Civil Liability Bill [HL]

Lord Sharkey Excerpts

Report stage (Hansard): House of Lords
Tuesday 12th June 2018 Lords Chamber

[Baroness Berridge (Con)]

My Lords, I have spoken at every stage of the Bill and I first thank the Minister for his time discussing matters with me.

For those who have been in your Lordships’ Chamber for the entirety of this debate, it is interesting to note how blame has been passed around like a squash ball. Is the fault that of the Government for not acting quickly enough, the insurance companies, those dastardly claims management companies or the judiciary for not getting a handle on this earlier?

While there is undoubtedly a problem with fraudulent claims, the one group not to blame is those people who are genuinely injured in this manner in an accident. Some of these cases indeed reach court: I have the privilege of representing those people.

Before I proceed, let me also comment on the matter of low-end claims or minor claims. I have met many a claimant for whom the difference in damages now proposed by the introduction of the tariff, taking some damages from four figures—£1,200 or £1,400—down to the likes of £470 is a significant matter for many people’s incomes up and down this country. I cannot have it portrayed that this might not make a great deal of difference to many ordinary people in the country.

From my experience in your Lordships’ House, we are in an unusual situation. We have so often spoken of the scrutiny of legislation needed here to avoid unintended consequences. But in this Bill, the intended consequence—whether that is the conscious intention of the judge or the virtually certain consequence of the legislation—will be to affect that group of people. Therefore, we are in the unusual situation where an amendment is laid on Report that is like a Second Reading point, because it is a point of principle about the Bill. It is also affects a point of principle that, as a law student, was the DNA of our justice system. It was taught to you from the moment you entered your lecture theatre—where, I have to say, I was taught by some amazing people.

I have thought much since Second Reading about how these genuine claimants might respond—the hundreds of folk who I have had the privilege of sitting with in waiting rooms on the northern circuit when I was a barrister—bearing in mind that they also, of course, care about their premiums and the societal implications of fraud, which is alleged to be so prevalent. It is these people to whom the justice system and the amount of compensation must be explained and make sense.

In my view, a genuine complainant might respond: “Her Majesty’s Government say that the insurance companies are to blame as well. Have you made them do everything possible before depriving me of my compensation?”. In fact, we know that insurance companies have often made commercial decisions to pay out for possible claims just to get rid of a claim at an earlier stage because it is cheaper—even suggesting to people that they might have been injured although they themselves have not mentioned it. Her Majesty’s Government have not asked the insurance companies to stop this behaviour first. The insurance companies have paid out without medical reports, so would it not be fairer to genuine claimants to have a period with the medical reports that the legislation will make mandatory before reaching for such a drastic policy solution?

Secondly, a genuine claimant might respond: “Was this situation so dire for the insurance companies that insuring everybody was really at risk? How are their profits doing?”. A report from Direct Line Group, the largest insurance group, shows profits for the financial year 2017 of £610.9 million—a leap of 51.4% on 2016. Dividends were up 40.2%. In its interim report in 2017, one of the reasons it gave was fewer than expected bodily injury claims. It is not the only insurance company to give this reason at the moment. I quote from the Insurance Times of 24 May this year:

“Fewer whiplash claims have helped Sabre Insurance Group’s gross written premium return to 2017 levels. Sabre said: ‘Pricing action was taken in early March to reflect the improving claims trends, specifically lower whiplash claims frequency’”.


Could the insurance companies not be asked to use perhaps a fraction of these profits to fight the fraud before genuine claimants have to be affected by such a policy decision? I could not help but notice that genuine claimants might actually see the flaw in the system: if, for example, Harry Kane were to get injured in a road traffic accident and was unable to captain England, that would probably merit more in compensation than my having a whiplash injury.

Genuine claimants might respond to the Government and ask, “With those enormous changes that you made as a result of the Jackson review and LASPO, introduced in April 2013, what happened then to premiums and savings made?” I repeat the figures I outlined in Committee. Insurers have saved £8 billion in claims costs between 2010 and 2016. The figure to date is £11 billion. But premiums have gone up from £385 in the second quarter of 2013 to £493 in the last quarter of last year, according to the ABI’s own premium tracker—an increase of 28% since the LASPO changes. Would not a genuine claimant ask, “Can the Government just make sure that the premiums will actually come down so that my compensation that I should have got will in fact be reallocated in lower premiums to everybody else, and not in higher profits for the insurance companies”?

Unfortunately, the legislation at the moment is unable to ensure that. There is nothing wrong with higher profits. Pension funds need them—I recognise that. But this is genuine claimants’ compensation that we are asked to redistribute in this way. I agree with the principle mentioned by the noble and learned Lord, Lord Brown of Eaton-under-Heywood, that this is a policy decision. For the reasons I have outlined, I do not think that we have reached the point—although the time is fast approaching—to so affect genuine claimants and their understanding in the waiting rooms of our courts throughout this country of what a justice system should deliver. More can be done, so unfortunately, at this time, I cannot support the Government.

