Table of Contents

CHAPTER 1 EXECUTIVE SUMMARY

3

The main insurance lines experienced a mixed personal injury environment in 2004-5

3

The number of personal injury claims declined in 2004-5 due to a drop in employers' liability cases

3

Motor personal injury costs are beginning to stabilize, while claims numbers are largely static

3

The number and overall cost of employers' liability claims dropped in 2004-5, partly due to the closure of the British Coal scheme

3

The number of public liability claims fell in 2004-5

4

The ATE market has stabilised over 2005 although some litigation continues

4

A small number of ATE underwriters and funding partners operate in the market

4

There is continuing litigation surrounding The Accident Group

4

Interviewees cited "ghost policies" as an issue affecting the ATE sector

5

Injury Lawyers4U took over National Accident Helpline as the leading advertiser of personal injury services in 2005

5

InjuryLawyers4U and National Accident Helpline are still generating the most claims

5

There have been few changes to the BTE market

5

DAS is the market leader in legal expenses insurance

5

Sales of BTE insurance remain flat due to a lack of incentives and low consumer awareness

6

There are concerns that the price of BTE insurance is too low

6

Bills currently passing through parliament will have a significant impact on the sector

6

The Compensation Bill has some flaws but will result in a better regulated sector

6

The Legal Services Bill will create competition for the provision of personal injury services

6

It looks increasingly likely that the small claims limit will rise, potentially leading to £380 million of cost reductions

7

Changes to the NHS compensation system will add to insurers' costs and could reduce the involvement of external solicitors

7

The ABI has suggested a new compensation model similar to that used in Ireland, however certain parties are challenging the proposals

8

The use of rehabilitation is on the increase

8

The Future Decoded

8

Datamonitor forecasts slow growth in the number of accident claims and steady growth in personal injury claims costs

8

CHAPTER 2 INTRODUCTION

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What is this report about?

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Who is the target reader?

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How to use this report

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CHAPTER 3 MARKET CONTEXT

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Introduction

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The number of personal injury claims declined in 2004-5 due to a drop in employers' liability cases

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The number of accident claims increased in 2004/5 but has not returned to pre-2003 levels

26

The number of disease claims is decreasing now that the vast majority of British Coal miners have filed their claims

26

As employers' liability claims have fallen, motor personal injury claims numbers have risen and now account for the majority of personal injury claims

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Motor personal injury costs are beginning to stabilize, while claims numbers are largely static

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Motor personal injury claims increased by 7.5 per cent in 2004-5, but overall numbers have not changed significantly in the last five years

30

While motor personal injury claims costs are stabilizing, they still pose a significant challenge for motor insurers

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Bodily injury is the most expensive type of motor claim

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The average cost of motor personal injury claims settled in the same accident year fell in 2004

33

The growth in the cost of the average motor personal injury claim slowed in 2003 and 2004, and is likely to have fallen in 2005

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Personal injury claims costs rose to account for approximately 34.6 per cent of total motor GWP in 2004

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Personal injury claims slightly increased their share of motor claims costs in 2004

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The total potential number of motor personal injury claims is limited by the falling number of injuries from RTAs

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The number of road traffic accidents fell in 2004

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The number of casualties has consistently dropped between 2000 and 2004

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Injuries fell for all types of road user in 2004

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Approximately 62 per cent of road users injured in accidents could be entitled to make a personal injury claim

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Passengers account for the majority of potential motor personal injury claims

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The total number of potential successful RTA injury claims was 476,000 in 2004

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The number and overall cost of employers' liability claims dropped in 2004-5, partly due to the closure of the British Coal scheme

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The number of employers' liability claims fell in 2004-5 as disease cases dropped following the closure of the British Coal scheme

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The cost of employers' liability claims fell by nearly 10 per cent in 2004

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The British Coal scheme has cost £2.8 billion so far, although the majority of payments are for £5,000 or below

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The British Coal scheme is expected to cost £7.5 billion when all claims have been settled

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The majority of compensation offers to claimants for respiratory disease fall within the £0k-£5k category

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The most recent pleural plaque decision is good news for insurers

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Workplace accidents and work-related ill-health dropped in 2004/5

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The number of workplace injuries dropped in 2004/5

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The number of workplace injuries, as reportable under RIDDOR, excluding acts of violence decreased by 7.1 per cent in 2004/5

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The total number of workplace injuries is estimated to be 364,000 in 2004/5

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Workplace fatalities dropped in 2004/5

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Total work-related ill-health dropped in 2004 due to a decline in the number of non-lung cases

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The number of sex, discrimination and race cases brought to employment tribunals fell, but average awards increased

