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Looking Ahead: Costs

29 March 2021
The coming year will see a number of reforms affecting the costs landscape. We look ahead to the whiplash reforms, the GHR review, the likely extension of fixed recoverable costs, the rise of technology and of course the impact of COVID-19.

Costs landscape

The year ahead heralds a period of considerable change in the costs industry, both from a regulatory and market point of view. There are a number of reforms to the costs landscape, including the long-awaited "whiplash reforms" which come into force on 31 May 2021. Alongside the increase to the small claims track limit for whiplash claims, there is the potential extension of Fixed Recoverable Costs (FRC) in cases with damages up to £100,000, and we will also see the consultation on Guideline Hourly Rates being finalised, with a deadline of 31 March 2021 for the submission of responses to the consultation. From a market standpoint, as a result of COVID-19, 2020 was the year in which most costs businesses moved their people from the office to homeworking. This year is likely to be the year where progressive costs businesses not only continue with a hybrid of working practices but also ramp up the deployment of technological solutions to the provision of costs services.

Whiplash reforms

The all but total removal of costs recovery in the majority of whiplash claims is likely to make these unattractive and unprofitable for most claimant solicitors. As the reforms apply to accidents occurring on or after 31 May, there is unlikely to be the same spike in claims we saw with the Jackson reforms before implementation, but we will see claims being run in parallel under the old and new regimes for years to come. It is too soon to say whether litigants in person will be able to successfully navigate the new small claims injury portal. A collaborative approach from insurers will be key to how litigants in person conduct their claims in the future.

Our own data shows that there are already a number of claims exiting the current RTA/EL/PL portals for value. We are also seeing claims incorrectly notified by letter of claim, rather than submitted onto the portal. Both of these situations are indicative of attempts to circumvent FRC. Opponent-based strategies based on data analytics will be vital to make significant savings in these cases.

Extension of Fixed Recoverable Costs

The proposed extension to FRC in most civil fast track cases worth up to £100,000 has been discussed for a number of years. Lord Justice Jackson originally recommended the extension of FRC in cases worth up to £250,000 but this was scaled back. The extension of FRC did not form part of the whiplash reform programme and is by its very nature a complex task. However, we anticipate that this will reappear on the Government's policy agenda with their reaffirmed commitment to further reform in the personal injury sector. Data gathered on costs and personal injury claims more generally will be pivotal to informing the consultation process.

Guideline Hourly Rates (GHR) review

The GHR consultation was released on 8 January 2021. DWF provided data of hourly rates claimed and agreed over the period from April 2019 to November 2020 and our analysis of that data reinforced the view that any increase in the GHR should be modest, as suggested in the consultation paper. The consultation deadline is 31 March 2021 and we will be providing a detailed response to the proposed increase in hourly rates by the CJC Working Group.

Central to any review of guideline hourly rates is the change to working practices as a result of COVID-19, and also as a result of the increased application of technology to the law.

The pandemic has drastically changed the way of working for most practitioners. Working from home has become the new norm and this looks set to continue, with many firms indicating that they will be encouraging staff to work from home for at least part of the time in the future. Our view is that it is crucial that this is taken into account in reviews of GHR as this will have a significant impact on what rates will be considered to be reasonable, as the real estate footprint of most law firms will be proportionately smaller and therefore their operating model cheaper.

Moreover, it will be important to examine the level of technology now applied to many tasks that would previously attract a level of overhead allocation such as, voice recognition technologies replacing typists, Zoom or MS Teams meetings replacing receptionists, and smart workflows creating automated or semi-automated letters in a fraction of the time it would take to do so manually but that still attract a 'unit' charge under the current 'normal' costs regime. Be it in this review or a subsequent one, it is paramount that the optimal law firm model is considered, not one based on historic costs assessment outcomes, as to do so will provide no incentive to law firms to innovate or provide better, cheaper and more consumer-focused legal services.

Exaggeration on the rise: desperate times call for desperate measures?

The impact of COVID-19 and the subsequent recession has provided fertile ground for exaggeration and fraud. This was a common theme following the 2008 recession where we saw a sharp increase in the number of fraudulent claims being brought. We anticipate that there will be a similar trend following the pandemic, particularly in light of the whiplash reforms combined with the economic climate. We are working closely with clients to identify and combat these claims.

Technology and its application in costs

Out of necessity, most businesses have availed themselves of remote working technology during the pandemic, and progressive businesses will continue to operate a hybrid model even after the need for remote working has dissipated. These industry agnostic technologies do not represent even half the tech story from a costs marketing point of view.

Costs has traditionally been an industry slow to adopt technology and, when technology has been considered an answer, overly prescriptive solutions have been adopted – for example, The 'J' Codes. The irony in this resistance to technological solutions is that costs, as a specialism rooted in numbers, is ripe for the application of data science techniques.

As a result, for the modern costs business, data collation and analysis will continue to be fundamental in the year (and years) ahead. Using data analysis, one is able to predict changing approaches to claims and costs on a granular level, and develop strategies to combat bad behaviour and achieve the best outcomes for our clients.

With extensive data capture, one can provide accurate costs reserves on a case-specific basis for our insurer clients and accurately predict case outcomes based on key claims criteria.

Moving beyond data, we can expect an increased level of automation to the processes in costs and attrition in the costs market as businesses, faced with the twin spectres of substantial reform and the advance of technology, have neither the market position nor capital for investment to remain viable.

In short, the coming year is likely to be one unlike any other in the costs world.

Read our full report 'Looking Ahead in the Insurance Sector'

Further Reading