[Lord Sharkey (LD)]

My Lords, I will speak briefly in support of Amendment 18, in the name of the noble and learned Lord, Lord Woolf, and, as a consequence, I will not be speaking to my Amendments 9, 10 and 17.

As this Bill has progressed, I have repeatedly pointed out that the tariff levels proposed by the Government lack any substantive justification. It remains entirely unclear why these specific amounts have been chosen. What is clear, of course, is that they are very substantially lower than the amounts currently awarded. What is also clear is that they require genuine claimants to suffer a very large reduction in damages in order to try to reduce the incidence of alleged fraud or unmeritorious claims. The incidence of such claims is highly contested and relies, in part, on data that unhelpfully categorises dropped claims as probably fraudulent.

The noble Lord, Lord Faulks, if I heard him correctly, asked if there can be any doubt about the incidence of whiplash claims. The answer is yes; such a doubt exists, for example, in the House of Commons. The House of Commons Justice Select Committee discussed the question in its report of 15 May this year. Paragraph 2 of its conclusions and recommendations states that,

“we are troubled by the absence of … data on fraudulent claims and we find surprising the wide definition of suspected fraud that is used to collate the ABI’s statistics. In particular, the failure by the ABI to break down their figures by the nature and type of claim, and to isolate RTA PI claims broken down by type of road user, is a significant and regrettable omission that weakens their evidence base”.

The committee went on to recommend that,

“in the interests of accuracy, the Government work with the ABI to develop a more nuanced approach to avoid conflating innocent—if unexpected—consumer behaviour with fraudulent activity”.

It seems wrong in principle to look to genuine claimants to pay for what may reasonably be characterised as, at least partially, a failure of the insurance industry’s own practices. The long-standing practice of no-med settlements springs to mind here.

The Government’s proposals would also create serious anomalies, as mentioned at Second Reading and in Committee, and as the noble and learned Lord, Lord Woolf, has again mentioned today. A whiplash injury of 24 months’ duration suffered at work would attract damages of up to £6,500. Under the Government’s proposed tariff, that injury would attract £3,725 in a road traffic accident, which is obviously undesirable and unjust. Finally, as far as I can see, the Government’s forecast reduction in the cost of fraudulent claims takes no account of dishonest claimants trading up. The Government’s proposed tariff may well deter small claims, but it may equally encourage dishonest claimants to attempt to move up the duration ladder to compensate.

I believe that we should remove Clause 2, which would leave the determination of damages where it currently is, with the judiciary. It would give the Government and the insurance industry time to reflect further on how better to assess the level of fraud and time to work out how to reduce it without unreasonably burdening genuine claimants, creating unacceptable and unjust anomalies in awards and creating incentives for larger dishonest whiplash claims.

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Moved by

[Lord Sharkey]

32: Clause 4, page 4, leave out line 27 and insert—
“(i) of the whiplash injury, and(ii) that the claim does not arise from cold-calling,and”

[Lord Sharkey]

My Lords, Amendments 32 and 39 return to the issue of cold calling, the problems of which we have debated on many occasions in this House. Our latest attempts to curb the menace of cold calling became law with the passing of the Financial Guidance and Claims Act, but, despite frequent debates and new laws, there remains significant uncertainty as to whether our current set of regulations is as effective as it should be. In particular, as we said in Committee, we are concerned at the extent to which cold calling will continue to drive fraudulent claims for RTA whiplash injuries. The Commons Justice Committee shares these concerns. Paragraph 133 of its 15 May report says:

“We conclude that the Government’s current package of reforms creates a risk of increasing cold calling by, or on behalf of, CMCs; we welcome the restrictions on cold calling in the Financial Guidance and Claims Act, but believe they do not go far enough and that an outright ban should be introduced. In the meantime, we recommend that the Government monitor the effectiveness of the proposed restrictions, particularly on calls from overseas, and that technical remedies are urgently explored to tackle any loopholes that might be exploited by overseas operators to circumvent the restrictions; we ask that the Government report to us on progress with this within a year of the proposed restrictions being implemented”.


In Committee we discussed amendments that would require an assessment of the real-world effect of all the current regulations trying to prevent cold calling. We also discussed the possibility of trying to cut off the revenue streams of cold callers by banning the commercial use of data so collected. I think that the Minister understood our concerns: he acknowledged, as he did again this afternoon, what he referred to as, “the problem of regulating the unregulated”. He mentioned that the Government were seeking to approach this problem by regulating the use of material gathered by cold calling, and we entirely support this approach. There is a widespread unease that we have not really cracked this problem yet—and I believe that the Minister shares at least some of this unease.

