The changing face of compensation claims

From the start of the millennium and for the almost two decades which followed, media coverage provided a myriad of examples of why it is said that the UK was in the firm grip of a so-called “compensation culture”:

from the claimant who sued over a spilt cup of hot coffee from McDonalds, to the gangs of people allegedly queuing up to trip over the same raised edge of the pavement slab in Liverpool, it seemed, ostensibly at least, that this was “bonanza time” for law firms who pursued unmeritorious claims on behalf of claimants who, themselves, were at no financial risk in pursuing claims, because of “no win no fee” agreements.

The public clamour to apply a brake on compensation claims was, it has to be said, largely fed by partial and at times sensationalist headlines from the “red top” press, though this prompted the Cameron Government to bring in the legislation (the Enterprise Act), to amend the law governing strict liability. In this article we examine the data behind the headlines and examine what has changed in the personal injury sector over the last decade.

The facts behind the claims

Since 2009, the Compensation Recovery Unit/Department for Work and Pensions (CRU/DWP) has published annual details of all personal injury claims registered, split across employers’ liability (EL), public liability (PL) and road traffic accidents (RTA).

A cursory glance at the statistics reveals peak notifications for RTA in 2011/2012, when over 828,000 claims were registered in just one year. For both employers’ and public liability, the peak eventuated two years later in 2013/2014, when 105,000 and 104,000 claims respectively were registered for EL and PL.

If anything, the figures for 2013/2014 and the two following years were an underestimate of the position in the employers’ liability market, which saw over 100,000 additional claims for Noise Induced Hearing Loss (NIHL) each year.  These were not captured by the CRU/DWP statistics as there was no statutory requirement for the claim to be registered unless there was an additional complaint of tinnitus or the loss had exceeded 50 dBs in either ear.

In the years which followed and across all claims types, volumes have reduced steadily year on year. 

In the year prior to the covid pandemic, EL registrations stood at 79,000 and PL at 72,000. Whilst the predicted reduction in claims volumes in 2020 and 2021 (due to the restrictions placed on the workplace by reason of the pandemic) did eventuate, there was no corresponding bounce back in the years which followed the opening back up of society – indeed not only did claims volumes continue to decline, but the year on year reductions accelerated, with the result that the last full year’s figures for the CRU/DWP revealed: RTA claims - 348,000, EL claims - 44,500, PL claims - 58,900. In percentage terms, these showed reductions of 57% (RTA), 58% (EL) and 43% (PL) from the peak years of claims notifications.

Has compensation culture gone away? 

If “compensation culture” ever existed in the first place, the CRU personal injury data and long-term trends analysis firmly suggest that it is now less embedded. We suggest that the reasons are multi-factorial, but to a large part they have been driven by the action taken by compensators.

The market response to the tsunami of deafness claims it faced between 2013 and 2016/2017 was to adopt a robust handling approach and to run limitation/breach of duty or causation defences in almost all cases, which resulted in only a small number being paid. The law firms and claims management companies (CMCs), who had counted on a much higher percentage of successful claims, simply exited the mass NIHL market. Today, it is estimated that NIHL notifications are less than 20,000 per annum – a far cry from the peak years.

For other claims types, insurers have developed more sophisticated anti-fraud techniques, capable of detecting “cash for crash” fraud rings and uncovering exaggeration. Adopting a robust attitude in pursuing claims through the courts where “fundamental dishonesty “is suspected, with attendant media coverage, has led to a change in the public perception in how insurance claims are viewed. 

Neither factor is the sole reason for the decline in claims volumes. The number of claimant firms operating in the personal injury sector has declined from 2,000 at the start of the Woolf reforms into civil justice in 1999 to just under 300 at present. Similar reductions have been seen amongst CMCs.

The introduction of Fixed Recoverable Costs for all but the most serious of personal injury claims has also served to reduce the attractiveness of the personal injury sector to claimant law firms.

The shift in focus away from personal injury 

Undoubtedly chastened by their (largely unsuccessful) experience in pursuing large volumes of NIHL claims, the attention of CMCs and some claimant law firms has now alighted on other areas where it is perceived that greater returns can be achieved.

The years 2006 to 2019 saw over twelve million claimants secure compensation totaling over £24 billion for “mis-sold” Payment Protection Insurance (PPI). The Citizens Advice Bureau estimate that CMCs alone “pocketed up to £5 billion of consumers’ compensation for mis-sold PPI”.

2022 saw VW reach an out of court settlement totaling £193 million (excluding legal costs) to settle 91,000 claims consequent to allegations that the company had “cheated” emissions testing on diesel vehicles leading to alleged mis-selling and diminution in market value. Indeed, “Dieselgate” continues to rumble on with a total of 1.5 million owners or former owners of diesel vehicles “signed up” to pursue claims against 16 major car manufacturers. Trials are anticipated to take place in 2025/2026 pending any settlement in the interim.

A further large scale compensation claim has been launched recently in respect of a controversial commission scheme which was banned by the Financial Conduct Authority (FCA) in 2021. Dubbed “The Great British Car Finance Rip Off”, it centres on allegations that car dealers, incentivised by higher commissions, manipulated interest rates, driving up costs on their vehicle loans for cars, vans, motorbikes and motorhomes to the tune of £165 million annually. Newspaper adverts taken out in the “broadsheets” claim this potentially could be on a “PPI scale” and “reach £16 billion in refunds”.

Commentary

Compensators will view the CRU/DWP personal injury data as welcome amidst rising levels of “claims inflation” in the personal injury sector, though the sheer scale of “PPI”, “Dieselgate” and the “Great British Car Finance Rip Off” suggests that the UK’s attachment to compensation has not gone away – it has simply shifted to other, “softer” targets.

As technology develops, so does the ability and sophistication of hackers to breach cyber security firewalls and compromise company data, placing organisations at risk of claims for data breaches. We have seen limited evidence of this so far – in the summer of 2018, British Airways saw a data breach of almost 500,000 customers with almost 250,000 having their names, addresses, credit card numbers and CVV cards “stolen”.

When both Dieselgate and the car finance claims have worked their way to a conclusion, it would be a brave person to bet against data breaches being the focus of compensation claims for the remainder of this decade and beyond.