16 June 2003
Here we are again. It is not even 12 months since the once all-conquering Claims Direct called in administrative receivers Deloitte & Touche. Now the apparently unstoppable The Accident Group (TAG) has met the most dramatic of ends. When it comes to golden opportunities, the legal profession has long demonstrated a talent for missing them, not least in the personal injury (PI) market. But with the collapse of the market-leading ambulance-chaser (it claimed 25 per cent control of the PI market), could there be a better time for solicitors to wrest control back from the claims farmers?
"It's a chance to clean out the stables," agrees David Hartley, director of Accident Line, the Law Society-endorsed claims referral scheme. "Companies like TAG have almost brought the right of people to seek compensation for real injuries into disrepute. But there is an alternative, and that is using specialist solicitors for these genuine cases."
So what lessons can be learnt from the second high-profile corporate disaster in the claims market? "All punters need to know is: InjuryLawyers4U... InjuryLawyers4U... InjuryLawyers4U," says Andrew Twambley, one of the two partners at specialist PI firm Amelans, which is spearheading the new solicitor network. Last week, InjuryLawyers4U (IL4U) hit the road with two meetings in Manchester and London under the banner 'The Lawyers Fight Back'. "TAG's collapse is going to help the general public realise that going to the middlemen isn't the way forward," says Twambley.
The consumer-friendly new Claims Direct is also up and running and in the capable hands of Russell Jones & Walker. "It leaves open an opportunity for ethical firms of solicitors that may be acting on their own or together to ensure there's a proper ethical model out there for claimants," says Russell Jones managing partner Neil Kinsella of TAG's disappearance from the scene. "You could say it's taken lawyers too long, but I think they were very conservative, cautious and worried about what the costs regime would be. Now that's been clarified."
Everyone in the industry claims to have known that TAG was coming to a nasty end - in the same way that everyone knew its discredited predecessor was living on borrowed time. Nevertheless, there is a genuine shock that it happened so quickly.
Rumours are still flying around concerning the exact nature of the killer blow that finished off TAG. Was it HBOS refusing to fund salaries? Were there problems with the insurers? Was it haemorrhaging money as a result of - as administrator PricewaterhouseCoopers (PwC) puts it - "a lower than expected claims success rate"? Parent company Amulet Group blamed its own collapse on "continual battles with the insurance industry and the sudden failure of a banking partner".
Certainly, it was the ruling of senior costs judge Peter Hurst that trashed the TAG business model. He halved the premium from £997.50 to £450 and also ruled that a fee of £310 paid by TAG's panel firms to the company could not be recovered. Of course, Claims Direct similarly had its original £1,250 premium halved by the courts. Jason Rowley, president of the Forum of Insurance Lawyers, points out that the judgment effectively "rent a large hole" in TAG's income streams. "The model of Claims Direct and TAG isn't sustainable and somebody will have to come up with a different way of making money out of it," he adds. He believes that the defendant insurance industry remains "fairly happy" with its position on recoverability and what the industry is and is not prepared to pay.
It remains to be seen whether another claims company will be able to fill the vacuum left by TAG. Emmanuel Gilbert, managing director of online after-the-event (ATE) insurance consultancy TheJudge.co.uk believes that competition will simply increase. "Although defendant insurers might say it's great news on the grounds that it removes the one big enemy they have," he explains, "what they have now are a thousand little enemies with slightly different business models, different insurers and ways of doing things." He does not believe that this marks the end for other large-scale claims companies - they will just not operate on the smaller margins that drew TAG to the attentions of the courts.
But where does TAG's collapse leave the claims management industry? Not surprisingly there are renewed calls for regulation. Graham Stringer, Labour MP for Blackley, has written to Trade Secretary Patricia Hewitt seeking an investigation into the company, as well as an industry-wide code of conduct. "What I want is an investigation to find out what went wrong," he says. "Whether it was absolute corruption or just [the problem of] the essential structure of the company, where they touted for work and possibly went beyond what the law would normally allow, inasmuch as they had people claiming for accidents they weren't in."
The MP is familiar with the antics of the TAG salesmen on Market Street in Manchester, where they used to routinely parade around asking shoppers if they had suffered an accident in the last three years. He also argues that aggressive sales tactics, such as cold-calling and stopping people on the street, should fall under industry control. He, like the Government, believes that "self-regulation with the threat of legislation" is the answer.
As far as consumer groups go, there are two abiding images of the Claims Direct/TAG era. First was the story of Jason Pointing (as told in The Sun), who worked in a bar and was scarred for life after being instructed to empty a tea urn full of boiling water that did not have proper handles. Claims Direct handled his case and after a two-year wait Jason was left with a cheque for £63 from his total damages, which were worth £1,525. Then there was Lee Loughman, as featured on the BBC's Watchdog programme. A secret camera caught a TAG rep exhorting Lee to put in a bogus claim for a bus crash when he was actually at home. The twin evils of the claims companies as seen by the media and consumer pressure groups are that they leave accident victims penniless and the fact that they have launched a deluge of worthless claims.
