, for example, its proposed (and welcome) ban on referral fees, and yes, we need to continue to press for legislative change where necessary. But I wonder if there’s more that we could do.

Perhaps it is time to reassert the professional standards and duties that come with the territory of being a legal practitioner. These seem to be too often ignored by those in the personal injury market.  Maybe if like-minded, honourable individuals who are committed to rooting out malpractice formed an alliance, we could do something about the blatant profiteering and corrupt practices that blight our industry?

If a campaigning body was established, it could set about achieving the following:

• Deliver real market transparency – A significant portion of current industry practice deliberately confuses and dodges clarity. Consumers need to know the facts so that they can make decisions from a fully informed position.
• Reign in blatant profiteering – There is a duty to avoid profiteering in every walk of life and this includes personal injury claims. Claims should not be seen as an opportunity to make money without any meaningful contribution being made to the service provided.
• Stamp out conflicts of interest – Nothing must stand in the way of delivering in the interests of the client. Too much is currently done for the benefit of business and not the individual. This situation must cease.
• Commissions should be returned – The current merry-go-round of commissions must stop. Any money paid by a referring party should be returned to the individual.
• Ban referral fees in all their guises – Consumers should have a choice as to who they instruct. While a decision has been taken in principle to ban referral fees, we must campaign to ensure that legislation truly delivers its objective.

What do you think? Is there mileage in forming an alliance to tackle these challenges? Please post a comment here, or, if you prefer, send me your thoughts via e-mail at john.spencer@spencerssolicitors.com.

Back to the drawing board, please, with the MoJ’s Referral Fee Impact Assessment

So, the Ministry of Justice (MoJ) has published an Impact Assessment on the Referral Fees ban. Good news, for surely things must be proceeding apace?

Well, yes and no. Yes, ever since September’s announcement by the MoJ that referral fees in personal injury cases are to be banned many people, including me, have been pleased and optimistic that a clearly dysfunctional system is at last going to be reformed. But no, because – and not for the first time – there are grounds for fearing that to embark upon reform in haste is to repent at leisure.

Why do I say this? Not, I assure you, because I just happen to like banging the drum of measured and sensible reform, as opposed to what is increasingly coming to resemble an ill-conceived cacophony of scattergun percussion. I urge caution because of the nature of this particular Impact Assessment.

First, though, a refresher. Impact Assessments are relatively new to the government’s lexicon, arising from a rationale which states that estimates of the costs and benefits of policy options under consideration should normally form an integral part of consultation exercises. As the Legal Aid, Sentencing and Punishment of Offenders Bill (LASPO) is pushed through, with its provision banning the receipt and payment of referral fees, it is therefore government policy that an Impact Assessment be undertaken. Bear in mind that an Impact Assessments is:

• a continuous process to help the policy-maker fully think through and understand the consequences of possible and actual Government interventions in the public, private and third sectors; and
• a tool to enable the Government to weigh and present the relevant evidence on the positive and negative effects of such interventions, including by reviewing the impact of policies after they have been implemented.

That sounds sensible, you will agree. It is shame, then, that this particular Impact Assessment is so scant on detail. Remarkably, it contains nothing on the mechanics of the implementation of the ban, other than that it is planned for autumn 2012. Here is all that there is on the crucial question of just how the ban will be achieved:

•  The reforms will be implemented through primary legislation. A provision in the Legal Aid, Sentencing and Punishment of Offenders Bill will be introduced to prohibit the payment and receipt of referral fees in personal injury cases. It is intended that the relevant regulators (the SRA, FSA, claims management regulator and others) will take the necessary steps to enforce the ban.

Indeed, the Impact Assessment expressly says that there is no data available for a ‘quantitative’ impact assessment. The data required for this is listed, but then described as unobtainable either because it cannot be tracked down, is unknown, commercially sensitive or not readily available. What’s more, a vast amount of the Impact Assessment is couched in conditional terms: look out for the frequency of the words ‘might’ and ‘may’ when it comes to the ramifications of the referral fee ban in practice.

One thing is said with clarity: that claimants could lose out as a result of the proposals.

To me, that alone should be enough to urge a rethink. We need to put the emphasis on helping people pursue genuine claims. Referral fees turn the industry into one in which money trumps merit, but how can it be right if, as a consequence of rushing through legislation, some people who have been seriously injured are unable to bring claims? The Government needs to remember the purpose of an Impact Assessment: to help the policy-maker fully think through and understand the consequences of legislation. Please, then, can we have some thought about how, exactly, to implement the ban? 

In tackling fraud, we must be careful not to deny access to justice to genuine accident victims

First the news on referral fees: it looks as if the wheels of the law won’t be grinding as slowly as usual.  There is a discernible following wind behind the September announcement by the Ministry of Justice that referral fees in personal injury claims are to be banned, with plenty of media coverage driving on the calls for reform.

Indeed, referral fees in other sectors of the law are now being questioned, with the Sunday Times recently exposing the payment of referral fees in socialite divorces. One divorce lawyer is alleged to have paid fees of up to £100,000 to friends and acquaintances for sending unhappy couples her way. If true, no doubt she has been complying with the Solicitors’ Code of Conduct, but surely the payment of such bounties cannot but add to what is claimed to be the ‘compensation culture’ which ails contemporary society.