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The total number of sex, discrimination and race cases brought to employment tribunals dropped in 2004 due to a decline in the number of sex discrimination cases

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Average awards for sex and disability cases increased in 2004/5 while awards for race discrimination fell

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Employers' liability claims are both costly and lengthy to settle

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Employers' liability claims have a long latency period

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Claims costs can accumulate to become almost as large as the premium income received

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The average cost of an employers' liability claim increases with time

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The number of public liability claims fell in 2004-5, however fraud is still a major problem

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Public liability claims fell by 4.6 per cent in 2004-5

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Fraud is a significant problem in public liability claims

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CHAPTER 4 ATE & BTE MARKETS

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Introduction

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ATE insurance covers the claimant against legal costs and is sold via a variety of parties

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ATE insurance covers the claimant in the event that they lose their case and are required to pay the costs of the other side

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Accident intermediaries and solicitors sell ATE policies to claimants

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The role of consumer credit loans is diminishing

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A small number of ATE underwriters and funding partners operate in the market

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There are a small number of ATE underwriters

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Litcomp entered the ATE market in December 2005

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There are potential concerns over the availability of ATE insurance

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The litigation funding market remains concentrated

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There is continuing litigation surrounding The Accident Group and a new issue of ghost policies that needs to be addressed

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There are several different court proceedings in progress against TAG and associated solicitors

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Interviewees cited "ghost policies" as an issue affecting the ATE sector

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Improvements in CFA regulations continue

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Fixed success fees for CFAs have been extended to employers' liability cases

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The regulatory regime for CFAs has been simplified

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Much needed stability has returned to the ATE sector

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Advertising plays a major role for accident intermediaries and personal injury lawyers

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Advertising spending is concentrated in the legal services sector

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Injury Lawyers4U took over National Accident Helpline as the leading advertiser of personal injury services in 2005

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Accident intermediaries mainly advertise on television

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Several personal injury lawyers were active advertisers in 2005

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BGR Bloomer Solicitors

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The Paul Rooney Partnership

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Sherrington & Co

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Browell Smith & Co

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Fentons

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Growth in new solicitor networks has slowed

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InjuryLawyers4U and National Accident Helpline are generating the most claims

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Profiles of accident intermediaries and personal injury law firms

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Injury Lawyers4U

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Injury Lawyers4U was formed in 2002 by Amelans solicitors

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IL4U has rationalized its panel of solicitors

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There is neither a designated insurer or funding partner

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InjuryLawyers4U is a major television advertiser

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The number of claims accepted increased in 2005

86

National Accident Helpline

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National Accident Helpline was established in 1993

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There are 110 member firms of solicitors on NAH's panel

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NAH recommends Allianz Cornhill's Benchmark 3 ATE policy

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The company generates its caseload largely via television advertising

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NAH is currently accepting over 2,400 claims per month

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Shoosmiths

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RAC

90

AA

90

The AA dissolved its solicitor panel in 2005

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The AA will form a separate legal services business under new government regulations

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Accident Line

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The Accident Line brand was formed in the early 1990s by the Law Society

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There are 250 member firms on AL's panel

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AL generates business via directory advertising and relationships with advice agencies

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AL moves to staged premiums

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Claims Direct

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Claims Direct operates a small panel of solicitors

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Its caseload is generated via a mix of advertising media

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400 cases are accepted per month

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The company is heavily involved in the regulation of the sector

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Personal Injury Helpline

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Accident Advice Helpline

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Accident Advice Helpline was set up in 2000

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Its funding partner pulled out of the market in 2004 and the company went into administration as a result

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Its advertising budget was cut significantly in 2005

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DAS is the market leader in legal expenses insurance

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DAS held 19.6 per cent of the legal expenses insurance market in 2004

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Sales of BTE insurance remain flat due to a lack of incentives and low consumer awareness

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Sales of BTE insurance on products other than motor insurance remain low due to broker and insurer apathy

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Growth of legal expenses cover is further limited by a belief that "it'll never happen to me"

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There are concerns that the price of BTE insurance is too low

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Solicitors are still underutilizing BTE policies

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Specialist intermediaries are playing a greater role in BTE insurance

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Arc Legal Assistance has expanded its range of products

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Temple Legal Protection is established as a leading player

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CHAPTER 5 REGULATION AND ISSUES

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Introduction

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The Compensation Bill has some flaws but will result in a better regulated sector

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There is concern over the provision for negligence

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There are various loopholes in the Compensation Bill

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A new regulator has yet to be decided

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The number of claims farmers will diminish post regulation

