Big insurers lukewarm about 'after the event'
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31 March 2014
Despite Lord Irvine's drive to launch conditional fee insurance, the major insurers have yet to be convinced, argues Robert Lindsay
AFTER his department's meeting with insurers last Friday, Lord Irvine's public message will be predictable. He will boast that more insurers are ready to launch conditional fee insurance to fit in with his plans. Exit to fanfare.
Representatives of the big insurers, who have until now only dabbled in bolt-on legal expenses insurance, will have told Irvine and his officials that they are set to introduce "after-the-event" policies to cover the other side's costs in conditional fee arrangements. But all three major legal expenses insurers who claim to be launching policies in the spring are more likely to be dipping their toes in the market as a defensive manoeuvre to prevent others from entering.
In their hearts - and their wallets - they see their existing "before-the-event" policies as the real solution.
When conditional fees were introduced for personal injury cases more than two years ago, a new market was created. Insurers could now cover the other side's costs for clients entering conditional fee arrangements. It became known as "after-the-event" insurance. The risk was low because plaintiffs in personal injury cases nearly always win. But only three companies - Greystoke Legal Services, Abbey Legal Protection and Litigation Protection - stepped into the market.
Meanwhile, a 100 or so companies have been running "before-the-event" insurance as a bolt on to their existing household or motor insurance policies since well before the introduction of conditional fees. Of these, perhaps as many as 12 are major players.
Such companies do not want to cannibalise their existing revenue from "before-the-event" policies by introducing "after-the-event" insurance. Logically speaking, they would not be keen to help fund plaintiffs who are seeking to obtain money from insurance companies.
DAS, for example, claims it will have a range of products ready by the spring. DAS has completed a pilot in the Republic of Ireland, called "Opponents legal costs insurance", which covers the other side's costs. "We're very pleased with the results," said DAS's general manager Paul Asplin.
But DAS has a 36 per cent share of the "before-the-event" legal expenses insurance market and Asplin sounded lukewarm about "after-the-event": "If the established companies don't do it, someone else will. Whether it takes off remains to be seen."
Then there is Royal Sun Alliance. On 2 March it will formally launch its amalgamated legal expenses insurance company. This combines the Legal Protection Group (LPG) and CareAssist, which came under one roof following the merger of Sun Alliance and Royal at the end of 1996.
LPG is running both company's insurance portfolios, but will shortly be issuing policies under the new company's auspices. It too will launch some "after-the- event" policies.
However, two-and-a-half years ago, LPG refused to help the Law Society develop Accident Line Protect because it thought the premiums were too low. Although Peter Smith, manager of legal expenses at Royal Sun, said: "We expect to have suitable products for the market," he also moaned that, until the Lord Chancellor's Department indicates how it will extend conditional fees, it will be difficult to put products together.
Finally, there is Cornhill. Frank Nicolls, manager of its LawClub Legal Protection division, said it was also preparing to launch carefully tailored policies. "We are talking to individual solicitors about schemes and will be introducing individual products with individual solicitors."
But he warned that insurers may be tempted to develop products at inadequate premiums, which would be unsustainable. Most of the claims would come in three or four year's time, he said, so it was difficult to know how well it would work.
Even the three companies that took the plunge two years ago have reservations. But they are also convinced that their rivals are wrong in believing "before-the-event" is the answer. They point to the lack of complete cover provided by these policies and the lack of information about how many people are covered.
Bob Gordon, manager at Greystoke Legal Services, warned: "Many of these policies have to be very carefully watched as they vary dramatically in the amount and type of cover they offer."
Personal injury, and some employment disputes, are generally covered. But Gordon claims that his company is increasingly offering "top-ups" to some "before-the-event" cover where legal action occurs and the cover is not enough to see it through.
Irvine has already been forced to delay his planned extension of conditional fee arrangements from 1 April.
For now, it looks as though solicitors and their clients will remain in the dark as to whether plaintiffs will be able to afford to sue for their rights.