Our Amendments 32 and 39 do two things. First, they give the Minister the opportunity to address the House once again on the issue of whiplash and cold calling. Secondly, they propose yet another method of coming at the problem of cutting off the revenue stream of cold callers. Clause 4 sets out new rules against settlement of whiplash claims before medical report. Amendments 32 and 39 extend these rules to cover whiplash claims arising from cold calling. Amendment 32 does this by making it a breach to settle without seeing appropriate evidence that the claim does not arise from cold calling. Amendment 39 allows the Lord Chancellor to specify the form of any evidence required to demonstrate that the claim does not in fact arise from cold calling. Both amendments mirror the provisions in the Bill to ban pre-med settlements.

I realise, as I think we all do, that clamping down on cold calling is a difficult and complex business—but it is also vital. I hope that Amendments 32 and 39 will suggest to the Government a way forward in their attempts to cut off revenue streams and I very much look forward to the Minister’s reply. I beg to move.

[The Deputy Speaker (Lord Faulkner of Worcester) (Lab)]

I advise the House that if Amendment 32 is agreed I shall not be able to call Amendments 33 and 34 for reasons of pre-emption.

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The Government agree that social nuisances such as cold calling must be curbed, but replicating actions already enshrined in other legislation is not the way to do it. While I appreciate noble Lords’ intent, I respectfully request that they withdraw or not move their amendments.

[Lord Sharkey]

I thank the Minister for her reply about cold calling. It is a pity because, as I said in moving Amendment 32, there is a widespread feeling that things are not working. I hesitated to say this in the previous debate but I got three calls over the weekend—I thought it might be more appropriate to mention that now rather than earlier. There is a common unease, as my quoting the report from the House of Commons Justice Select Committee shows.

It may get better, and I hope it does, but, as I am sure the Minister knows, I was deeply involved—as was the whole House—in trying to craft regulations in the then Financial Guidance and Claims Bill, which were substantially watered down when they reached the Commons. When they left here, they were much stronger than they turned out to be after the other place had had its way with them. Again, that seems to reinforce the possibility that actually we have not yet got a grip on this. I ask the Government to reflect on whether or not the current package of regulations is going to work and exactly how we will monitor its working. In particular—addressing the point the noble and learned Lord, Lord Keen, made a moment ago—given that these factories in Pakistan can generate a million calls a day, then close down and reopen next door as another, separate legal entity, how are we going to deal with that if not by cutting off the revenue? I would welcome a conversation—perhaps not on the Floor of the House—about what progress we think we have made in the existing regulations in cutting off the flow of the revenue. In the meantime, and pending that kind of conversation, I beg leave to withdraw the amendment.

Amendment 32 withdrawn.

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Moved by

[Lord Sharkey]

46: Clause 6, page 6, line 2, at end insert—
“(4A) The Treasury must, within one month of the passing of this Act, make further regulations specifying that the Financial Conduct Authority is to require all insurers holding a licence to offer UK motor insurance to publish a report—(a) on the loss cost savings achieved as a result of the provisions of Part 1 of this Act, and(b) how, and the extent to which, such savings have been applied to reduce motor insurance premiums.(4B) The first such report from insurers must cover the period of 12 months beginning with the first day of the month immediately after the commencement of Part 1 of this Act and must be sent to the Financial Conduct Authority by the end of the period of 15 months beginning with the commencement of Part 1 of this Act.(4C) The regulations must grant the Financial Conduct Authority the power to require further reports on an annual basis. (4D) The Financial Conduct Authority, within the period of 18 months after the commencement of Part 1 of this Act, must make and publish a reasoned assessment of whether it is satisfied that each such insurer is passing on to customers any cost benefits arising from Part 1 of this Act.(4E) The regulations under subsection (4A) must make provision for the Treasury to grant powers to the Financial Conduct Authority to enforce a requirement for insurers to pass on loss cost savings, achieved as a result of the provisions of Part 1, from insurers to consumers through a reduction in the cost of premiums if, after the period of 30 months following the commencement of this section, the Financial Conduct Authority advises the Treasury that such powers are necessary.”

[Lord Sharkey]

My Lords, Amendment 46 is in my name and those of my noble friend Lord Marks, the noble Earl, Lord Kinnoull, and the noble Lord, Lord Beecham. I am grateful to them all for their support. The amendment addresses the question of pass-through. How much of the savings generated for insurance companies by whiplash reforms would in fact be passed on to motorists, in the form of reduced premiums?

Most of the insurance companies wrote to the Lord Chancellor in March. The penultimate paragraph of their letter said that,

“the signatories to this letter today publicly commit to passing on to customers cost benefits arising from Government action to tackle the extent of exaggerated low value personal injury claims and reform to the personal injury Discount Rate”.

