Civil Liability Bill

4th September 2018

David Gauke moves the Second Reading of the Bill to reform the claims process for making whiplash claims.

I beg to move, That the Bill be now read a Second time.

The Bill will make important changes to our personal injury compensation system, which it aims to make fairer, more certain and more sustainable for claimants, defendants, the taxpayer and motorists. It builds on our wider reforms to cut the cost of civil justice claims and strengthen the regulation of claims management companies. The first part of the Bill will deliver a key manifesto pledge to support hard-working families by bringing down the cost of living through a crackdown on exaggerated and fraudulent whiplash claims, which lead to higher insurance costs. The second part will create a fairer and more transparent method for setting the personal injury discount rate. The Bill will provide a compensation system that meets the rightful needs of claimants while saving the public money, in respect of both consumers and taxpayers.

Data from the Department for Work and Pensions shows that around 650,000 personal injury claims relating to road traffic accidents were made in 2017-18. That is almost 200,000 more than were made in 2005-06—a rise of 40%. Of those claims, we estimate that around 85% were for whiplash-related injuries. That is higher than in any other European jurisdiction. At the same time, figures from the Department for Transport show that, in the decade to 2016-17, the number of reported road traffic accidents went down, from around 190,000 to around 135,000—a fall of 30%.

Does the Secretary of State share my anxiety about the high cost of insurance for young people, many of whom need a car to get to work and to get around? Will the legislation help to tackle that problem?

Yes, I do share my right hon. Friend’s concerns. For many people, a car is not a luxury but is essential. The cost of insurance, particularly for young people, can be considerable. Indeed, as I will set out, that cost is likely to increase very significantly if we do not take action, which is one reason we have taken the measures that we have.

Will the Secretary of State tell the House why there is nothing in the Bill that will allow insurance companies to be held to account for whether or not they pass on the savings that the Bill purports to deliver for consumers?​

I am glad that the hon. Gentleman asked me that question, because not only have we had public assurances from insurance companies that represent 85% of the policies, but we will table amendments to the Bill to ensure that we can hold those companies robustly to account, particularly given their public commitments. If those are his concerns, I think he will find as the Bill progresses that they are met.

Will the Secretary of State elaborate on his last remark? What incentives or restrictions will there be for insurance companies to make sure that they pass on any savings? Historically, they have not done so.

I would challenge that. When the Competition and Markets Authority looked at the insurance industry, it found that it is a competitive industry. The factor that is most likely to ensure that benefits are passed on to consumers is competition, and the evidence suggests that there is competition in this area, but we will ensure that insurance companies provide robust information so that they can be properly held to account. As I say, the Government will bring forward amendments in this area, as we have committed to do.

I will give way, and then I am keen to make progress.

It is key that these savings are passed on to motorists. In the other place, my noble Friend Lord Sharkey tabled an amendment suggesting that one way of doing that was to give some regulatory power to the Financial Conduct Authority to hold insurance companies to account. Will the Secretary of State tell the House now whether, in bringing forward this amendment, real teeth will be used to ensure that insurance companies cannot get away with keeping this cash themselves?

If the right hon. Gentleman will forgive me, we will be coming forward very shortly with those amendments. He will not have to wait long to see the details of the amendments. He will see that we are striking the right balance in ensuring that insurance companies can be properly held to account and that we are not placing unnecessary and expensive burdens that ultimately get paid by policyholders. He will see that we are taking this issue forward.

I thank the Secretary of State for giving way. On this point about cost savings being passed on, does he take further comfort from the following two things? First, with no fewer than 94 car insurance companies operating in the UK, it is an intensely competitive market; and, secondly, in the two years after the reforms in the Legal Aid, Sentencing and Punishment of Offenders Act 2012 were introduced, car insurance premiums dropped by £50, suggesting that, in that case, the savings were passed on.​

My hon. Friend is right to raise both points. I come back to the fact that the CMA looked at this area and concluded that this is a competitive area. The history suggests that these benefits are passed on, but we are strengthening the Bill and will bring forward amendments very shortly that will enable us all to hold those insurance companies to account.

