Reforms Watch
Discount rate
The new rate has been confirmed at -0.25% for cases settled after 5 August 2019. Obviously a huge disappointment and not much more to add here to what's been said so far.
As we know the Government Actuary based his calculations on this table:
So the Government Actuary was cautious in economic outlook, and allowing the deduction for tax and expenses at 0.75% and the further deduction for damage inflation at 1% but at 0.25% overall it was only a little lower than original expectations which were around 0.5%. However, then to compound matters the advice said this:
"To safeguard claimants from the likelihood of not being able to meet their needs, it may be considered appropriate to set the PI discount rate lower than the net expected portfolio return. This would result in a higher expectation that the award will be enough to meet future needs. However, too low a PI discount rate may be considered unreasonable from the perspective of those responsible for meeting the claim, such as insurers and their policyholders or public sector bodies and these risks must be carefully balanced."
The Lord Chancellor decided to take into account the first part of that paragraph but unfortunately not balance it with the second part. Whether in doing so he had in mind uncertainty over the economic investment prospects in anticipation of Brexit, and erred on the side of caution is speculative but effectively he allowed a further 0.5% reduction beyond the GAD recommendation to reduce the risk of under-compensation.
Next steps
We await the formal updated Ogden tables themselves and when they are produced they will appear here - Ogden tables: actuarial compensation tables for injury and death - GOV.UK
In the meantime, the ABI has written to the Lord Chancellor to object to the misleading nature of the Government’s Impact Assessment and request that a new IA be submitted to Parliament with the draft Statutory Instrument. The ABI is also looking at whether there have been any other errors in the decision-making process.
The Damages (Investment Returns and Periodical Payments) (Scotland) Act 2019 came into force on 1 July and gives Scottish Ministers the power to set the Discount Rate in Scotland. They in turn have tasked GAD with recommending a new Scottish rate and the GAD have until 28 September to respond.
The Scottish legislation already includes a standard further margin deduction of 0.5% to guard against investment risks. This means that if GAD also recommends a discount rate of +0.25% to the Scottish Government, it is likely that the Government would adopt a Discount Rate of -0.25%.
Whiplash reforms
Whilst assurances continue to be given about the Portal being ready by April 2020 there are still a number of actions that need to happen outside the Portal build itself:
MedCo - The MOJ Consultation on "The Future Provision of Medical Reports in Road Traffic Accident related personal injury claims" closed in May and whilst the MOJ we understand have Ministerial sign off, the Consultation response has yet to be published so that MedCo can implement any changes in line with the target deadlines. That is however expected this week.
Infant claims – The MOJ confirmed to the Justice Select Committee earlier this month that the increase in the small claims limit will NOT apply to minors (and protected parties) initially. What isn’t clear is whether the tariff will apply to such claims. It is presumed that it will, but the MOJ seem to be wavering again…
Fraud – the long awaited Fraud stakeholder group meeting took place on 12 July. ADR was not considered appropriate for such cases, there needs to be a longer period for investigations and there is concern that the Portal will not build in sufficient validation checks at the notification stage. Suffice to say that Insurers should continue to enhance their own fraud/validation checks rather than rely on the new system.
Liability decisions – There has been further discussion around liability. The MOJ seem receptive to an extended period for liability decisions but there has not yet been a formal decision on this. There also needs to be more work done on the process for linking claims together.
Mixed injuries, i.e. whiplash plus additional injuries falling outside the tariff – we understand that the MOJ's liaison with the Judicial College to try and provide some guidelines around this remains a "work in progress". It is a critical point to ensuring that savings will be realised by the reforms.
Further legislation – secondary legislation is yet to be introduced via the affirmative procedure to bring in the tariff (after consultation with the Lord Chief Justice), proposed definition and ban on pre-medical offers; and secondary legislation presumably at the same time to confirm the rise in the injury small claims limit to £5,000 for RTA and £2,000 for EL/PL.
Ministerial sign off – is something that may become even more problematic over the next few months with a likely reshuffle once the new Prime Minister is in place. That will be followed by summer recess, Brexit and Conference season all looming before the end of October proposed date by which the MOJ anticipates the Portal being ready to commence a 6 month public testing period.
Rules – the CPRC are still grappling with the new Rules to accompany the changes, particularly around ADR and what happens if claims don’t proceed within the timescales laid down, and with some key decisions yet to be confirmed it is still not easy to see April 2020 being achieved.
New RTA Claims in June
June 2019 saw 54,514 new RTA claims, a decrease of 6.4% on the May 2019 figure. The corresponding period last year saw an even greater decrease from May-June 2018 of 8%, although this was off the back of a rise of 8.7% from April to May 2018.
