Personal Injury Claims: Further Change Ahead For Insurers

The British Department for Constitutional Affairs (now Ministry of Justice) has proposed far-reaching changes to the handling of personal injury claims. With these reforms possibly coming into force during the first quarter of 2008, Accenture advises that insurers in pursuit of high performance can steal a march on competitors by formulating their responses now.

The British Department for Constitutional Affairs (now Ministry of Justice) is proposing to reform the way in which personal injury claims should be handled—and insurers keen to achieve high performance must make the necessary changes to organizational models, systems and processes.

Despite the successes of the Civil Procedure Rules (Woolf Reforms), a number of key problems remain as regards the payment of personal injury claims. These include:

• Increased legal costs, for example where mediation fails.
• Pre-action protocols have led to the frontloading of costs. This can result in wasted effort where liability is conceded.
• Costs are still disproportionately high when compared to the damages awarded. C
• Continued mistrust between the legal profession and insurers can lead to “adversarial inefficiency.”

The British Government’s reforms are aimed at ensuring that the claims process is more streamlined, and detail the circumstances under which fixed legal costs are recoverable.

The consultation paper sets out proposals for a system that will provide fair compensation in a more efficient and cost-effective way by providing that:

• The claimant/lawyer only does the amount of work required by the insurer to make an informed decision on liability, avoiding much of the investigative work that is currently carried out at an early stage with the resultant frontloading of costs.
• Defendant/insurer will have a set time period in which to respond, during which the claimant/lawyer will not carry out any further work unless essential.
• A template is used for medical reports with the aim of ensuring that all the information required is included in the report.
• There will be set time periods for making offers and reaching settlement.
• Certain special damages can be claimed up to agreed limits without the need for substantiating evidence but allowing the defendant/insurer to complete ad-hoc audits.
• Fixed costs will be used for various stages of the process.
• Success fees and “After the Event” insurance are reduced to reflect the actual amount of work and risk involved in bringing a claim.

Accenture believes that the key principles behind the process reform proposals are:

• Providing early notification of a claim.
• Promoting early admissions of liability and early settlements.
• Removing duplication of work and waste from the process.
• Removing the unnecessary front loading of activity.

Accenture believes that the current proposals are generally sound but that additional areas need to be addressed. Insurers should not underestimate the level of organizational, process and cultural changes that will be required to implement them.

Some of the questions that insurers will need to address include:

• How will insurers achieve the procedural improvements required to meet the new timeframes?
• What organizational model and system infrastructure is best equipped to deliver and sustain this change?
• How to achieve the process efficiencies and life cycle reductions required to align to the reform proposals at an acceptable implementation cost and speed to avoid becoming uncompetitive?
• What are the implications for the skills/resource mix within the workforce?
• Can existing claims management, workflow and management information systems cope with the new process requirements and timeframes?
• What impact might failure to adopt the reforms have on competitive position and reputation?

These reforms might come into force in the first quarter of 2008. Insurers that begin their preparation now will have an opportunity to move ahead of the competition by planning for the proposed changes prior to their introduction, and to use the momentum to reinvigorate the claims operation on the path toward achieving high performance.