Government to ban incentives in the latest crackdown on insurance fraud

The government unveiled its intention to ban law firms from “encouraging” people to make claims by providing them direct incentives like iPads or cash. About time too, we say.

The 2010 report Common Sense Common Safety, by Lord Young, advised as much. Introducing incentives pollutes the claims procedures. Incentives are responsible for such terms in the dictionary of day-to-day life such as “cash for crash”, “compensation culture”, and “ambulance chaser”. The sort incentives are totally unnecessary as well – why would getting you an iPad possibly make you more likely to claim what might be significant levels of compensation fuel injuries? It’s beyond me.

This latest announcement accompanied the Ministry of Justice consultation which addressed the same ground, and also recommended raising the small claims limit for whiplash, from £1000 to £5000. The proposed reforms are part of a new tide of reforms in the personal injury sector focused on insurance fraud. The reforms will additionally expect the courts to dismiss compensation claim applications “in full” where the claimant has been “fundamentally dishonest”.

The Ministry of Justice (MoJ) completed its’ already flagged reforms to whiplash claims for compensation with the ban on lawyers making pre-medical deals, and the proposal of new unbiased medical panels. It appears that the MoJ believes that its’ actions to date has had a “major contribution” to the drop in motor insurance premiums over the last year. Really? At the same time, however, the Association of British Insurers have reported recent figures showing that the number of fraudulent motor claims rose to a record 59,900 in 2013, at a value of £811 million (a rise of 34%).

The Ministry of Justice has also said that the insurance industry has promised that it will transfer any savings that occur from these reforms “straight to customers”, but don’t bet your life on this. It wasn’t at all surprising to hear that many insurers still state that, before a decrease in premiums can be offered to the public, yet more additional reforms were needed. Of course they do – they’re out to make profits for their shareholders, and do so by keeping the level of premiums high while reducing the amount they pay out in insurance claims . Contrary to the claims made by the insurance industry, that doesn’t appear to be any real evidence that recent reforms to the whole compensation claims process has directly produced any real reductions in levels of insurance premiums paid by the public.

In spite of the demand from a significant number of personal injury lawyers, a ban on incentives has oddly been resisted so far by the Solicitors Regulation Authority (SRA). Why? It beats me?.

Unless it would lead to considerable injustice, the proposal to dismiss compensation applications where the claimant has been essentially dishonest will apply. It will be a topic for the court to determine whether a claimant has been dishonest, the MoJ spokeswoman said, based on the individual case and other factors.

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    Businesses set to suffer as small claims limit increases to £10,000

    As a result of the Jackson Reforms to Civil Litigation which came into force at the start of April this year, the small claims limit has doubled, now standing at £10,000 for all claims excluding personal injury compensation. The upshot of these changes will no doubt be an increase in the number of cases pursued using the small claims process.

    Whereas the fast and multi-tract claims procedures tend to result in the losing party paying the winners costs as well as their own, the small claims procedure tends to lead to each party paying the majority of their own legal costs. The aim of the reforms is to encourage litigants in person and businesses with financial disputes to make use of the small claims procedure and mediation.

    The government has allocated more resources to the small claims track and litigants in person recently, the procedure and legal arguments used are not markedly different to those for higher value claims. However, because the losing party will not need to pay the other side’s costs, businesses could now find themselves out of pocket even if they win the case. As a result, many businesses are unlikely to make claims, meaning that they may end up being forced to waive up to £10,000.

    Many are concerned that the increased limit could make the non-payment of debts under 10,000 by debtors more probable because they know that, either way, they added expense will be limited.

    It is therefore crucial that creditors who are owed up to £10,000 instruct a specialist solicitor prior to court action who can help them recover debt through other avenues.

    Bonallack & Bishop – here to help with your business

    Our solicitor have years of experience helping businesses in financial disputes and they would be happy to help you with your business today.