The problem with small PI cases

Whilst I deplore the ‘common-sense’ view that there is a compensation culture in this country (for most types of case, over the last 10 years, the number of compensation claims has gone down: the one exception is low value road traffic claims), there are problems in the personal injury system. In particular, the transaction costs for small cases is too high and I want to raise one possible way of countering that.

Claimant and defendant lawyers plausibly blame each other for the problem: an adversarial system based on cost shifting pumps up the unit cost. Whilst moving towards greater use of fixed costs may ameliorate this, it has risks. In particular, claimant firms may cherry-pick easier easier cases because they are more profitable under fixed costs, and defendants can make such cases uneconomic for claimants by forcing them to do extra work (though this might be at significant cost to themselves, if it discouraged enough claims it might be worth it).

For me, there is a bigger question: whether it is sensible to have small personal injury cases decided by an adversarial process. Both sides need to take a view on liability (although it is relatively rarely disputed), both on the appropriate level of compensation, and both get to wrangle over details on the way, put effort into Part 36 offers and the like. Levels of compensation will typically be of the order of £1,500 to £3,000 but the real margin of dispute will be much smaller than the level of compensation or the level of costs that will be incurred in concluding the case. Because the process is adversarial, it creates unnecessary work for small marginal gains on the part of the claimant. Yet, without the threat of litigation claimant lawyers fear (probably correctly) that insurance companies would either refuse to settle or dramatically under-settle cases.

One solution would be to shift from an adversarial, two-party approach to an inquisitorial approach taken out of the hands of either party. One model would be an ombudsman type scheme. This works reasonably well in financial services cases for instance and both Ireland and New Zealand (with a no fault scheme) have approaches which seek to reduce partly or totally the adversarial element in personal injury cases.   This sort of solution should be seriously considered.  It could reduce costs, speed up the adjudication of claims and be funded by the insurance industry not the taxpayer.  Even so, a government keen to reduce quangos is likely to be reluctant to go down this path.

Another approach would be to have contracted out personal injury adjudicators. This is not dissimilar to what insurance companies are trying through claimant capture schemes. Some insurers work to try and get to claimants before claimant lawyers and settle their cases quickly and cheaply. The problem with these schemes is, of course, that the capture process is not (or is not perceived to be) independent and in the claimant’s interest. If a process could be defined that was independent, then such schemes might save costs and time for the claimants.

How might it work? Personal injury firms might be licensed to run these contracts from a regulator: they would recover a fixed cost from the insurance company and adjudicate on claims on the basis of information they requested from either party. There would need to be mechanisms to monitor quality (though these could probably be pretty light touch, relying on data on success rates and compensation levels) and perhaps mechanisms for either side to opt out of the decision (with cost penalties if they brought or defended claims which ultimately were not significantly better than the original adjudication and risks to the adjudicators if they got it wrong). They might also be expected to refer out cases over a certain compensatory limit where there needs to be a more adversarial pursuit of the truth.

If there were quite a few of these licenses, adjudicators could compete for claimants in the knowledge that insurance companies can resist their decisions through the courts if they go too far. Claimants would retain a level of choice and the independence of the adjudicators would be protected by market forces, regulatory requirements and the threat posed by claimants or defendants litigating cases which the adjudicator gets wrong. Of course neither the claimant nor defendant lawyers would like the proposal, but it would at least leave ‘big’ cases to private practice and a smaller number of firms able to compete for the adjudicator contracts. If it worked, the result would be decent claims get reasonable compensation quickly but at lower cost.

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