On, then, to what continues to concern me about reform in this sector. My thoughts are prompted by the fact that tomorrow I will be attending an annual conference on fraud at the Millennium Hotel in Mayfair, London. The majority of individuals present will be claims managers and fraud specialists from insurance companies, and the aim of the conference is to discuss “the industry's ongoing collaboration to achieve its fraud prevention goals”.

As vice-chair of the Motor Accident Solicitors Society, it is important that I am at the conference, both to learn more about current concerns in the insurance industry but also so that I can monitor the extent to which government reforms could have unintended consequences for injured people and road accident victims. Put simply: everyone agrees that fraud is wrong, but in combating it we must be wary of creating an environment in which genuine victims are denied justice.

Tomorrow’s conference will probably see discussion of the practice of ‘fronting’ on motor insurance policies. This scam occurs when an older, more experienced and lower risk motorist is insured as the ‘main driver’ of a vehicle. In truth, the vehicle is driven and often even owned by a younger driver, who is then added to the policy as a ‘named driver’, bringing down the cost of their insurance cover. The main culprits are parents – some 36,000 of them, according to the Motor Insurers’ Bureau. Some even pass off the younger driver as their spouse or partner, which reduce insurance costs yet further.

There is no doubt that ‘fronting’ is a valid topic of debate, and something that the insurance industry is fully entitled to tackle. But returning to referral fees, whilst the debate and appetite for reform continues apace, one senses that the government is now grappling with the huge and multifaceted problem of condensing to law the appropriate changes. This is not easy, and nor is it something that should be rushed. It is very clear that a holistic and thorough approach is appropriate: without it, change may cause more harm than good.

Making headway in the labyrinth

Yesterday I appeared before the House of Commons Transport Committee, which sat to take oral evidence on the rising cost of motor insurance. Giving evidence with me were Paul Evans, the CEO of Axa, Andrew Dismore, of the Access to Justice Action Group, and a man who needs no introduction, the Rt Hon Jack Straw MP. I was representing the Motor Accident Solicitors Society (MASS), of which I am the vice chair.

This was the second time I’d attended a select committee meeting. In November 2010, I gave evidence before Louise Ellman MP, who is the chair of the Commons Transport Select Committee. Then, as now, I found that the experience of engaging with Parliament has its Kafkaesque moments.

As in the Czech novelist’s great novel, The Trial – which sees Joseph K search fruitlessly for justice, having been arrested for a reason that is never specified – the splendour of the surroundings is inescapable. The Palace of Westminster, where I gave evidence in 2010, is awe-inspiring, both in its sense of history and architecture. Portcullis House, where yesterday’s hearing took place, is rather less grand but still has an august flavour, perhaps because of its name: it is so called after the chained portcullis used to symbolise the Houses of Parliament on letterheads and official documents.

But for all the grandeur, the business of actually appearing to give evidence isn’t easy. Last year, it seemed as if I was asked to wait interminably outside an apparently limitless number of doors, rather than ushered directly to the Committee. It was only by dint of determination that I managed to find the room in the Palace of Westminster in which the Committee was sitting. This year, the venue was changed (from the Palace to Portcullis House) at the last minute – but no one thought to tell me. It’s almost as if because everyone within Parliament knows the drill, they forget to tell the rest of us.

Jack Straw, indeed, is a man who knows Parliament like the back of his hand. Perhaps this gave him the confidence to breeze into the hearing a few minutes after it had started; certainly, I was in the midst of introducing myself when he arrived.

Attending a hearing in the company of a heavy hitter such as Jack Straw means that one has to be determined to be heard. Here, my previous Select Committee experience stood me in good stead. I felt that I made MASS’s point: that unless the Government tackles systemic failings within the personal injury industry, a ban on referral fees alone may do more harm than good.

Moreover, albeit that I have long campaigned for a ban on referral fees, I have also consistently said that implementing the ban needs to be handled with great care. Accordingly, a key component of any ban will be adequately defining what a referral fee is, and consequently what it covers. For example, will the Government include ancillary services which are also involved in personal injury claims, such as car-hire companies, in the ban? There are also a myriad of questions over advertising standards and data protection, with unsolicited texts, cold calls and adverts which encourage litigation, being used to the detriment of the public and the injured party alike. We also need answers as to what the advent of Alternative Business Structures will do to the personal injury system. Could a claims management company (CMC) or insurer take over a law firm? Market rumour is indicating that a vast majority of CMCs have expressed interest in doing just that when the time comes.

All these issues, not to mention the practice by which insurers intercept claimants before they have access to independent legal advice, need to be addressed. If they’re not properly looked at, the culture of profiteering in the personal injury sector will continue unabated – and accident victims will be no more likely to obtain justice than Joseph K.

Reform in haste, repent at leisure

The old saying is that the wheels of the law grind slowly. This is true. However, if it means that we get things right, it strikes me that patience is no bad thing.