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The Legal Services Bill will create competition for the provision of personal injury services

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The government has released further proposals for the regulation of legal services

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There are 6 main proposals in the White Paper which outline the reform of the legal system

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The Legal Services Bill aims to open up the profession to competition

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Competition for the provision of personal injury legal services will increase, resulting in reduced market share for existing players

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The AA will launch AA Legal Services in 2007

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Claims intermediaries and solicitors will face competition for business

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It looks increasingly likely that the small claims limit will rise, potentially leading to £380 million of cost reductions

108

The insurance industry continues to lobby for an increase in the small claims court limit

108

Legal fees will be cut significantly if the small claims court limit is increased

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The ABI has suggested a new compensation model similar to that used in Ireland, however certain parties are challenging the proposals

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The ABI has proposed a radical new compensation system

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The ABI's proposals for a new compensation system have come under criticism

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Changes to the NHS compensation system will add to insurers' costs and could reduce the involvement of external solicitors

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The extension to the NHS clawback scheme will add to insurers' costs

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The proposed NHS Redress Bill will reduce the involvement of solicitors in clinical negligence cases

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The use of rehabilitation is on the increase

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A recent pilot by Norwich Union found that the use of rehabilitation in whiplash claims is beneficial

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There are calls for better regulation of the rehabilitation sector

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The revised Rehabilitation Code was added to the Pre-Action Protocol for Personal Injury Claims in April 2005

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CHAPTER 6 THE FUTURE DECODED

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Introduction

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The number of personal injury accident claims is forecast to grow slowly between 2005/6 and 2009/10

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The number of accident claims is forecast to increase by an annual average of 2.5 per cent under the Personal Injury Industry scenario

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The number of accident claims is forecast to grow incrementally under the Datamonitor scenario

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Datamonitor estimates that personal injury claims costs will reach £6.4 billion in 2005/6, a slight decrease on the previous year

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Datamonitor estimates that claims costs declined slightly due to the fixed fee system and falling public liability claims numbers

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Datamonitor forecasts that total personal injury claims costs will surpass £7 billion by 2009/10

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The average personal injury claims cost continues to rise, however a change in the small claims court limit would serve to reduce legal costs

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Legal costs on RTA claims over £10,000 and the base fee on employers' liability claims continue to rise

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An increase in the small claims court limit would reduce the legal costs paid out by insurers

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CHAPTER 7 APPENDIX

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Supplementary data

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Funding options for personal injury claims

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The impact of the reforms to the Access to Justice Act 1999

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The withdrawal of Legal Aid

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Private funding

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CFAs: the key to the courtroom door?

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Legal expenses insurance

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Definitions

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Research methodology

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BTE and Personal Injury surveys

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Interviews

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Current publications

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Future publications

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Datamonitor's custom research capabilities

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SPP writing team

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List of Tables

Table 1: Number of personal injury claims made to general insurers, split by accident and disease, 2001-5

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Table 2: Personal injury claims split by insurance category, 2003-5

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Table 3: Number of motor personal injury claims, 2001-2 to 2004-5

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Table 4: Average motor claims payout and percentage of claims with a payment by type, 2004

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Table 5: Average cost of a motor personal injury claim, 2000-4

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Table 6: Motor bodily injury claims volume and average amount, 2000-4

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Table 7: Personal injury claims costs as a percentage of motor GWP, 2000-4

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Table 8: Personal injury claims costs as a percentage of total motor claims costs, 2000-4

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Table 9: Number of road accidents in the UK compared to licensed vehicles, 1994-2004

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Table 10: Number of road accident casualties split by severity of injury, 2000-4

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Table 11: Road traffic injuries split by type of injured party, 2000-4

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Table 12: Comparison of share of injuries and share of potential claims split by road user type, 2004

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Table 13: Potential number of successful RTA injury claims per year, 2004

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Table 14: Number of employers' liability personal injury claims split by accident and disease, 2001-5

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Table 15: Employers' liability gross incurred claims, 2000-4

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Table 16: Number of claims made to the DTI and total compensation paid for respiratory disease and vibration white finger under the British Coal scheme as of 4th December 2005

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Table 17: Profile of offers made by the DTI to claimants for respiratory disease under the British Coal Scheme

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Table 18: Workplace injuries reportable under RIDDOR, 2000/1-2004/5p

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Table 19: Workplace injuries, reportable under RIDDOR, excluding acts of violence, 2000-5p

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Table 20: Total estimated workplace injuries reportable to the HSE, 2000-5p

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Table 21: Workplace fatalities reported under RIDDOR, 2000-5

