Personal Injury Fraud

Andy Slaughter Excerpts

Wednesday 18th November 2015 Westminster Hall

[Andy Slaughter (Hammersmith) (Lab)]

I, too, congratulate the hon. Member for Lincoln (Karl MᶜCartney) on securing the debate. The subject is not totally unfamiliar; indeed, it was debated quite a lot in the last Parliament. I refreshed my memory earlier about a debate we had almost exactly two years ago—on 7 November 2013—entitled “Motor Insurance (Whiplash)”. I spoke for 30 minutes in that debate, and I refer hon. Members to that speech to spare them from having me repeat the whole of it now. Much of it is still relevant, which is sad in a way, and that might be an indictment of the Government for not having done more. Perhaps we can blame that on the coalition, which was a completely different organisation—there are no Liberal Democrats around to protest any more, so we can always blame them.

I dealt with this issue for five years, and I thought I had finally got rid of it, but my hon. Friend the Member for Kingston upon Hull East (Karl Turner), who is responsible for dealing with it, is away somewhere, so I am reprising the subject. The last time we debated it, the Under-Secretary of State for Justice, the hon. Member for North West Cambridgeshire (Mr Vara), had just taken over the brief, and now the current Minister is acquainting herself with it. It is an interesting subject, and perhaps I may say without any disrespect to the hon. Member for Lincoln that there was good and bad in what he said. I was with him for much of his speech, until at the end he drew conclusions that did not all perfectly derive from the facts at his disposal. One of the problems is that we do not always have the facts that we need on this issue.

I think we all detest cold calls, because we believe they are parasitical, and they are severely irritating. As far as I am aware, cold calls from law firms are already banned. Many of the cold calls that we receive come from call centres run outside the UK, which have become an industry in themselves. I do not think a single Member of the House, or indeed member of the public, would not want a crackdown on them, and want them to be banned and excluded. The problem is that it is difficult to do that, but I hope that the Minister will be able to say what the Government intend to do along those lines.

[Chris Philp]

Even if one cannot ban calls emanating from outside the UK, there could certainly be a ban on any UK organisation, including law firms, using information derived from such extraterritorial calls. Will the hon. Gentleman join me in calling on the Government to institute such a ban?

[Andy Slaughter]

As I have said, I believe that calls made in that way are banned. I will come on to say a bit more about law firms in a moment, but I think that would be the case for any such form of abuse.

The other area where I am entirely at one with the hon. Member for Lincoln is on referral fees. Again, the previous Government came to the issue late in the day. There were late amendments—on Report, I think—to the Bill that became the Legal Aid, Sentencing and Punishment of Offenders Act 2012, banning referral fees. We thought that that did not go far enough and would have liked them to be criminalised. I am afraid that the implementation by the Ministry of Justice was rather cack-handed and amateur for a while. That is getting better, and there has been a crackdown on claims management companies, which I welcome, as well as an extension of the ban on referral fees. Referral fees do not have any place in the British legal system. Those are the key ways of stopping such abuse.

The percentage of personal injury claims being made for whiplash has fallen, but Members are right to ask why the number of personal injury claims is increasing while the number of motor accidents is falling. One reason, undoubtedly, is greater use of advertisement, which encourages more people to claim. That does not necessarily mean that the claims are fraudulent, but it does mean that there is an industry encouraging the making of claims.

Thus far, so good, but the hon. Gentleman suddenly shoehorned into the end of his speech the conclusion that the small claims limit for personal injury should be extended to £5,000, the limitation period should be 12 months, and the quantum in such cases should be rigidly enforceable. I am afraid I cannot agree with him on that. It would be to attack a basic principle of English law—the principle of the courts’ discretion.