Many claims involving road traffic accidents will, of course, be genuine. It is absolutely right that they are compensated appropriately. Our reforms are focused on ensuring that genuine claimants have access to justice, receive a proportionate amount of compensation and that the system works for all who use it honestly. However, with major improvements in motoring safety in recent years, including the increased use of integrated seat and head restraints, it would be remiss of the Government not to ask what is going wrong. The reality is that some of these claims are not genuine. In 2017, the insurance industry identified almost 70,000 motor insurance claims that it considered to be fraudulent. As the learned Lord Hope of Craighead noted in the other place, it is necessary to do something to try to minimise the abuse that has given rise to such a large and disproportionate number of claims. The knock-on effect of all these claims is increased insurance premiums, particularly for young people and the elderly. As Members across the House will know, for many people, owning a car is not a luxury, but a necessity. That is especially true of those in rural communities, but it does affect all our constituents. That is why we have pledged in our manifesto to tackle these costs. Taken together, the whiplash measures proposed by the Government could result in savings of around £1.1 billion a year.

Around 85% of the UK motor and liability insurance market have publicly committed to pass on those savings to consumers. The Government intend to hold insurance companies to account by bringing forward an amendment, as I have said, to introduce an effective means for reporting on both the savings made and how they are passed on.

The purpose of our reforms is to compensate the genuinely injured and to improve the system for all by reducing the number and cost of whiplash claims and deterring fraudulent and unmeritorious claims. The measures in the Bill will do that by introducing a ban on settling whiplash claims without medical evidence. That will discourage fraud and incentivise insurers to investigate claims and provide reassurance to claimants that they are being compensated for the true extent of their injuries.

I thank the Secretary of State for giving way so generously. Could he confirm to the House that these medical examinations prior to an offer will have to be face to face?

They will be face-to-face medical examinations, which I believe will provide the degree of robustness in the system that we need.

The Bill will also provide for a new fixed tariff of compensation for pain, suffering and loss of amenity for whiplash claims. The high number of whiplash claims and compensation levels that we are seeing justifies that tariff being set by the Lord Chancellor. We want fair and proportionate compensation. Its cost should not be unfair to the motorists. We will provide some important flexibilities on how the tariff operates to make sure that it remains fair and adaptable where necessary to exceptional circumstances, inflation and changes in the claims market.

Does not the Minister accept that one of the further flaws in the Bill is that the genuine victim of a road traffic accident faces receiving less compensation than someone who has a similar accident but not in a road traffic scenario, who receives compensation set not by the Lord Chancellor, but under the judicial guidelines that exist at the moment?

This must be put in the context of a package of measures we are taking that seek to address the significant problem that exists, which I have sought to sketch out and which other hon. Members have highlighted: the very considerable cost that motorists face in insurance premiums as a consequence of whiplash claims, a number of which are clearly not genuine. Given that the number of road traffic accidents is falling yet the number of claims is going up, it is right that we take action.

Four years ago, my family and I had a large car crash. Ever since then, I have been pestered, almost continually, by unwanted phone calls from people trying to encourage me to fraudulently claim for whiplash. Will this Bill stop that?

In combination with the other measures that we are taking, I think that we are really able to address the problem that my hon. Friend has so eloquently highlighted and that she has personal experience of. What she has highlighted is that we do have a problem and that we do need to take action, and that is exactly what this Bill does.

I will give way, but then I am keen to make more progress.

I am very grateful to the Secretary of State. I have real concerns about the reduction again in access to justice. The group Access to Justice has highlighted that, each year, people injured in road traffic accidents will be denied access to legal advice if they want to go to court to claim for their injuries. How can he guarantee that that will not happen?

We have a system of small claims—by and large, these are very straightforward claims. We want to ensure that support is there so that people are able to bring the claims in person. As I have said, these are simple claims and it is right that we also take action to address some of the concerns that we have. I shall set out more detail in my remarks, but I believe that we have the balance right in terms of the increase to £5,000.

The Bill provides that the tariff will be set in regulations to be debated via the affirmative procedure by Parliament following Royal Assent. We are committed to tabling an amendment in Committee that will require the Lord Chancellor to consult with the Lord Chief Justice before making those regulations. The judiciary will have discretion to increase the compensation payable in exceptional circumstances and, after listening to the views in the other place, we have amended the Bill to ensure that overall compensation levels in the tariff are reviewed at least every three years. We listened carefully to the comments made by the Delegated Powers and Regulatory Reform Committee in the Lords. We accepted its recommendation and tabled an amendment to include a full definition of whiplash injury in the Bill in order to remove any ambiguity about what that constitutes in law.