There would obviously need to be clarity about: the definition of a cost benefit; whether all customers would share the promised distribution or just those with motor insurance; and how the savings would be passed on. This might be in lowered premiums or just the promise of lower than expected premiums in the future, for example.

The House of Commons Justice Select Committee again noted the problem in its May 2015 report. Paragraph 3 of its conclusion and recommendations said:

“Potential savings to motor insurance customers are central to the policy justification for these reforms, but we conclude that the Government’s estimate of the pass-through rate may be over-optimistic, given the lack of robust evidence and the unenforceable nature of insurers’ promises to reduce premiums”.


The committee recommended that,

“if the reforms are implemented, the Government work with the ABI and either the Prudential Regulation Authority or the Financial Conduct Authority to monitor the extent to which any premium reductions can be attributed to these measures and report back to us after 12 months”.

Our amendment would require the Treasury to make regulations specifying that the FCA would require all motor insurers to publish a report on the savings made as a consequence of the whiplash reforms in the Bill, and how and to what extent these savings have been applied to reduce motor insurance premiums. It specifies the period to be covered by these reports as 12 months after commencement and how long the insurance companies would have to submit reports to the FCA, which would be three months. The FCA would then have a further three months to make and publish a reasoned assessment of whether the insurers have made the promised passed-on savings. The amendment also gives the FCA the power to request further reports from insurers annually as it sees fit. Finally, it would ensure that the FCA has the power to force the insurance companies to pass on savings if they have not done so, or done so sufficiently, within 30 months of commencement.

I think most if not all noble Lords would agree that the insurers should be held to their promise. To do that, we need to monitor and assess whether they have in fact held to their promise and, if they have not, to have the power to force them to do so. To do these things requires a tough and experienced regulator. Only the FCA has the resource, reputation, toughness and experience to be the regulator to do that, which is why this amendment gives it the job.

I know that the Minister feels strongly that insurers must be held to their promise and I realise that achieving this may be a rather complex matter. However, it is critical that we achieve it. It would be absolutely scandalous if savings made by insurers as a consequence of the Bill were retained by insurers. Amendment 46 sets out a method by which we can hold insurers to account for their promises. I beg to move.

[Lord Keen of Elie]

My Lords, we have on several occasions referred to the savings under these measures, which will be passed on to consumers by motor insurers. I understand that a number of Peers clearly have concerns about ensuring that this actually occurs.

I should say that the Government hold firm that the highly competitive nature of the motor insurance sector will mean that insurers have little or no choice but to pass on savings to consumers or risk being priced out of the market. An in-depth investigation by the Competition and Markets Authority in 2012 found that the motor insurance market is highly price-sensitive, driven by low levels of market concentration and high levels of penetration by price comparison websites. Resulting estimates indicate that 85% of insurance savings from whiplash measures will be passed on to the consumer. Finally, as the noble Lord, Lord Sharkey, observed, motor insurers providing cover to 84% of the UK market have already written to the Lord Chancellor to make the welcome commitment that they will pass on any savings.

That said, the Government are not unsympathetic to the underlying intention of Amendment 46, as tabled by the noble Lord, Lord Sharkey. The point is that having made a firm commitment, insurers should be accountable for meeting it. It is, however, important that any amendment in this regard is drafted with care so that it is effective but does not also impose requirements that push beyond the recognised remit of regulators such as the Financial Conduct Authority. I also observe that we must ensure that any legislative requirement in this area does not infringe on the very important area of competition law.

I therefore confirm that the Government will accept the views of Peers and develop an amendment, to be tabled in the House of Commons, that meets these requirements and provides an effective means for reporting on the public commitment made by the insurance sector, showing that it results in savings being passed on to consumers and thereby holds insurers to account. This is quite a complex and delicate process and it is ongoing at present.

I add only one further matter. Requiring a report to be made within 12 months of commencement is not likely to be the best way forward because claimants have a three-year period in which to make claims. After the Bill receives Royal Assent, there will therefore be an overhang for up to three years of claims that fall outwith the requirements for the tariff to be applied. We will have to look carefully as well at what point it would be appropriate for a report to be made and laid before Parliament. However, that is under active consideration and, in light of that indication, I hope the noble Lord will consider it appropriate to withdraw his amendment.

[Lord Sharkey]

My Lords, I am very grateful for the Minister’s answer and encouraged by it, too. I take the points about being careful on competition law and the period over which we assess the insurance companies’ return to the people they insure. I will follow with interest the progress of a government amendment as it goes through the House of Commons. Having said that, I beg leave to withdraw the amendment.

Amendment 46 withdrawn.