We already have clear Judicial Studies Board guidelines on quantum. There are reasons for the relatively short limitation period of three years. The hon. Member for Lanark and Hamilton East (Angela Crawley) mentioned that injuries are not always immediately evident. As for the old chestnut about raising the small claims limit to £5,000, I am entirely in agreement that after 16 years, if that is how long it has been, it is right to raise the limit proportionally by whatever the inflation rate has been during that time. It might mean taking the limit up to £2,000 or something of that order. Raising it to £5,000, however, would exclude 90% of all personal injury claims. For someone on a low income in particular, £5,000 is a substantial amount of money, and it is wrong for people in that situation not to have the benefit of legal advice. I see an ABI agenda there—that is what it always wants. Insurance companies are particularly keen on effectively taking lawyers out of the personal injury process, so that the relationship is between the victim and the insurer.

[Julian Knight]

Does the hon. Gentleman recognise that it is not just about an ABI agenda but about trying to reduce the cost of insurance to the public? The personal injury claim blight means that hard-working families must pay extra for their insurance.

[Andy Slaughter]

That is an opportune intervention, because that was to be my next point.

[Karl MᶜCartney]

Before the hon. Gentleman moves on to that next point, may I stay with the previous point and say that I am no apologist for lawyers and solicitors or their firms, or for the ABI or any insurance company? In fact, I am no friend of any insurance company. I am here, as are many other hon. Members, because our constituents’ premiums rise every year. Unfortunately, no harm comes to insurance companies when premiums go up to pay for fraudulent claims, because they just pass on the costs in their turnover figures to the little people at the bottom of the scale. I see where the hon. Gentleman is coming from, but I was trying to say that we need to root out the lawyers, solicitors and claims management firms that use the moneys available in the system to feather their nest.

[Andy Slaughter]

I entirely accept what the hon. Gentleman says, but I am perhaps slightly more sceptical about insurance companies’ use of data. There is an idea that whenever premiums fall, as they have recently, that is because firms are cracking down on fraud, and when they rise it is because of an increase in fraud. The reality of finances, insurance companies’ activities and fraud is far more complicated. For many years, the figure for fraud that was often given was 7%. I do not know whether it has changed—I think the figure of 11% was quoted in the debate in relation to one insurer—but 7% is a high figure for fraud. Of course, that still means that insurance companies estimate that 93% of claims are non-fraudulent and come from genuine victims. However, I have heard the figure for the percentage of claims that are partly or wholly fraudulent put as low as 1%; I have also heard it put much higher than 7%.

[Karl MᶜCartney]

I need to clarify those statistics, because the percentages relate to identifiable fraud. That is not to say that all claims are fraudulent—far from it. None of us minds people who have really been injured receiving their just compensation. Fraud that is easily identifiable, which the insurance companies chase down, is at the level the hon. Gentleman is talking about, but that is not to say that the 93%, or any other residual percentage, represents bona fide claims. There might well be other fraudulent claims within those percentages.

[Andy Slaughter]

I do not want to argue about statistics endlessly, given that part of my argument is that the statistics are not robust. I am sure that the hon. Gentleman looked at the briefing for the debate by the Law Society, which is of course the professional body for solicitors. There are concerns that insurers use figures about levels of fraud as it suits them.

The point that concerns me is that the remedies that insurers resort to are, in some cases, more likely to encourage fraud. The principal one is third-party capture. There is an increasing trend for insurers to contact victims directly, offer a settlement and discourage them from contacting solicitors—and, if they have contacted them, to ask for information about that. They are not entitled to that information, but rather in the manner of claims managers who, as we have heard, use bullying behaviour to try to substantiate fraudulent claims or exaggerate claims, I am afraid insurance companies increasingly approach people in the same way, to try to get a quick, early settlement without medical reporting or professional advice. That may well minimise the value of the claim—I have no doubt that that is the intention—so someone who has a genuine and possibly quite serious injury may settle for a relatively trivial sum of money. However, it may also encourage fraud, because if there is no medical report or lawyer to act as an arbiter of whether a claim is genuine, the insurer, for commercial reasons, might settle a claim that could well be fraudulent. We should be worried about the growth of third-party capture, which would undoubtedly be massively encouraged if small claims were lifted disproportionately.

