PI Brief Update

The ATE Market in This Early Post-LASPO World - Matthew Amey, TheJudge Limited

02/07/13. The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (‘LASPO’), implemented on 1 April 2013, abolished the recoverability of After the Event (“ATE”) insurance premiums. It was widely anticipated that this would have a significant impact on the stability of the ATE insurance market generally. Moreover, it was predicted to have a particularly devastating effect on the ATE market for personal injury matters, specifically when combined with Qualified One-Way Costs Shifting (QOCS) which is supposed to protect claimants from the risk of adverse costs.

By July 2013, it is too early to draw any definitive conclusions but after the first quarter, so to speak, we have made the following observations:

1. The majority of the existing ATE insurers still occupy the ATE delegated authority schemes market for personal injury cases.

There have been some insurers exiting the schemes market. One major provider made that decision before 1^st April whilst a couple of others have hung around for a while to see what would happen with one eye on making a quick exit. Most remain committed to the market and believe they can offer a viable scheme product post-LASPO.

The majority of ATE insurers have been speaking with their existing clients to convert the schemes into scheme arrangement that works post-LASPO. Others have published some brand new ideas for insuring personal injury cases going forward. Those new ideas include concepts on how you insure cases as well as what the insurance policy itself covers, expanding on the very notion of what ATE insurance is. For instance new features like cover to ring-fence the amount offered in damages if you fail to beat the said Part 36 offer have emerged.

2. Competition for clinical negligence schemes is surprisingly fierce.

There are over 8 major clinical negligence product offerings attempting to carve out a share of the market. The battleground is essentially price, although other features are important to lawyers depending on the firm’s business model.

Interestingly clinical negligence lawyers have not shown any desire to dispense with ATE in the way that some PI lawyers have mooted. Clinical negligence lawyers will continue to recommend insurance to their clients, whilst the picture for general personal injury is varied.

This may not be such a surprise given the Government has made clinical negligence an exception to the abolition of recoverable premiums such that a limited amount of premium is still recoverable for expert reports on liability and causation.

3. The market for one-off PI policies is a little harder to gauge at the moment but it would appear that insurers will only be interested in insuring high value claims on a bespoke basis.

The time and cost that goes into individually underwriting bespoke policies means it is not economic to underwrite low value PI unless you can source a significant volume of high quality cases. It is hard, if not impossible, for an insurer to achieve such a deal flow post-LASPO. The purchasing decision is non-mandatory and now the premium is deducted from damages, many solicitors with good cases will not readily recommend insuring in low risk situations.

The big question is whether personal injury firms will return to using delegated authority in the way that they used to (and as they are doing in clinical negligence). If they decide that it is not desirable to insure the majority of their cases on a scheme because they don’t feel it makes sense to insure the easy cases anymore, then the one-off PI market will see a steady increase in applications for the more contested high value claims. This is natural as the more difficult cases have always been presented to insurers individually in the absence of scheme arrangements. As a result, ATE Insurers in the one-off market can and will continue to make money if they cherry pick high value PI cases from those presented because the higher value premiums can justify the resources needed to do the risk assessment. Many insurers are confident they can pick the winners after a decade of practice.

The picture of the post-LASPO ATE market for personal injury is far from settled. What is clear is that solicitors will need to think about how they search for and engage with insurers now we are in the new environment. It is difficult for lawyers to make long term decisions about schemes and other exclusive arrangements before there is a sense that the market is fully re-formed. The trouble is that clients will expect solicitors to know what the market is offering now, as and when they need the products or have access to someone who does.

Having sounded that word of caution, as long as a solicitor is considering how to serve the best interests of their clients at all times, it is hard to see why they would be criticised heavily in this period of flux if they can be seen to be enabling the clients to consider their options. We are all still feeling our way through the consequences of LASPO 2012.

Matthew Amey
Director
TheJudge Limited
Litigation Insurance & Third Party Funding Broker

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