Are UK insurers really prepared for a post reform world?

Jason Spencer, Managing Director at Crawford Legal Services in the UK reviews the latest upheaval to the UK casualty market.

The Budget on 8th March has not helped clarify the uncertainty that has been left after the recent UK Government announcements for change in the personal injury market.

Nevertheless, proactive adaptation needs to be considered for a new world that is likely to see the claimant personal injury market developing new ways of working, litigants in person increasing in number, the temptation to commit fraud intensifying and pockets of developing adversarial behaviour.

Jason Spencer

Spencer: “Dealing with unrepresented claimants will slow the process. Insurers need to build teams to respond”


Add into the mixture the immediate pricing pressure caused by discount rate ‘inflation’ and you have a perfect storm of cost and process challenges.

The current UK personal injury reform proposals are as follows:

  1. Increasing the small track limit,
  2. A fixed tariffs to cap damages
  3. A ban on offers without medical evidence

These may well have a positive impact on the market by reducing both legal costs in the low value claims process and car insurance premiums as a result.

But is it really that simple?

One significant challenge will be the anticipated increase in unrepresented claimants who do not understand the claims and legal system. This will no doubt raise process confusion, result in more matters being contested and slow down the claims process.

For the insurance market, dealing with unrepresented claimants will require a change in culture and best practice. There is also a concern the small track claims reform will encourage opportunism and even fraud. It is conceivable we will see new claimant tactics designed to push claims above the small track limit and out of the Fixed Cost Portal at every opportunity.

Nevertheless, these proposed changes were broadly welcomed by the insurance market, a fact which was offset just days later when, the Lord Chancellor, Elizabeth Truss, cut the “Ogden Discount Rate” from +2.5% to -0.75% with effect from 20 March 2017.

Ogden tables are a set of statistical tables and other information for use in court cases in the UK.

Their purpose is to make it easier to calculate future losses in personal injury and fatal accident cases. The tables take into account life expectancy and provide a range of discount rates from -2.0% to 3.0% in steps of 0.5%. The discount rate is fixed by the Lord Chancellor under section 1 of the Damages Act 1996;[1] as of 27 February 2017, this rate is -0.75%.[2]


By making the rate negative, insurers will have to increase compensation sums whereas previously they were able to discount them to reflect potential investment returns.There is nothing ambiguous about the gravity of this change.

It has come as a shock to the insurance industry and despite a powerful lobby to Government, the chances of it moving in the opposite direction are regarded as very slim. This change will further impact claims behaviour and most likely result in increased adversarial behaviour on large loss claims.

It is said that reinsurers will be most affected by the rate change and that there will be a dislocation in the pricing due to insurance companies having different reinsurance programs; those with lower levels of reinsurance may need to increase their pricing immediately. This will in turn create pricing opportunities within the market.

Rather ironically, it is expected that UK motorists will have to pay between £50 and £75 more on an average comprehensive motor policy per year to help fund the change. Young drivers (18-22) and over 65’s will be hardest hit, at potentially £1000 and £300 respectfully.

The anticipated changes do not stop there. The Scottish Government is also looking at its discount rates; the introduction of Online Courts and the expansion of the fixed fee regime are just around the corner and further related Government reform is anticipated in the not too distant future.

These are deep rooted changes of the type not seen for many years and they have come at a time when there is already intense pressures on claims process modelling, customer service and competitive pricing. The clock is ticking but we are not sure that the market has been handed any real overall advantage.

Regardless of the merits or otherwise of these change, it is imperative that steps are taken to build robust frameworks capable of withstanding these further pressures and that as the direction of travel continues to move, service providers are proactively creating cutting edge operating models to anticipate the impact of change and in particular the expected shift in claims culture.

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