June 2019 however is pretty much static when compared to the June 2018 figure of 54,628 new claims, a drop of just 0.2%. Looking back further, however, this is a substantial drop on the June 2017 figure of new claims of 60,262, a 9.5% decrease.
After six months of the calendar year 2019 the current average monthly RTA claims intake is now 57,520. The first six months of 2018 averaged 58,138, so there has been a decrease of 1.06%.
With 20 working days in June, the number of new claims presented per day averaged out at 2,726 claims per day.
New RTA Claims over the longer term
This clearly illustrates the current stability. There was a very slight further reduction since May of the 12 month cumulative figures from 694,086 to 693,972 (taking into account adjusted figures) but overall figures remain fairly stable.
New Casualty Claims in June
PL Claims
There were 4,052 PL claims submitted in June 2019, a reduction of 7.1% on the previous month and part of a general decline in numbers over the last six months. In fact, this was the lowest figure submitted since December 2018 although December figures are usually low. The figure for June 2018 was 4,743, so the 2019 figure represents a 14.6% reduction.
EL Claims
There were 3340 new EL claims into the Portal in June 2019, a significant reduction of 10.2% based on the previous month. When compared with June 2018 the reduction is even more, 11.2%.
The reduction in PL (and EL claims) as a whole may be seen as somewhat of a surprise, given that they will avoid the tariff and the increase in the Small Claims limit will be to £2,000 rather than £5,000.
However it should be borne in mind that we are only looking at Portal data rather than claims generally.
EL Disease Claims
There were 363 EL disease claims presented in June 2019, part of a general decline in numbers for this subgroup which are often presented outside the Portal in any event.
Retention Rates
Retention rates rose again with the exception of the EL disease Portal where it is expected that many claims drop out due to value and complexity.
Longer term trends of retention remain positive:-
RTA claims – Breakdown of concluded claims and PSLA levels
This graph shows how and when RTA claims have settled since the inception of the Portal. The red part of the graphic shows exit at Stage 1 of the process and, in line with better retention rates, the number of Stage 1 Portal exits has continued to drop over time, from around 35% in 2013 to around 20% now. However, the green part of the graph – 'RTA otherwise exit' – has increased considerably and correspondingly over time. Looking at claims cut in this way, only 35% of claims proceed to settle at Stage 2 or 3 of the MOJ RTA Portal.
The number of claims settled at stage 2 has fallen over time with an increase in issue of the RTA Court Pack. The Portal data doesn’t actually show how many of those actually result in an issued Part 8 claim form. We know that a significant number of claimant representatives will routinely issue a court pack but not necessarily proceed to Part 8.
RTA PSLA Levels and Stage 3
Average PSLA Levels have risen again for the second consecutive month, now £2,830, an increase of 0.5%. However it is worth noting that the June 2018 level was £2,842, actually higher than the June 2019 figure. Subject to any possible delays caused by the ongoing discussion around whiplash reforms and multiple injuries, the next JC Guidelines are likely to appear in just a couple of months and normally kick off a rise in general damages.
Talking of CRU data… the graph below is looking at 'whiplash v non-whiplash' injury sites as we progress towards implementation of the Civil Liability Act 2018 on the current due date of April 2020.
Non-whiplash injury sites have increased from 9.66% in 2014-2015 to 15.51% in 2018-2019. Rates are increasing at around 1.5% per annum so on that analysis by 2021/22 it could be that 20% of all RTA's have injury sites completely outside the tariff. This of course does not include multi-injury sites or the expected rise in 'tariff plus' injuries to top up the tariff. It is also likely that the progression of different injury types will accelerate as we progress to the reform date and beyond, but time will tell.
EL and PL Claims – Breakdown of Concluded Claims and PSLA
It is interesting to see the comparison between the RTA and EL/PL claims concluded data as there is a marked contrast:
Exit at Stage 1 remains far more common in EL claims although there has finally been a fall below 50%. Combined with the number of claims that "otherwise exit" the Portal, it can be seen that the vast majority fall out of the Portal, and only a very small percentage proceed to the Court Pack.
The graphic for PL claims is similar to EL but with even lower retention rates at Stage 1, a figure that hasn’t dipped below 60% exit. There are again few claims with issue of Court Packs, the majority either dropping from the process or settling at Stage 2.
PLSA
PSLA increased to £4,512 for June 2019 for EL Accident Claims, a 1.6% increase month-on-month. June 2018 had an average figure of £4,360 so the year-on-year increase is 3.5%.
Average PSLA levels for PL claims for June 2019 were £4,247, a drop of 0.9% on the previous month but an increase from the June 2018 figure of £3,962, a 7.19% increase.
Regards
Nigel
Contact
For more information please contact;
Nigel Teasdale
Partner Insurance DD +44 1772 554264 M +44 7752709114
DWF Law LLP 5 St Paul's Square Old Hall Street Liverpool L3 9AE
