Ever since the abolition of premium recoverability in April 2013, following the enactment of the Legal Aid Sentencing and Punishment of Offenders Act 2012 (LASPO), there has been a very thin after-the-event (ATE) insurance market for one-off personal injury claims. However, it appears that the market might well be coming back to life. This blog explores what is happening, why it disappeared, and why it may well become a thriving market again.
Prior to April 2013, there were many law firms with scheme arrangements which allowed solicitors to issue ATE policies on behalf of insurers, provided they sought to insure all (or nearly all) of their cases. At the same time, there were also many firms who elected not to enter schemes and simply arrange one-off cover as and when they felt it appropriate to do so.
That choice more or less disappeared a short time after LASPO because of the combined effect of the introduction of qualified one-way costs shifting (QOCS) and the abolition of premium recoverability.
QOCS did not mean the end to adverse costs in personal injury cases. The risk of paying adverse costs for failing to beat a Part 36 offer remained. Moreover, the risk of losing own disbursements also subsisted. These risks were enough for many solicitors to continue to insure their PI claims (including low value claims), but the way they did so changed.
Prior to April 2013, a personal injury claimant was able to purchase an ATE policy safe in the knowledge that if they searched the market for a competitive quote, there was a strong prospect of recovering the premium inter partes (the ATE premium was an additional liability under the Access to Justice Act 1999).
Of course, the level of the premium could be challenged on the grounds that it was unreasonably incurred, too expensive or disproportionate to the sums in dispute. However, provided the claimant’s solicitors had recorded their contemporaneous efforts to seek out suitable coverage on a competitive basis, the paying party who might seek to challenge the premium was automatically at a disadvantage. The defendants rarely had any evidence to discharge the burden of proof on them to show the premium was unreasonable.
There were (and there still are) some raging battles in detailed assessment over the recoverability of premiums, but the story prior to LASPO was one of claimant lawyers being confident that they could protect their clients from the financial consequences of losing their litigation without the cost of that protection diluting the award of compensation. Moreover, the premiums were entirely contingent upon success, so if the case lost, once again, the premium would not have an impact on the client. Indeed, some insurers offered premium shortfall cover that meant the claimants were protected, even in the very rare circumstances where the premium wasn’t fully recovered at detailed assessment. All of this encouraged a market of one-off applications for personal injury.
After LASPO and QOCS, it is difficult to remember which part of the one-off market slowed first, demand or supply. Many firms decided not to bother with insurance at all in light of QOCS. Others were inevitably going to turn quickly towards scheme arrangements, when hitherto they had relied on one-offs, because the premiums were substantially cheaper. One-off policies were seen as too expensive absent recoverability. Sometimes they were uneconomic, but sometimes the notion that they were too expensive was down to our proximity to a former world of recoverability at that point. It was hard for solicitors to adjust to having to pay thousands for something that had always seemed as if it was available for free.
Notwithstanding the drop in demand, my overwhelming memory in the wake of LASPO was actually one of ATE insurers trying quickly to restructure their businesses towards non-PI cases, because they still needed adverse costs cover. That is to say, the insurers jumped first before they were pushed.
Whatever the catalyst, the number of insurers offering one-off ATE policies for modest sized personal injury claims diminished. Eventually the same happened for even substantial personal injury claims, because some ATE insurers just stopped accepting any bodily injury claims altogether.
This is where I expected the story of one-off personal injury to end, but now there are seemingly signs that the market is coming back!
A few A-rated insurers are open again to insuring personal injury claims on a one-off basis. Admittedly, the claims still need to be economically viable, which means the ratio between the premium payable and the compensation needs to be sufficient (for example, a minimum of 2:1). Insurers cannot earn a crust if there are not enough damages, considering any conditional fee agreement success fees, from which to pay a premium and, of course, the underwriters will carefully consider the prospects of success of any scheme rejects and BTE top-ups in particular (a scheme reject is a case that has fallen outside the eligibility of a scheme and has subsequently been rejected by the scheme insurer after individual underwriter consideration as an outside scheme referral).
This is great news for smaller firms who would not qualify for a scheme arrangement due to the lack of case volume. It is also good news for those solicitors who just want more choice for their clients in higher value claims, where the disbursements and Part 36 risks are far from immaterial.
But why is this happening, and why now in 2020?
- I believe that some ATE insurers who transited to underwriting commercial litigation to replace their personal injury business have discovered that they were better suited to underwriting facultative personal injury applications. Maybe it is a retreat to safety in some sense. I would not be critical about such a decision, if that is the case; it is good business to return to core expertise. If I am wrong about this then perhaps it is the result of a fresh review of the market and a recognition that there is still a smaller but viable space for one-off PI ATE.
- I also believe that the market for good quality delegated authority schemes is itself very thin right now, with several ATE insurers, such as LAMP and Elite, running into financial difficulties. As a result, there is more demand for one-offs now than there was immediately after 2013.
- Lastly, I suspect that many solicitors that did not insure cases at all in light of QOCS have by now experienced, or have been made aware of, situations where adverse costs orders are being made. There may therefore be renewed impetus to insure some cases again after seven years establishing the parameters of QOCS protection.
It is still very early days and this could be just a small delicate bubble on the verge of disappearing at any time. Hopefully not. Hopefully, there will be a re-engagement with facultative ATE in personal injury enough to ensure the survival of a funding option that some claimants desperately require in order to gain access to justice.