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Table 22: Number of cases of occupational disease and work related mental ill-health, 2000-4p

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Table 23: Number of applications registered by employment tribunals including sex, race and disability discrimination cases, 2000-5

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Table 24: Median and average compensation awarded by tribunals for sex, race and disability discrimination cases, 2003-5

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Table 25: Number of employers' liability claims paid by year of origin, 1995-2004

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Table 26: Employers' liability claims costs as a percentage of GEP in year of origin, 1995-2004

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Table 27: Average cost of paid employers' liability claims by year of origin, 1995-2004

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Table 28: Number of public liability claims, 2001-5

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Table 29: Top 20 advertisers of legal services, 2003-5

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Table 30: Top 20 advertisers of legal services, by medium, 2005

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Table 31: Monthly accepted caseload by competitor, 2005

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Table 32: Market share of legal expenses insurance, 2001-4

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Table 33: Scenario forecasts for personal injury accident claims numbers

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Table 34: Personal injury claims costs by line of business, 2003/4-2005/6

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Table 35: Scenario forecasts for personal injury claims costs, 2003-10f

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Table 36: Number of personal injury claims made to general insurers, split by accident and disease, Q2 & Q3 2005

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Table 37: Number of personal injury claims made to general insurers split by insurance category, Q2 & Q3 2005

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Table 38: Potential personal injury claims arising from RTAs

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Table 39: Legal expenses GEP by competitor, 2000-4

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Table 40: Legal expenses premium income by line of business, 1992-2002

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Table 41: Ratio of legal expenses claims incurred to GEP by sector, 1992-2002

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Table 42: Legal expenses claims incurred and number of claims notified by sector, 1992-2002

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List of Figures

Figure 1: The number of accident claims increased while the number of disease claims decreased in 2004-5

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Figure 2: Motor and employers' liability claims account for the majority of personal injury cases

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Figure 3: The number of motor personal injury claims increased in 2004-5, however there has been little change overall between 2001-2 and 2004-5

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Figure 4: Personal injury claims are the most expensive form of motor claim but the least frequently paid

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Figure 5: Growth in the average cost of a motor bodily injury claim settled over two years is flattening off

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Figure 6: Personal injury claims increased as a proportion of total motor GWP in 2004 as the market softened

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Figure 7: Personal injury claims costs made up a larger proportion of total motor claims costs as rampant personal injury claims inflation continued

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Figure 8: The number of RTAs have fallen every year since 1997

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Figure 9: The proportion of vehicles involved in RTAs has dropped successively since 1994

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Figure 10: The number of people slightly injured in road traffic accidents has fallen over the medium term

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Figure 11: 2004 saw a drop in the number of motorcyclists injured in traffic accidents

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Figure 12: Passengers account for the majority of potential motor personal injury claims

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Figure 13: The number of employers' liability claims declined in 2004/5

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Figure 14: The total cost of employers' liability claims fell in 2004

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Figure 15: The majority of offers made to claimants under the British Coal Respiratory Scheme are for £5k or below

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Figure 16: Most fatalities in places of work occur to members of the public

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Figure 17: Non-lung related ill-health dropped sharply in 2004

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Figure 18: Total applications for employment tribunals fell in 2004/5

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Figure 19: The number of sex discrimination cases has been erratic between 2000/1 and 2004/5

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Figure 20: Employers' liability claims have a long latency period

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Figure 21: Employers' liability claims costs accumulate over time

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Figure 22: The average cost of settling an employers' liability claim increases with time

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Figure 23: The number of public liability claims has fallen since 2002

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Figure 24: Timeline of corporate failures in the ATE sector

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Figure 25: Injury Lawyers4U spent the most on advertising personal injury services in 2005

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Figure 26: National Accident Helpline and Injury Lawyers4U generate the highest number of cases per month

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Figure 27: Profile of Injurylawyers4U

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Figure 28: Profile of National Accident Helpline

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Figure 29: Profile of Accident Line

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Figure 30: Profile of Claims Direct

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Figure 31: DAS is the market leader in BTE insurance, 2004

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Figure 32: Part 1 of the Compensation Bill

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Figure 33: Timeline of the Legal Services Bill

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Figure 34: The main proposals in Falconer's White Paper for reform of the legal system

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Figure 35: Alternative Business Structures will be regulated directly by a Front Line Regulator

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Figure 36: Datamonitor forecasts that the number of personal injury accident claims will increase marginally between 2005/6 and 2009/10

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Figure 37: Personal injury claims costs are forecast to fall in 2005/6 and begin to increase in 2006

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Figure 38: Datamonitor's core consulting capabilities

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