The civil justice reforms have had some time to bed in. As we approach the end of 2014, what has the impact been on retail claims, and what is likely to happen next? Andrew Evans reviews the emerging picture.
Time to take stock
It is undoubtedly still early days in the life of the reforms, however, an initial picture - in lower value ‘volume’ claims at least - is starting to emerge. It will take longer for changes in the higher value arena to filter through as these more complex, longer lifecycle ‘value’ claims (damages over £25,000) require time to mature. To be considered also is the impact of claimant solicitors’ delaying strategies unravelling, as we approach the end of the primary limitation period, three years post-inception of the reforms.
Some initial observations
Our headlines from comparing retailers’ volume claims during the period of 16 months before the employers’ and public liability portal was introduced, with the period of 16 months after, are as follows:
- General damages awards have increased by approximately 10%, as expected.
- Claimant costs and disbursements have decreased by just over 50%.
- We have recorded reduced ‘notification times’ (incident date to us receiving the claim) of around ten days as claims are received via the portal.
- Many clients have improved their processes so that authoritative, early decisions on liability can be made to ensure the right claims are retained within the portal.
- Claims lifecycles are showing signs of reducing.
- Claims volumes remain stable.
An insufficient number of value claims have been made post-portal to forecast the overall impact on retailers’ books, however, we will be looking to model these in more detail as the data allows. Costs budgeting has been introduced and applies to these claims, with the aim of reducing legal costs. However, there remains some uncertainty as to whether this is what will happen. We are still seeing a mixed judicial response to budgeting and, while costs certainty may be more likely to be guaranteed as a result of the budgeting process, lower costs overall may not be, as new elements such as the claimant’s percentage fee for preparing the budget, are added in. This is before we see a real increase in damages in the multi-track.
What to watch
To really appreciate the overall impact of the reforms on claims costs we will need to wait for claims maturity, and for inflation on the volume claims which have been converted into value claims. There is also the question of initiatives in other sectors, such as the current measures aimed at reducing fraudulent whiplash claims, which could cause would-be fraudsters to look to gain in other sectors. The retail sector is always a prime target as claimants (and their representatives) seek to exploit reputational interests.
One example of claims volumes increasing in new areas is that of noise induced hearing loss (NIHL) claims in the manufacturing sector. Giving evidence to the special public Bill committee examining the Insurance Bill this month, Philippa Handyside of the Association of British Insurers indicated that the industry had seen a staggering increase of 400% in NIHL claims over the last four years.
While an increase in NIHL claims is unlikely to impact directly on retailers, such a statistically significant rise in claims does show how versatile the claims industry is in adapting itself relatively swiftly under pressure. It is therefore not difficult to profligate that retailers may also soon be troubled by a similar phenomenon, perhaps in slip and trip claims increases, as organised fraudsters move their sights from whiplash to such claims where there is more scope to exaggerate soft tissue injuries. Local authorities are already reporting increased injury fraud. Retailers are highly unlikely to be immune, and will need to be alive to fraudsters either in their shops or infiltrating areas of their workforce, some examples of which we have already seen.
A final area to monitor relates to any conditions which are subjective in their diagnosis, or where the medical literature is developing and uncertain - chronic regional pain syndromes or psychological injuries triggered by an injury are both suitable examples. Such conditions may not be obvious from the outset of a claim when liability is being considered but do have the potential to significantly increase its value. Given that both the amount of damages and the amount of success fee are linked directly to the crystallised financial losses, it is in both the client’s and their lawyer’s interests to delay as long as possible.
Longer term predictions – the retail claims book overall
Savings on the volume claims (those of lower value) are to be welcomed – albeit that at 16 months maturity the majority of claims settled to date are of low value / low complexity and the costs reduction of 50% may erode as more mid-range value claims settle. Moreover any predictions of whether the reforms have had a beneficial impact on retailers’ claims books will depend on whether savings are also realised, once value claims have been taken into consideration. If the ratio between volume and value claims experienced by retailers does shift and is not sufficiently addressed by the reforms, or if an effective volume and value claims strategy is not carried forward, it is possible that current realised savings will soon be eroded. The good news for retailers is that they are slightly less exposed to disease related claims, such as NIHL. However the sector must not be fooled into thinking that a higher portal retention rate and savings on the attritional losses is everything – it is still very early days and it will be a while yet before the real picture emerges.