The UK’s whiplash culture and Solvency II are just two of the issues RSA legal chief Charlotte Heiss is grappling with
It is not often that a legal team will club together to find ways to charge consumers less, but the lawyers at insurance giant RSA know a problem when they see it.
UK customers fork out £2.7m a day to lawyers through their motor insurance premiums, while insurers pay £2bn in whiplash claims a year, the highest rate in Europe. In response, RSA’s legal team has called for a wholesale review of motor insurance and whiplash claims in the UK.
It is a subject about which Charlotte Heiss, a corporate lawyer at Linklaters before she joined RSA’s legal team in 2010, is passionate.
“The system is costly, inefficient and slow, and we don’t think it meets the needs of businesses or consumers,” Heiss says. “We want to encourage the Government to look abroad for examples of how the system can be reformed.”
Heiss, who was promoted to RSA’s head of group legal in 2011, points to Ireland and Canada for tried and tested options. Under Ireland’s Injury Board (IB) process, for example, claimants’ solicitors must refer cases to the IB before they can issue legal proceedings – a process that has already cut insurance costs by some 16 per cent.
Certain provinces in Canada, meanwhile, have introduced caps for minor injuries – driving greater certainty around settlement values and ultimately creating more affordable, accessible insurance.
Closer to home, Germany has banned whiplash claims for accidents at speeds of less than 6.25mph in a similar crackdown.
But trying to stop the UK from being the whiplash capital of Europe is not the only challenge Heiss has stood up to. Insurers are awaiting implementation of Solvency II – set to be the shake-up of a lifetime in insurance regulation – and RSA is one of the four companies involved in its design (or the ‘internal model approval process’, to be precise).
Heiss says the group’s involvement in the design process has given RSA the opportunity to test and resolve difficulties ahead of implementation.
“This means we’re well-placed compared with some of our competitors for Solvency II, ready to meet the target before it is implemented,” adds Heiss, who points out that in preparation for the system, the team reduced the number of UK-regulated entities from 22 to five last year.
That said, there is an understandable air of nervousness surrounding Solvency II – the FSA says implementation will cost around £100m.
Heiss says:“It’s an awful lot of work and we, like others, have concerns about the potentially onerous cost of implementation and the possibility of increased capital requirements through the overly prudent assumptions proposed by the Committee of European Insurance and Occupational Pensions Supervisors.”
A less obvious challenge is how the global group manages legal risk in a market that covers so many jurisdictions. It is an issue that Heiss says the team responds to by being consistent in its approach.
For example, the team was heavily involved in producing a 35-page corporate responsibility booklet, which was sent to the group’s 22,000 employees with the aim of setting standards across offices.
Among those standards, morality and ethics come high up the agenda, with everyone getting two days off a year to do some volunteering. It is something that does not just give back to the community, says Heiss, but also helps with team-building.
All well and good, but consistency does not necessarily protect a company from legal risk.
“We have people on the ground who really know this business, so when a legal risk emerges we’re able to deal with it,” Heiss clarifies. “What we do at the centre is try to pull together learnings from around the world and share best practice.”
Heiss says RSA averages its legal spend by doing as much internally as possible. As part of this, the group concentrates on promoting from within. Heiss’s promotion, for example, was followed by the promotion of legal risk and compliance director for Central and Eastern Europe Alex Moon to emerging markets general counsel, and that of general counsel for emerging markets Elliot Hill to CEO in Singapore.
“Having quality people in the team means we can do more in-house – we’re clever about the work we send out,” she adds. “People are committed to and excited about this company because they’re encouraged to develop.”
Are there opportunities for the insurer under the Legal Services Act? Heiss shakes her head.
“In terms of non-claim spend I can’t see a value in alternative business structures (ABS),” she says. “Having lawyers sitting in the business on a day-to-day basis and understanding it – there’s no substitute for that. We’re in a watch-this-space scenario with ABS.”
Position: Head of group legal
Reportingto: Derek Walsh, group general counsel and company secretary
Annual legalspend: £5-10m, excluding claims
Group general counsel, AXA UK
Outlawing referral fees paid in relation to motor injury claims was the first step in reforming the personal injury compensation culture that has inflated insurance premiums. Indeed, AXA UK became the only insurer to do this unilaterally in June last year. However, further radical action is necessary if consumers are to
see reduced insurance costs.
The next key step is the reform of the ‘fixed fee’ regime for minor motor vehicle accidents. For a typical whiplash compensation claim of £2,500, a lawyer earns a fixed fee of £1,200 – high enough that lawyers can pay claims management companies a referral fee of £800 and still make a profit. If lawyers can profit from retaining just £400 of their fees for minor claims, and the Government is to ban the £800 referral fee, surely the fixed fee should come down from £1,200 to £400. If no action is taken to cut lawyers’ fees, the ban on referral fees will have little or
no effect. Motor premiums will continue to rise, and drivers will bear higher insurance costs.
Also, the Government needs to review the whole topic of whiplash, the condition most often cited in minor motor accident claims. We need a definition of whiplash – claims are currently hard to disprove, leaving the area ripe for exploitation by unscrupulous people who can make exaggerated or bogus claims. A recent survey of GPs highlighted that 75 per cent of healthcare professionals believe whiplash is open to fraud.
Insurers exist to pay genuine claims. We firmly believe that whiplash and fixed fee reform will not harm access to justice, a central right of any individual in the UK.