A Labour peer says a culture of "no self blame" and hard selling by third-party compensation claims firms needs to be stamped down to prevent the potential growth of a UK compensation culture.
Sitting as one of the members of the All-Party Parliamentary Group on the proposed Compensation Bill earlier this week, Labour peer Lord Davies of Coity expressed concern the apparent myth of a compensation culture could turn into “a greater reality” unless action is taken to discourage consumers from taking legal action in every circumstance which might generate compensation.
His comments contributed to a discussion about government plans to introduce a compensation bill, to tackle an apparent rise in the number of compensation claims made by UK residents but were specifically directed at the growth of the personal injury claims insurance market.
While the discussion on this occasion focused on injury claims compensation, sources at the Department for Constitutional Affairs told IFAonline in July (Endowment claims management firms to be regulated, July 22nd 2005) the Compensation Bill is expected to regulate third-party claims companies including those made against financial services firms and IFAs.
Davies suggests while growth of advertising on the television and in the print press by third-party claims processing firms may turn the myth of a compensation culture into reality, the situation is being made worse as companies find it cheaper to settle claims than fight them.
“There is no self blame anymore, it is somebody else’s fault, even if they trip on a banana skin in the street. What worries me more is because of the legal costs involved in fighting these cases, companies are settling because it is cheaper to settle rather than fight. And we all inevitably pay for that,” says Davies at the meeting.
“How do we close the floodgates on the adverts and the way the companies are responding to the claims? Everything seems to be working against this, so how do we stop it?” he adds.
Davies’ comments follow evidence presented to the All-Party Parliamentary Group this week by insurance broker Aon, which suggest the three most significant concerns employers have which suggest a compensation culture is emerging are ‘no-win no-fee’ companies, “inappropriate advertisements” through the media of such services, and a reluctance by insurance companies to defend these claims.
As a result of concerns about work-related injury claims, employers are now introducing pre-employment medical screening, and not taking on individuals in some cases, to find out if the individuals has any medical conditions which might later leave the employer with injury liabilities, according to a spokesman for Aon.
Peers and insurance officials attending the meeting at the House of Commons acknowledged while there are also cases which should be rightly compensated and a compensation culture is presently deemed a myth, employers and companies are under increasing pressure to pay up where claims for compensation are made.
Research from the government’s Better Regulation Task Force last year suggested a growing UK compensation culture is a myth as the number of injury claims had not risen.
Adding to Davies’ tough stance on third-party claims firms, John Greenway MP suggests regulating the “ambulance chasers” would help to reduce the number of apparent claims being made in the UK.
Moreover, additional work also needs to be done in the insurance ‘after-the-event’ market to reduce the impact of potential claims arising as there are questions as to “who is the driver of these claims”, according to Greenway.
Evidence presented by Norwich Union suggested for every £100 of insurance paid out on an injury claim, at least £40 now relates to legal costs and rising.
To prevent the compensation myth from becoming reality, Greenway suggests key “trends” which must be considered in creating the Compensation Bill are:
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