Consumer Focus have produced some interesting research on before the event (BTE) insurance, calling into question the way in which BTE works. See here for a nice summary. Particular concerns include:
- Low consumer knowledge about products (what they cover, how referral fees work in the background), partly because BTW is bundled in with other products so consumers have little understanding of what they are buying for their £x thousand pounds of legal expenses cover.
- (To my mind, very) low levels of satisfaction from those who have used it to bring a claim (only 48 per cent of those who had successfully used the product were satisfied with it).
- Low levels of adviser choice (under insurance policies consumers are referred to panel solicitors without being given a choice: something which my own research (‘Something for Nothing’) suggests may be interpreted as a recommendation to go and see that solicitor)
The following passage sums up the report nicely:
“One of our biggest concerns regarding this market relates to the transparency and fairness of the common practice of precluding consumers from choosing their own solicitors when they wish to make a claim. We wish to see a shift from this restrictive practice. At the very least we wish to see some degree of independence in the initial determination of whether a case is meritorious. We do not consider it appropriate that some insurance companies employ in-house solicitors to make this assessment, without giving consumers any recourse to an independent appeal process. In Germany regulation precludes in-house lawyers from making initial assessments of this nature and we believe that this rightly recognises the conflicts of interest issues that can arise. Moreover, there needs to be more transparency around the relationship between insurance companies and the panel of solicitors which they use. Consumers ought to know that solicitors’ firms commonly pay insurance companies for referring cases to them. It is essential that the litigant should feel confidence in his or her legal advisers and this increased transparency will enhance the integrity of the system.”
For me the most important finding is this not the choice point but the independence point (though they are related). Insurers have a conflict of interest when deciding a claim. They must fund and bear the (sometimes sizeable) risk or say the claim lacks merit. This may make them more likely to turn down meritorious claims than other forms of funding, unless they are simply acting as a referrer of no win no fee work to panel firms (when the value of BTW as ‘insurance’ is somewhat limited – though may become less so post-Jackson). Although this conflict is present in most (all?) insurance claims situations the difference here is that the notion of a claim is defined by a concept (say, whether a claim has reasonable prospects of success) which the claimant has very little chance of knowing themselves and which the insurance company, thus, ultimately controls.
We looked at this conflict of interest issue in the Something for Nothing research. It was alleged that, in employment cases, contingency fee lawyers were turning down
cases unless they were sure fire winners. We were able to look at this by asking clients how their employment claim was funded and whether they had been turned down by any other funder. Albeit on a small sample, insurers and trade unions were the funders where we found evidence of ultimately successful cases being turned down (and then taken on by contingency fee lawyers). If anyone was cherry-picking, it was the insurers and the Unions.
All fee arrangements give rise to conflicts of interest usually between the lawyer and her client (hourly rates may encourage too much work being done on cases; contingency fees may encourage under settlement; CFAs are accused of both (!)) or between client/lawyer and funder (legal aid funders, trade unions and insurers have incentives to cut funding when the client’s interests merit continuing). The question is whether there are proportionate means of tackling those conflicts. SRA conflict of interest rules are an inappropriate instrument for dealing with the problem (it will be very hard to prove a conflict in any case, particularly given the ubiquitous nature of conflicts when fees are in play). A German style right of appeal may help as might a stronger, entity-regulation-style focus on understanding the relationships between firms and insurers. Both would be resisted by the insurers as increasing cost and making BTW unaffordable (they will resist watering down of choice on the same basis). One wonders, also, whether the SRA has the resources to undertake such a task. It’s not a new problem, having been around since well before the Legal Services Act, but one very helpfully underlined by the Consumer Focus report.