I am not saying that there is not bad practice by law firms, because there certainly is. I am talking not even about dubious practice, but about sharp practice in marketing skills. However, as one would expect, the overwhelming majority of solicitors act in a proper and professional manner. They have the ability, through the askCUE system, to determine whether someone who comes to them with a claim has claimed previously, and they are encouraged to make such checks to see if that is happening.

I sound a note of caution not because I think that anything raised by the hon. Member for Lincoln is inappropriate. It is just that, as in many things, there is a balance to strike. I was glad to hear the hon. Member for Lanark and Hamilton East speak about victims. Let us not forget them in this case. Political parties often speak up for victims of crime, but victims of accidents are also victims. I would not want to throw the baby out with the bathwater and say that genuine victims of accidents should not get access to justice or be properly remunerated.

I baulk at the constant refrain about a compensation culture. Time and time again it has been shown, including by the Government’s own experts, that no such culture exists in this country. On the contrary, recent consumer surveys have shown that only 17% of people say that their default position would be to seek compensation after receiving poor treatment. I do not think it is naturally British to think that, as a consequence of poor treatment or customer service or even an injury, the first thing one would do is immediately go to claim compensation.

[Chris Philp]

The hon. Gentleman may well be correct, but the problem is that ordinary, law-abiding citizens are being harassed and incited by claims management companies to invent claims—I stand here today because I am one such person. That is why the Government need to go beyond the action they have taken already. I hope that he agrees, given that he used to practise personal injury law.

[Andy Slaughter]

I did indeed practise personal injury law, but, for the avoidance of doubt, I should say that 90% of my practice was for insurers, so I do not think I can be accused of parti pris. I can see it from both sides of the fence, and if I am talking about claimants and victims, that is just to give a bit of balance to the debate.

I entirely agree with the hon. Gentleman, and I hope that, when we hear from the Minister, we will hear what is being done specifically to crack down on those calls. I do not want to put the hon. Gentleman on the spot about whether, in his case, he was able to report to either the MOJ or the police that he was being suborned in such a way, but I hope that people do that. If there were a couple of high-profile cases, perhaps instigated by Members of Parliament, in which pestilential claims management companies and cold callers were held to account, that would be a tonic for reducing the practice substantially. If the Minister can shed any light on what the Government can do on enforcement, I will be pleased to hear that.

We must look at both sides of the argument. We have to take action based on evidence, and we have to realise that there are many vested interests. Yes, the claims management companies have interests and we must be on guard against fraud, but we must also be aware of the interests of the insurance industry, which are not always at one with those of the motorist or consumer. It does not always follow that what the industry asks for is beneficial not just to victims or potential victims, but to motorists as a whole. I hope that we can crack down on fraud and relieve the consumer of the burden of calls—I get them myself on many issues—but I also hope that, on this as on other matters, we will bear in mind that the interests of victims and those with meritorious claims for personal injury should be respected.

[The Parliamentary Under-Secretary of State for Women and Equalities and Family Justice (Caroline Dinenage)]

May I say what a delight it is to serve under your chairmanship, Mr Wilson? I add my praise to that already heaped on my hon. Friend the Member for Lincoln (Karl MᶜCartney) for securing this important debate on personal injury fraud and its impact on individuals and motor insurance premiums. He has been a dedicated and tenacious campaigner on this important issue.

I will state at the beginning that I am not the Minister with responsibility for this matter in the Ministry of Justice. That honour falls to my colleague, Lord Faulks. I will of course make sure that all the points made today that I am unable to cover are responded to by my noble and learned Friend, and that he is well aware of all the suggestions made by hon. Members from across the House.

My hon. Friend the Member for Lincoln has a number of concerns about personal injury fraud and nuisance calls in particular, which both he and my hon. Friend the Member for Croydon South (Chris Philp) mentioned. Those pernicious calls cause annoyance and distress to many people, particularly the elderly and vulnerable. I will address that in due course. First, I would like to say a few words about some of the measures and initiatives introduced by this and the previous coalition Government.

