Tackling the ‘cOMPENSATION CULTURE’

Claims management companies offering ‘no win no fee’ deals have one last chance to get their house in order, announced Constitutional Affairs Secretary Lord Falconer today.

To avoid the Government stepping in to impose regulation, claims management companies are expected to take urgent action to significantly improve the service they provide to consumers and ensure they do not raise expectations falsely through potentially misleading advertising and sales practices. They are also expected to focus on being more upfront about their processes and fees, better quality control and the speedier conclusion of claims.

This is just one of the initiatives being taken by the Government to stop the development of a ‘compensation culture’, outlined in its response to the Better Regulation Taskforce (BRTF) Report, ‘Better Routes to Redress’.

Lord Falconer said:

“If you have a genuine claim – where someone else is to blame – you should be able to get compensation from those at fault. This is only fair. The victim or taxpayer shouldn’t have to pay out where someone else is to blame.

“But there is not always someone else to blame. Genuine accidents do happen. People should not be encouraged to always ‘have a go’ however meritless the claim. The perception that there is easy money just waiting to be had – the so called ‘compensation culture’ - creates very real problems. People become scared of being sued; organisations avoid taking risks and stop perfectly sensible activities. It creates burdens for those handling claims and critically it also undermines genuine claims.

“I am setting out today our plans to tackle this ‘compensation culture’. This is a complex and controversial issue where the Government cannot provide all the solutions. We will need to work together with all those who have a part to play in taking this important work forward including claims management companies, the legal profession, insurers and local authorities. It is in all our interests to create a society where people are confident about taking risks and not running scared of the next law suit.”

Accident claims have been reasonably static for the past four years – last year they actually fell by 9.5 per cent. The figures also fail to back up the claim that Britain is becoming like the US as litigation costs are 0.6 per cent of gross domestic product, less than a third of the 1.9 per cent in the US. But the Government recognises that just quoting facts and figures are not enough to allay people’s fears.

The Government will tackle the development of a ‘compensation culture’ by working with all those with an interest in the issue. Initiatives include the following.

· Ensuring proper regulation of claims management companies to stop frivolous claims being encouraged. These companies have a last chance to regulate themselves through the new Claims Standards Council. If they fail to do so the Government will consider how formal regulation could be introduced, taking into account the recommendations of Sir David Clementi’s review of the legal services regulatory framework, due to report by the end of December.

· Discouraging advertising in hospitals that encourage patients to claim against doctors and doctors being paid to refer patients to a solicitor. The Government believes these practices are distasteful and help to fuel the perception of a ‘compensation culture’ and increase the fear of being sued.

· Improving the system for dealing with genuine claims by: exploring how earlier and better rehabilitation can be provided to help the injured and reduce claims; and how we can encourage much greater use of alternative dispute resolution as often an explanation and an apology are what people most want. Where claims go to court, we will ensure the procedures and costs are proportionate. This will include researching whether to increase the small claims personal injury limit from £1000 as well as considering other options for dealing with these claims.

· Tackling the causes of the underlying problems by reducing accidents in the first place through better health and safety measures and proportionate risk assessment procedures.

· Promoting the availability of affordable insurance by working with the insurance industry to explore how premiums can be linked more effectively to risk. The Government believes that too often increases in premiums or

refusals to provide cover are unjustifiably blamed solely on a rising number of claims or the compensation culture, which in turn helps fuel the perception.

The Government will set up a Ministerial Steering Group, led by Constitutional Affairs Minister David Lammy, to ensure this work and the BRTF’s recommendations are taken forward in a co-ordinated way across Government. An Action Group drawn both from within Government and from outside organisations will inform the Steering Group. Members of the legal profession, claims management companies, insurers, local authorities, the Confederation of British Industry, the Trades Union Congress, and consumer groups will be amongst those invited to take part in this Group.

Notes to Editors

1. A copy of the Government’s response to the Better Regulation Taskforce Report, Better Routes to Redress, is available on the Department for Constitutional Affairs website: http://www.dca.gov.uk/majrepfr.htm

2. The Better Regulation Task Force (BRTF) is an independent advisory body established in 1997. Appointments are made by the Minister for the Cabinet Office, and are unpaid. A team of officials based in the Cabinet Office supports the Task Force.

3. The Task Force’s terms of reference are “to advise the Government on action to ensure that regulation and its enforcement are proportionate, accountable, consistent, transparent and targeted”.

4. All BRTF reports have a sponsoring department that is under obligation to co-ordinate the Government wide response to the report. The Prime Minister has asked Ministers to respond to the Task Force Reports within 60 working days of publication. David Lammy is the Sponsor Minister for this report.

5. A copy of the BRTF report Better Routes to Redress” may be downloaded from the Better Regulation Task Force Website: www.brtf.gov.uk .

Notes to Editors

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