Compensation Bill [Lords]

First, I remind colleagues of my entry in the Register of Members’ Interests. In warmly welcoming the Bill, I remind the House of the work of the all-party insurance and financial services group, which I have chaired since 1992. For many years, we have taken a close interest in the issues covered by the Bill. In anticipation of the draft Bill, we took evidence last year from a number of organisations and 11 witnesses in total, including various insurance lawyer trade associations, the industry and even the Claims Standards Council. We issued our report in November. There are three features of the current compensation environment—I shall not be drawn into a debate on whether there is a compensation culture—against which to judge the likely effectiveness of the Bill: risk aversion, rehabilitation and the regulation of claims managers. Risk aversion is important because, as we all know, many events or activities do not take place because of concern over potential claims for negligence in respect of personal injuries. Public liability insurance costs have risen to the extent that many activities do not take place because there is no public liability insurance cover and the leisure industry has seen a dramatic increase in the cost of both employee and public liability insurance. Secondly, rehabilitation is important because we are still not doing nearly enough to ensure that people who suffer major injuries as a result of a workplace or motor accident are treated quickly and got back to work quickly. Thirdly, the regulation of claims managers is important because of the widespread malpractice by so-called ambulance chasers, run by some pretty ruthless and unscrupulous people who are happy to sell on the introduction of a victim while contributing precious little towards the speedy and satisfactory handling of a claim. The no win, no fee basis of claims handling is confusing to claimants, often results in significant parts of their compensation being hived off to pay legal bills and has contributed to a situation in which legal fees amount to a staggering 40 per cent. of all personal injuries claims costs—money better used to rehabilitate and compensate victims and, I dare say, better used if we all had to pay lower premiums for the insurance cover that we have to purchase. In the end, we all pay; insurers have no money other than what we pay them in premiums. I shall deal with the three items in turn. On risk aversion, the new definition in clause 1 is meant to enshrine in statute the current understanding of the law of negligence. We have already had considerable debate on whether that clause is necessary, whether it adds anything to existing law and whether, if it does not, it has any point. Back in November, the all-party group agreed with the lawyer associations that clause 1 should be dropped, but the Government have not been persuaded to accept that view. If, as looks likely, clause 1 remains, I hope that we will be able to examine it in further detail in Committee because it is critical to understand precisely what the clause means. I am concerned about some of the new concepts, particularly ““desirable activity””, that may require a new definition, but I sense from listening to today’s debate that there may already be something new in the definition and perhaps more in the Government’s intentions than they have admitted—though I do not say that in a critical way. If the new definition clarified what precautions might be disproportionate in persuading people not to go ahead with a desirable activity—that seems to lie behind what the definition suggests—it could have a positive aspect. As other Members have suggested, it is important that the courts, including the lower courts with which my hon. Friend the Member for Canterbury (Mr. Brazier) has a bone of contention, fully understand Parliament’s intentions. It is wholly desirable that voluntary organisations, who obviously rely on volunteers and do not have access to an army of expensive lawyers, understand precisely the legal implications of what they do. I want to make one other point about the insurance aspect. Many activities do not take place simply because people cannot afford the public liability insurance cover. The long-term test of the new definition in clause 1 should be what it does to public liability insurance underwriting. I rather suspect that, for quite some time, underwriters will wait and see what happens in all the court cases that I know the hon. Member for Hendon (Mr. Dismore) thinks are likely—we had an exchange about the matter one evening in one of the Dining Rooms recently. We need to keep that prospect in mind. I turn next to rehabilitation. Just one issue has dominated our news for the past six weeks. It is nothing to do with politics, the state of the world or even Iraq. It is Wayne Rooney’s broken metatarsal. It has dominated every news bulletin and every newspaper. We all hope that he has been miraculously rehabilitated, but that experience is in stark contrast to the long delays experienced by people with workplace and motor accident injuries in getting the rehabilitation that they need to get them back to work. Clause 2 is a hugely welcome addition because it can provide new impetus to efforts to get people rehabilitated quickly. That is better for claimants and for employers. It is also better for third parties—people who have caused accidents. We should not always think that they are being difficult because they do not have sympathy with the victim. Most of the time, they do. In the long run, quicker