Road Traffic Accidents – Compensation Reforms

Practitioners specializing in personal injury claims are continuing to express their unease over planned reforms to the compensation structure applicable to claims for injuries sustained in road traffic accidents (RTAs). Prompted by concerns over an apparently rising number of fraudulent and exaggerated claims, the proposals have drawn heavy criticism from across the legal profession, including the Law Society, and from pressure groups representing RTA victims. Originally due to come into force in 2019, opposition to the changes have meant that the timetable has now slipped. The Ministry of Justice has confirmed that testing of the proposals is planned to begin in October 2019, with full implementation scheduled for April 2020. The Ministry of Justice envisages that the delay will allow sufficient time for concerns over access to justice to be addressed.

There are two strands to the reforms.

1. The imposition of a fixed tariff for soft tissue injuries (whiplash) sustained in an RTA. This tariff will apply where injuries last for no more than two years and there is provision to depart from it in exceptional cases. This element of the reforms is included in the Civil Liability Bill.
2. An increase in the small claims limits for RTAs to £5,000. A late-stage concession ensured that so-called “vulnerable road users”, including cyclists, horse riders and pedestrians will not be subject to the new limit. This element of the reforms does not require primary legislation but is expected to come into force at the same time as the Civil Liability Bill.

Opponents have pointed to the fact that an increase to the small claims limit is not justified by the profile of the majority of claims: currently, 96% of cases are worth less than £5,000. However, many – if not the majority – of claimants currently seek legal representation. Once the reforms become law, claimants will no longer be able to recover their costs for any cases worth less than £5,000. It is likely that, as a consequence, individuals injured in RTAs will find it difficult to secure legal representation and will be forced to bring proceedings – via the small claims procedure – unassisted. The Government appears to have acknowledged this concern and has announced a new online system for handling RTA claims. This system is supposed to be “simple to use” and designed with those running their own cases without legal advice in mind.

Responding to concerns that the insurance industry would not pass on an estimated £1.1bn in savings on damages and legal fees, the Government has announced plans to force it to do so. Some of the UK’s largest insurers, including Admiral, Aviva and Direct Line, have signed an open letter in which they pledge to pass on this windfall to consumers. However, even assuming they deliver on this promise to ensure consumers benefit from this windfall, the saving for individual motorists is likely to amount to around only £35 per year.

As an adjunct to these reforms, the Government is also planning to change how compensation is calculated for anyone who needs life-long care as a consequence of injuries such as severe spinal or brain damage, Currently, compensation is assessed via a formula that takes into account several elements, including both future loss of earnings and the cost of future care. Claimants usually receive the money in the form of a lump sum and, as such, can expect to receive interest on it. With this in mind, the final compensatory sum is adjusted to account for future accrued interest. This is done via the Ogden discount rate. The government now plans to adjust this rate on the basis of an assumption that claimants will invest their compensation in low-risk investment portfolios as opposed to very low-risk portfolios. This change is more than mere semantics: it is likely to result in claimants receiving less than they currently do. Unsurprisingly, the proposed change has met with opposition from groups representing claimants. Nonetheless, this element of the reforms is unaffected by the delays to the coming into force of the fixed tariff for soft tissue injuries and is expected to come into force in April 2019.

Article by Greg Almond, Head of Personal Injury at Aticus Law.