We have been, and continue to be, committed to tackling the problems in this market. There have been some real challenges for the Government in trying to put right the imbalances that have led to the disproportionate growth in personal injury claims. We know, as many Members have articulated, that reported road traffic accidents fell from approximately 190,000 in 2006 to about 140,000 in 2013, when the previous Government began to introduce their reforms. That is a reduction of more than 20%, yet at the same time the number of road traffic personal injury claims rose from about 520,000 in 2006 to 760,000 last year—an increase of about 50%. That is a clear indication, if one was needed, that there is a problem and that the Government should consider further reforms to combat this distasteful culture, which we believe is in part being driven by the constant barrage of phone calls and texts messages that my hon. Friend the Member for Croydon South so powerfully described.

The Government accept that many personal injury claims are genuine, but it is also clear that many speculative, exaggerated and fraudulent claims are being made. Sometimes it is difficult to tell the difference between the two, but it is not right that people who try to cheat the system should be allowed to get away with it and, as so many Members have said, thereby force up the price of motor insurance for honest, law-abiding motorists. There are considerable costs in dealing with such claims, which have a significant impact on the cost of premiums. According to the ABI, the annual cost to the industry from whiplash claims is £2 billion, which, as has been said, adds some £90 to the average motor insurance premium.

I will pause there and go back in time to set the scene. My hon. Friend the Member for Lincoln is a long-standing member of the Select Committee on Transport and he will be aware that just over five years have passed since Lord Justice Jackson published his review of the cost of civil litigation. That may seem quite a long time ago now, but the previous Government and this one have been busy ever since with a substantial programme of reform.

The Jackson reforms, introduced through the implementation of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, were a key achievement in addressing bad behaviours in the personal injury sector. The reforms introduced a ban on the referral fees that many lawyers, solicitors and claims management companies used to buy and sell claims. We agreed that the system of no win, no fee arrangements was not fit for purpose—that, in fact, it had the perverse effect of encouraging litigation—and so reformed the system to return balance to it, making sure that costs were no longer all heaped on defendants and that claimants had a financial stake in their claim. Our reforms were explicitly aimed at controlling costs and discouraging unmeritorious claims, while enabling genuine cases to be pursued, although of course at lower cost than before, which is why we also put in place measures to encourage earlier settlement.

Speculative and unnecessary whiplash claims are some of the most unmeritorious of all claims, as many Members mentioned. Following a Downing Street summit in February 2012, the Government committed to introducing reforms to tackle the number and cost of whiplash claims. In response to that commitment, the Ministry of Justice has worked with stakeholders to produce a wide-ranging set of reforms to introduce much-needed independence to, and improve the quality of, the medical evidence used in such cases.

[Andy Slaughter]

The Minister has mentioned the notorious insurers’ summit, when the Prime Minister invited the major insurance companies to 10 Downing Street, but no one representing the claimants’ side. Does she think that that might have been a mistake? Does she agree that the Government should listen to both claimants and defendants?

[Caroline Dinenage]

We can dwell on the past, but the hon. Gentleman is absolutely right that we need to listen to all sides in the argument. As the hon. Member for Strangford (Jim Shannon) pointed out, important steps have since been taken on medical reports. The first phase of the reforms included measures to reduce and fix the cost of initial whiplash medical reports at £180, to allow defendants to give their account to the expert for the first time, to discourage insurers from making pre-medical offers to settle, and to ban experts who write the medical reports from also treating the claimant.

[Andy Slaughter]

I am sorry to interrupt the Minister, but she is tempting me. She just mentioned third-party capture, but if the Government really want to stop it, why should it not be banned? I think she is about to mention MedCo. That has been a disaster, which is why we are having a full review only a few months after its introduction.