The Government’s reform programme also includes measures—not included in the scope of this Bill—to increase the small claims track limit for road traffic accident personal injury claims to £5,000, and for all other personal injury claims to £2,000. As these claims are generally not complicated, they are suitable to be managed in the simpler, lower cost small claims track. This route is designed to be accessible to litigants in person without the need for a lawyer, although claimants may still seek legal representation if they wish. To support this, the Government are working with a wide stakeholder group including the insurance industry, claimant solicitor representative groups and consumer groups in order to design and deliver a simple-to-use online service to enable the vast majority of those claiming for low-value road traffic accidents who may well choose not to be represented by legal advisers to receive help and guidance to manage their cases through to conclusion.

The service will be designed for those with no legal advice or training, and will be as simple to use as possible to ensure that the claimant journey is as smooth as it can be. Raising the small claims limit for these RTA cases to £5,000 will work to control their costs, acting as an incentive for insurers to challenge, rather than settle, those cases that they believe to be without merit. This is vital to changing the unhealthy culture that sees whiplash claims as a way to make easy cash. The reality is that, as insurers are forced to offset the cost of the abuse by raising premiums, fraudsters are simply taking money out of the pockets of honest motorists.

If the Secretary of State is so confident about those increases in the small claims limit, why are they not on the face of the Bill?

These matters are governed by regulation and we are proceeding on that basis.

Will the Secretary of State give way?

I want to make some progress.

I am aware that there has been concern on both sides of the House about the inclusion of vulnerable road users—for example, cyclists, pedestrians and motorcyclists —in the proposed small claims track rise. I am grateful to Members for signalling in their arguments how such road users may be disproportionately affected by this measure.

I am very grateful to hear the Secretary of State say that, because this issue was flagged up by the Select Committee on Justice in our report. If he is going to say that it is his intention to exclude those vulnerable road users from the Bill, that would be a most welcome recognition by the Government of the evidence on the matter.

I think that on this occasion I might be able to satisfy my hon. Friend, which I cannot always say to him as the Chair of the Justice Committee. After listening carefully to the arguments made—including by my hon. Friend—I can now say that we intend to remove these vulnerable road users from the small claims limit changes. They are, of course, already excluded from the Bill.

I wish to say a few words about the timing of the whiplash reforms. Both the Justice Committee and the insurance sector have raised concerns about how quickly the reform programme can be implemented, including the necessity to build and test the online claims platform that I mentioned. We have listened to those concerned and resolved to push back implementation by a year to April 2020. This will enable careful user testing of the IT system to ensure that the system works well for all types of users on full implementation.

The personal injury discount rate is intended to reflect the return that it is reasonable to expect a claimant to receive on investing a lump sum award of damages for future financial loss. We must keep in mind that behind every claim there are real people with life-changing injuries, who need to make fundamental changes to the way in which they live their lives and who depend on their compensation awards. That is why we continue to support the aim that seriously injured people should receive full compensation to meet their expected needs, including care costs. The problem, however, is that on the evidence we have obtained, our discount rate of minus 0.75%—one of the lowest in the world—is leading to awards in personal injury claims averaging at 120% to 125% of the damages awarded, even after allowances are made for management costs and tax.

Such overcompensation is contributing to escalating costs in the NHS, which spent £2.2 billion on clinical negligence claims alone in 2017-18—a figure that is expected to rise to £3.2 billion in 2020-21. This is almost double the amount spent in 2016-17 and seven times the amount spend in 2006-07. This overcompensation is not sustainable. Money is being diverted that could instead have been spent on frontline public services such as our hospitals, schools and armed forces. As well as adding to the financial pressure on the NHS, the current framework for setting the discount rate is also creating pressure that is driving up insurance premiums, particularly for motorists.

The reforms that we propose to the discount rate will also save consumers money, as the insurance industry has committed to passing on these savings. The changes that we propose to make in the Bill to how the discount rate is set will make it fairer and more realistic for everyone. We intend to reflect the reality that claimants are more likely to invest their compensation in slightly higher risk diversified portfolios, rather than in very low risk investments under the current test.

The Secretary of State is moving very quickly to the nub of this Bill; this is about preventing overcompensation, not increasing undercompensation. Does he agree?

Very much so. It remains our objective to ensure that people are properly compensated—that they get the right level of compensation. The current process systematically overcompensates, and it is right that we address that because that compensation could be spent on frontline services. I am sure that that is what we would all want to do.

The Secretary of State is being very generous in giving way. Does he accept that we will have to watch the impact of this Bill on personal injury lawyers, as it is already difficult to get lawyers to stay in that field? Will he monitor the situation to ensure that all those involved in serious accidents get proper legal representation?