Professor John Peysner, a costs expert at Nottingham Law School, is convinced that leaving such a relatively young industry to police itself is not the answer. "I have no objection to self-regulation if what we're talking about is an industry that can self-regulate - for instance the financial services industry, where there are trade organisations and the Financial Services Ombudsman all doing a pretty good job," he says. As he points out, though, both market leaders made the right noises about self-regulation and subsequently collapsed. "How many lessons do we have to learn?" he asks.
Peysner wrote the draft Blackwell Report, which examined the case for regulation in the claims industry and which was published in February 2000. It focused mainly on claims assessors, believed to be the chief evil at the time. The report concluded that the Government should keep an eye on the claims farmers. Peysner is also calling on the Law Society to relax its ban on referral fees, which would in his view create a level playing field - solicitors could run their IL4U-style networks and those that wanted to avail themselves of claims companies could pay for proper and useful services "instead of it having to be disguised through the insurance premium".
The Law Society is also calling for proper regulation and recommends that consumers go straight to solicitors and miss out the middlemen, who, in its words, "are no better than touts".
"Our issue is with the intermediary organisations, which should be regulated; and the kind of touting we're continually hearing about is just not in the public interest," argues Janet Paraskeva, the Law Society's chief executive. "If a client makes the choice to use an intermediary, then fine; but it's when the intermediary employs people to encourage claims that it's dangerous."
However, the Lord Chancellor's Department (LCD) is resisting calls for a tougher approach. It argues that the commercial health of an individual company is "not a reflection of the state of the industry generally, which is more than able to absorb the loss of TAG". It is backing "a voluntary approach and a degree of industry self-regulation".
Addressing the recent Association of Personal Injury Lawyers (Apil) conference, LCD minister Baroness Scotland delivered the Government line: "I'm quite certain that, provided claims management companies and similar intermediaries act responsibly and with probity, they can expand access to justice for people with good claims and provide helpful claims management services to solicitors. While improper approaches to vulnerable people must be of concern, it is of equal importance that people who may have been injured by others' negligence should have access to help to seek compensation."
So what progress has been made by the claims companies to police their own industry? So far nothing concrete has been delivered, but there are now three separate claims company initiatives underway. The Personal Injury Association is a pan-industry body driven by Blue Sky Group, which owns ATE insurer Accident Claims Protect and claims management company Compensation Helpline. It had its first meeting earlier in the month and there are 12 interested 'stakeholders' to date, including other claims companies and solicitors such as Russell Jones, medico-legal services, insurers and one bank. It looks as though any code of conduct would specifically ban cold-calling and strong-arm marketing.
It is fair to say that Blue Sky will not miss TAG. "When we heard the news of their collapse we jumped up and down with glee in our office," says Blue Sky chairman David Hargreaves. "They did nothing but bring the entire industry into disrepute. The lesson of TAG is: don't buck the system and the system won't turn back on you and kick you up the backside." His main points of difference are that TAG's premiums were way too high (Compensation Helpline's premiums for road traffic accidents are £350) and he is "avidly against" cold-calling and "standing on street corners".
Hargreaves was invited by PwC to consider taking on some of TAG's half-a-million outstanding claims. He would not comment on this other than to say that he will not be taking on any of the cases or any other part of the business. "The furniture was nice," he says. "But the company was just full of hot air with no physical substance."
The pressure on TAG reps to drum up claims seems to have been at the expense of quality. For example, Dr David Pearce of the medico-legal service eWitness, which is also supporting the Personal Injury Association, reckons some lawyers were taking two out of every 10 cases offered by TAG "because the rest were rubbish. When there's talk of 500,000 still-live claims, that probably merits 50,000, because lawyers are accepting at best 20 to 30 per cent - and then a good portion of those would disappear because the people weren't making claims but responding to pressure."
Unsurprisingly, Hargreaves is not impressed by the Law Society's characterisation of the market - solicitors (good) and claims managers ("touts"). "The Law Society as a trade association are bound to support the idea that you 'go to your local solicitor'," he says. "But the vast majority of claimants go through trade unions, legal expenses insurers and accident management companies and claims companies, and not direct to lawyers. All of these ensure as much as possible that the lawyer acting for the claimant is competent. If you promote the idea of simply going to the local solicitor, that's just wrong."
|Mark Langford: 'We are not the enemy'|
|On being regarded as the pantomime villain of the access to justice world: "We don't see ourselves as an enemy of the profession," Mark Langford, the solicitor founder of The Accident Group (TAG), told The Lawyer back in February in a rare interview. "We refer all the claims to solicitors to handle, and it's not as though we're taking away business from the profession." |
The Watchdog exposé revealed a TAG salesman exhorting a prospective client to put in a false claim and accusations that it bussed in sales teams to Birkenhead, Merseyside, after an explosion at a BASF chemical factory in 2001. The Daily Mail reported that TAG signed up 1,000 residents: "Any individual who did that was acting directly contrary to the state company policy," said Langford. In fact, TAG did not bus in staff to deal with the fire because they were there anyway. "It wasn't as though we were chasing after an ambulance - people were just doing their normal job, speaking to people on their doorstep," he says. "It was a coincidence."