[Caroline Dinenage]

If the hon. Gentleman will hold his horses for just a moment, I will move on to some of those issues. MedCo has introduced a robust new accreditation scheme for medical experts, who need to attain accreditation by 2016 or they will be removed from the system. We hope that that will begin to take effect, but a further reform to control fraudulent claims at source was implemented on 1 June 2015, as he will know. Claimant lawyers were given access to insurance industry data and must now check the number of claims their potential client has made before accepting the claim.

The Government are particularly pleased that stakeholders put aside their differences to develop a consensus on sharing data and improving medical evidence. Such a consensus can only be positive for all involved and we look forward to continuing to work closely with stakeholders. The Government have also taken firm action to ban both lawyers and claims management companies from offering claimants inducements to bring frivolous claims. Although it is still early days in terms of monitoring the impact of the reforms, Government figures show that the number of whiplash claims has gone down by around 70,000 since 2011-12. That is a good start, but we remain concerned about the number of claims made and their impact on the cost of motor insurance premiums. Too many claims are still being brought inappropriately, often because people are encouraged and pressured to do so by unscrupulous lawyers or CMCs.

On 2 December 2014, the Chancellor of the Exchequer and the then Justice Secretary jointly announced a new insurance fraud taskforce. The taskforce will make recommendations to reduce all types of insurance fraud, to lower costs and to protect the interests of consumers. The Government are committed to tackling the perception that insurance fraud is a victimless crime. It is vital that people understand that making a fraudulent claim is not a legitimate way to make money. The taskforce is currently considering its recommendations, which the Government will consider carefully with a view to taking firm action.

My hon. Friend the Member for Lincoln mentioned the practice of “cash for crash”. The insurance fraud enforcement department is a City of London Police unit set up to tackle insurance fraud nationally. The £3 million annual cost of the unit is funded by ABI members through an industry-led compulsory levy. The unit is leading the fight against “cash for crash” gangs, and has caught and prosecuted many perpetrators of that distasteful scam over the past three years. It will continue in that work.

The Government have also been serious in our commitment to driving out bad practices by claims management companies, as is clearly demonstrated by the recent package of reforms to protect consumers who use the services of a CMC or who are subjected to its marketing practices. The reforms will also help organisations that are on the receiving end of high volumes of calls or fraudulent or unsubstantiated claims. The measures are transforming how the MOJ’s claims management regulation unit does its job. Members will be interested to hear that in the last year, 93 CMCs were investigated, 105 CMCs had their licences removed, 296 were issued warnings and 454 audits were conducted. Tackling fraud and unauthorised activity in the claims management industry has been, and will remain, a key priority for this Government.

The CMR unit works closely in partnership with both industry fraud bodies and the police to identify and deal with CMCs engaged in insurance fraud. That work has been instrumental in the successful prosecution of criminal organisations. My hon. Friend the Member for Lincoln rightly identified nuisance calls as a well known route for spurious claims farming. The CMR unit makes sure that CMCs offering claims services do so legally. That is why we introduced tough new rules in October last year to put in place a stronger requirement to make sure claims are properly substantiated before being pursued.

We also strengthened the CMR unit’s enforcement tools in December last year with a new power to impose fines on CMCs. So far, three companies have been fined more than £800,000 for unlawful unsolicited marketing and coercing clients into signing contracts before taking unauthorised payments. That sends the powerful message to unscrupulous fraudsters that the Government take this issue seriously and will take firm action against them.

The claims industry is a fast-moving market. Practices continue to evolve, and the Government will monitor the market and respond with further reforms, as necessary, to provide better protection for consumers and the public. The Government are also looking to build on the work of the CMR unit by undertaking a fundamental review to consider what powers and resources are required for a tougher CMC regulatory regime. The review is due to be completed in early 2016.