I think that it would be fair to say that personal injury lawyers have demonstrated adaptability in recent years and that the sector has proved to be resilient. Of course, the purpose of our compensation regime and insurance system is to ensure that those who should be compensated are compensated, and that is what we seek to do. As I said in response to the intervention of my hon. Friend the Member for Henley (John Howell), it is also right that we do not over- compensate.

The Bill contains provisions requiring the Lord Chancellor to review the rate promptly after Royal Assent and then at least once every five years, again providing greater certainty and clarity. Following amendments accepted by the Government in the other place, the first review will continue the current arrangements under which the Lord Chancellor consults the Government Actuary and Her Majesty’s Treasury before setting the rate. This will enable the benefits of the new system to be realised as soon as possible. All further reviews by the Lord Chancellor must be undertaken in consultation with an independent expert panel, chaired by the Government Actuary.

I stress that the Bill will not change the important role played by periodical payment orders, which account for a significant proportion of the compensation paid for future loss in cases involving the most serious and life-changing injuries. PPOs protect claimants against the risk inherent in relying on the investment of lump sums to produce a stream of income to meet their needs as they arise. PPOs are and will remain available in the vast majority of the highest-value NHS clinical negligence claims against hospitals, including those involving brain damage during childbirth, and in the large majority of long-term serious injury cases where the defendant is insured by a UK-regulated insurer.

The Lord Chancellor is being very helpful. I welcome what he says about periodical payment orders, because they are a significant transfer on to the insurance company away from the person who is awarded, in terms of both investment and the longevity risk. Will he make it clear—as the noble Lord Keen indicated in the other House—that when he sets the discount rate, having taken the advice of the panel as part of the Government action, he does so as Lord Chancellor in his own right, and not on behalf of the Government? That point was raised by a number of noble lords in the other House when it was said that this decision is taken not for Treasury or governmental reasons, but on the basis of that advice, by the Lord Chancellor in his capacity as Lord Chancellor, almost quasi-judicially.

Yes, it is a decision taken by the Lord Chancellor. I was in the Treasury at the time when the most recent change to the discount rate was made by one of my predecessors, and I can certainly assure my hon. Friend that it was very much a decision taken by the Lord Chancellor. [Laughter.] Perhaps I should leave it there.

One of the key elements of stopping whiplash claims and so forth was the banning of referral fees. There are more and more reports coming in that, perhaps for the resilience reasons that my right hon. Friend discussed, we are increasingly seeing ways of getting round the ban on referral fees. This is of great concern to many. These people are of course breaking the law. Has he considered this situation?

Of course we continue to look at this area. It is worth pointing out not just what we are doing in this Bill but the measures and action taken in the context of the Financial Guidance and Claims Act 2018, and it is right that we continue to do so. As I say, the Government are determined to find out whether the use of PPOs can be increased. We are very pleased that the Civil Justice Council, which is chaired by the Master of the Rolls, has agreed in principle to consider this issue.

The Civil Liability Bill is an important piece of our wider work to reform the civil justice system, including through the Financial Guidance and Claims Act, which strengthens the regulatory regime for claims management companies and bans cold calling. These reforms are needed to put personal injury payments on a fair, more certain and sustainable footing for the future. In turn, they will save the NHS and consumers money.

The Secretary of State says that the Financial Guidance and Claims Act bans cold calling. In fact, it does not create an outright ban on cold calling. Why not have an outright ban on cold calling before proceeding with proposals to increase the small claims limit, which would deny so many access to justice?

To be clear, we have taken robust action to deal with this issue. I would defend the Financial Guidance and Claims Act, which was a substantial step forward in ensuring that we do not see the abuses that we, in all parts of the House, are concerned about.

Legislating to ensure that genuine whiplash claims are backed up by medical evidence and that claimants receive proportionate compensation will reduce the number and cost of whiplash claims. This will allow insurers to pass on savings to consumers. As I have said, three quarters of the UK motor and liability insurance market has already publicly committed to doing so. In changing the system by which the discount rate is set, we want to continue to ensure fairness so that those who suffer serious long-term personal injury get full and fair compensation within a more informed and transparent system in which the rate is set by the Lord Chancellor at regular intervals with the benefit of independent expert advice. The prospect of the reforms we are proposing both to whiplash claims and to the discount rate has, according to the recent AA British insurance premium index, already triggered a fall in premiums in the expectation that claim costs will fall. I commend the Bill to the House.



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