When it comes to referral fees, I find myself champing at the bit for a quickening in the pace of reform, and yet, having reflected further on the Ministry of Justice’s recent announcement that referral fees in PI claims are, at last, to be banned, mindful of the need to cover all bases. Moreover, consideration of some of the finer points arising from referral fees reveals that while a ban is welcome, there is still a way to go.

Take, for example, the definition of a referral fee. At present this is conspicuously absent from the Solicitor’s Conduct Rules. Lord Justice Jackson, in his Review of Civil Litigation Costs, proposed that a referral fee is "any form of payment or other consideration to a party for introducing clients to a solicitor". His Lordship expressly suggested that this should be subject to input from the Solicitors Regulatory Authority (SRA) and the Legal Services Board (LSB).

It seems to me that Jackson LJ’s definition is a good  starting point. We need it because, if we are to stamp out what his Lordship described as an “abhorrent” practice (ie, the endemic paying of referral fees), we need to be clear about what is, and what isn’t, a referral fee. It is to be hoped that the two professional bodies to which Jackson LJ referred revert to him speedily, and certainly rather quicker than has been possible with the SRA and the licensing of Alternative Business Structures (ABSs).

ABSs were much trumpeted following the passing of the Legal Services Act 2007, given that they will revolutionise the way in which solicitors run their businesses. The Legal Services Act allowed non-lawyers to own and invest in law firms, and the ABS regime was due to come into play on October 6th. Many have lamented delays in its implementation, the latest of which the SRA  currently attributes to  the ‘parliamentary timetable’. Now, it seems, the SRA has been given the green light to be the licensing authority for ABSs, but as Professor Stephen Mayson notes on his blog: “We have had more than six years since Sir David Clementi first proposed [ABSs]. They are not a new idea; and it’s not as if no-one has spent any time thinking about both the principles and the detail since then... Where have these members [of the legal profession] been for the past six years?”

That aside, there is another significant issue with regard to ABSs – one which means that the delay understandably criticised by Professor Mayson might be a blessing in disguise. The fact is that ABSs are Trojan horses in the battle against referral fees. They enable insurers and claims management companies to own and invest in law firms, thereby circumventing efforts by the Ministry of Justice to rid us of referral fees and what the government condemns as ‘compensation culture’ – because insurers and claims management companies could be handling PI claims from start to finish.

There’s more, too. What of the raft of ancillary payments made by those outside the legal profession, even once the ABS regime is in place - the likes of garages, reporting engineers and towing companies? These bodies all habitually pay referral fees, thereby fuelling a vicious circle which ultimately means that accident victims’ claims may be handled by inexperienced, non-expert lawyers – and meaning that drivers’ insurance policy premiums endlessly increase.

It all adds up to a situation calling for reform, but reform done well. A little delay, so that we can think through all the issues properly, may be no bad thing. Or, as is said of another sphere of life to which most of us can relate: ‘marry in haste, repent at leisure’.

Fixing a broken system

What’s not to like about last week’s announcement by the Ministry of Justice (MoJ) that referral fees for personal injury claims are to be banned? After all, for far too long we’ve been held hostage by a dysfunctional system, one which privileges money over merit so that the law firm that pays the most, rather than that which is best equipped to deal with an accident victim’s claim, is rewarded. Surely, then, the MoJ’s declaration is good news?

Well, yes, but in truth the MoJ’s announcement is more of a step forward on the long road to recovery than news of complete rehabilitation. That there is a long way to go is best illustrated by a look at the nitty-gritty of the current system. Today, as you read this, a personal injury lawyer somewhere in the country will be signing off a payment which secures drivers’ details from an insurer, a garage or, most probably, a claims management company. En route, data protection laws will almost certainly have been breached – did you really consent, when you renewed your insurance policy a decade ago, for your mobile phone number to end up on an accident claim marketer’s database? But no matter: the show must go on. And so claim after claim is made, creating a vicious cycle which sees the insurance companies pass on their increased costs by setting higher premiums for all drivers, irrespective of whether they have made a claim.

Sound familiar? Does it also sound like a racket? The Chairman of the Bar, Peter Lodder QC, thinks so. For him, referral fees are “bribes and add an unnecessary cost to litigation ... [they have] no place in a fair and open justice system.”

Most agree that they wish referral fees were not in the system and so although it is impossible not to welcome the MoJ’s announcement, a huge cautionary note needs to be sounded. What is required is a holistic approach to curing the ill of referral fees. The current system is complex, with any number of strands going off in any number of directions, and we must beware of piecemeal solutions. What, for example, is the government’s definition of a referral fee? How will the advent of Alternative Business Structures (ABSs) influence the personal injury and insurance markets? Could it be, thanks to the ABS regime, that a claims management company or insurer takes over a law firm? Market rumour is indicating that a vast majority of CMCs have expressed interest in doing just that when the time comes. Also, what of data protection, SMS spam and the RTA Portal?

Ultimately, reform of this sector comes down to one thing. How far are we from acknowledging, as Lord Jackson’s Report urged in January last year, that accident victims are not a commodity?