I will now answer the very useful six points raised by my hon. Friend the Member for Croydon South, as some of them will be included in that review. He talked about banning of outbound calling and the use of personal injury claims data gathered from those calls. We need to strike a balance between ensuring that consumers are adequately protected and ensuring that a direct marketing industry can continue, as—although this was not necessarily the case in his experience—it is a legitimate activity when done properly. We need to focus on the companies that are breaking the rules rather than penalise legitimate businesses, and to make sure that companies comply with the regulations. We have made it easier for the Financial Conduct Authority to take action against some of those companies, but we will continue to look at that, particularly in the light of what he has outlined today.

[Caroline Dinenage]

My hon. Friend is very persuasive, and I will definitely ensure his thoughts are passed on when the review is conducted.

My hon. Friend talked about criminal pursuit of anyone making fraudulent claims. That measure was introduced earlier this year in the Criminal Justice and Courts Act 2015, which requires the court to dismiss in its entirety any claim where the claimant has been fundamentally dishonest. That means dishonest claimants can now no longer receive a payout if they have been fundamentally dishonest, even if a small part of their claim is in fact genuine. Insurers then have the option of pursuing a criminal prosecution for fraud.

My hon. Friend said medical advice should be taken within a week of an accident. In 2004, the Government considered including such changes to the civil procedure rules to ensure that medical examinations and reports were completed before a claim was produced. We have introduced the rules I have spoken about to discourage such behaviour, but we will keep the matter under review and continue to work with key stakeholders. We need to look at how we can tackle the issue effectively.

My hon. Friend asked whether there should be an objective evidence base. The Government remain concerned about the number of claims made and have done much in that area, but we accept that more can be done. We are open to any suggestions put forward by interested stakeholders and will consider all the points he has raised.

Finally, my hon. Friend talked about the 12-month claim limit and the no win, no fee limit of £6,000. We understand that both those issues will be considered by the insurance fraud taskforce, which will be reporting shortly. We look forward to seeing its recommendations and will respond accordingly.

[Andy Slaughter]

The Minister talked about a £6,000 limit. If she is talking about the possible £5,000 limit for small claims in PI cases, the Government have already looked at that two or three times. They have had very strong advice, including from the Transport Committee, that that is not the way to go. Is she saying that that matter is going to be revived?

[Caroline Dinenage]

As I say, the taskforce has been set up to look at all the issues, and I believe it may be considering that limit, but I will write to the hon. Gentleman with clarification if that is not correct.

The Chancellor announced proposals in the July Budget to introduce a cap on the charges that CMCs can apply to consumers. We are looking in particular at restricting bulk PPI claims to more proportionate levels and will consult on how that will work in practice later this year. A cap on charges will, we believe, help to reduce incentives for CMCs to collect marketing leads, resulting in a reduction in the number of speculative calls made.

I would like to draw Members’ attention briefly to other measures taken by the Government to tackle the issue of nuisance calls. In March 2014, the Government launched an action plan to tackle the problem, asking the consumer organisation Which? to lead a taskforce on consent and lead generation in the direct marketing industry. The taskforce made a number of recommendations, including giving the Information Commissioner’s Office powers to hold to account senior executives who fail to comply with the rules on marketing. The Government are currently considering those recommendations.

The Government have made it clear that it must be easier for the ICO to take action. The ICO no longer has to prove substantial damage or substantial distress caused by a company before action can be taken. Since 2011, it has had the power to issue penalty notices of up to £500,000, and in September 2015 it issued a penalty of £200,000 against a company that made more than 6 million automated calls to consumers—the highest penalty ever issued for nuisance calls. The ICO has also issued a penalty of £75,000 against an organisation that claimed to offer a nuisance call blocking service but was instead making unsolicited live marketing calls to members of the public—the mind boggles. The ICO continues to take its enforcement responsibilities seriously and has 66 cases currently under investigation.

The Government are also exploring options to provide call-blocking devices to vulnerable customers, and we will consult shortly on legislation to require all direct marketing callers to identify themselves. That will enable consumers to determine who is calling and to report unwanted calls to the regulator. I ought to make it clear that the Government have not ruled out further reform to this market.