rehabilitation is better for insurers. All the evidence points to the fact that the more quickly someone can be rehabilitated, the more likely it is that they will recover from the injuries that they have suffered in an accident, especially motor accidents in which people suffer whiplash injuries, back problems and so on, and the more likely it is that, for the good of them, of all of us and of their families, they have the chance to get back to work. So I welcome the addition of clause 2 and congratulate my noble Friend Lord Hunt of Wirral and his colleagues in the other place on introducing it. The regulation of claims managers is a long overdue measure. Some right hon. and hon. Members have concerns, as I do, at the notion of yet more regulation, but currently we have the farcical situation in which the arranging and sale of an insurance policy is subject to statutory regulation, and the loss adjusters who assist the insurers in the handling and measurement of claims are regulated through their professional body— the Chartered Institute of Loss Adjusters—but claims farmers are not regulated at all. Yet it is in the management of claims that abuse and mischief lies. ““The proof of the pudding is in the eating”” is an old saying, but it is only at the point of claim that people understand whether the insurance policy that they bought provided them with the protection that they thought it did when they paid the premium. It is at the point of claim that the real value lies. Undoubtedly, whether the individual policy holder claims for himself against his own policy is an issue about which we should be concerned, but it is far worse if we are dealing with the management of a claim in respect of a third party, who has a right of action under the policy as a result of what has happened, but has no relationship with the insurance company in the way that the policy holder does. It is critical that we get the claims management industry properly regulated. For the regulation to work, it must be comprehensive. There has been much discussion about exemptions. I want to make two points about them. If there are exemptions, the bodies that regulate exempt organisations must have equivalence in their regulatory bite. I am reassured by the Minister’s comments that if trade unions, about which there has been much discussion, do not match up, they will be subject to tougher regulation. The most critical thing is definition. I strongly urge the Minister to regulate the activity and avoid the danger of simply regulating the name ““claims farmers””. My experience in the matter comes from the past 10 years—all the time I have been a Member—of my election to the Insurance Brokers Regulation Council, which was a statutory regulator, but we regulated the name ““insurance broker””. If a firm used the title ““insurance broker””, it had to be regulated by the IBRC. Of course, many people practised, in effect, as insurance brokers but called themselves insurance consultants, so when we disciplined a broker and chucked them out of the profession they carried on in business under another name. We have to avoid that situation in respect of claims farmers. It is also critical that the regulator has the power to exclude, and that there is no route back for the cowboys to whom the Minister referred several times. That means that we need strong codes of conduct, but we also need clarity about precisely what they can and cannot do in their presentations to claimants and possible clients and in the advertisement of their services. The Government have made huge progress by specifying that the regulator will be the Department for Constitutional Affairs, even if only temporarily. I heard the comments of my hon. Friend the Member for North-East Hertfordshire (Mr. Heald) and I understand his sense of disappointment that we are not being provided with a distinct regulator. However, we have to bear in mind the other side of the argument. There are probably only about 500 claims management firms and my hunch is that half of them could be driven out of business, which would reduce their number to 250. Even charging them reasonable fees would not give us a basis for funding a regulator to do all that I have suggested needs to be done. We may have to wait until the new regulator has been set up under the Legal Services Bill to bring all the threads together. I am disappointed, however, that the Financial Services Authority has not agreed to undertake the regulation process. Claims management is related to insurance products. It is a financial services issue, so that is largely where the regulation should be. The intention is not to pursue a vendetta against claims managers but to ensure that they operate professionally and that we protect consumers from the unscrupulous. We must also ensure that the accident or event that is the subject of the claim, which is a bad enough experience for the individual, does not become a double whammy, due to bad advice about how to claim. All of us have heard about such experiences in our surgeries. Madam Deputy Speaker, I hope that you and the House will forgive me for not staying until the end of the debate, as I have another duty to perform. I particularly wanted to take part in the debate and hope that my comments show that I am very much behind what the Government want to do. The Bill is long overdue and I wish it well. The regulation of claims managers and strengthening the possibility of rehabilitation are two developments that we can all warmly welcome, and from which all our constituents will benefit in the long run.