My Lords, in moving Amendment 56C, I shall speak also to Amendment 56FD, both of which also stand in the name of my noble friend Lord Stevenson.
These amendments are about protecting consumers who take out legal protection through their insurance policies against being allocated a lawyer who has some tie with the insurance company. Instead, they should clearly be offered independent advice and have greater certainty that any lawyer arranged through such a deal will act independently of the interests of the insurance company. This is about ensuring that, following
an accident, the lawyer, who has after all been paid for by their premiums, is working for the driver and not in any way for the insurance company. Unfortunately, experience shows that it is necessary to look at this. At the moment, if you look at your car or house insurance, you may well find a paragraph about legal protection.
The problem is that, should you need to call on this, you would probably have to use the law firm that the insurers appoint, not a lawyer of your own choice. And one has to ask, in order to stay on the panel recommended by the insurance company, what incentive would there be for a law firm to do extensive and therefore expensive work, which would be paid for by the insurance company, rather than a quick job which perhaps looks very satisfactory to the driver, if it results in a very fast settlement? Would such a law firm on the panel which relies for its work on referrals from the insurance company, really fight the driver’s corner with any vigour in a personal injury claim, or would there be a temptation to settle for the first offer from the other side? These legal expenses clauses are often difficult to remove from an insurance policy, which does not sound like a healthy market for consumer choice.
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Evidence given to the Transport Select Committee described the risk in these circumstances of what was termed “third party capture”. The evidence described a tactic used by insurers to try to “capture” and settle an injury claim direct with the claimant before independent legal advice, and sometimes even a medical report, has been obtained. We have been told that there sometimes are cases where the insurer will cold-call or write to a policyholder after a vehicle damage-only accident has been reported to it. It will even suggest that they discuss any claims for injury, perhaps mentioning a sum of money in final settlement of the claim, if the claimant does not involve solicitors.
It is true that under the industry’s voluntary code, insurance companies are meant to advise the policyholder that they have a right to independent legal advice, but somehow this is sometimes forgotten. The risk is not only that the legal expenses part of the insurance cover is not activated—which saves the insurance company money—but that the policyholder, who normally will have zero idea of the likely compensation for an injury that was fairly awarded and argued in court, gets a rather low pay-out from the insurer.
The insurer will sometimes call in a lawyer, of course, but it might automatically refer the policyholder to one of its panel solicitors. We have been told of examples suggesting that claimants have been encouraged by insurers to under-settle. Lawyers representing one trade union member recounted to us how he was allocated solicitors by his insurer following an accident. The insurer advised him to accept an offer of £2,250. However, as soon as independent lawyers got involved, the claimant was awarded more than £5,000. In another case, when a woman’s car was hit by another vehicle and the other driver’s insurer admitted liability, she was repeatedly called over a weekend by her only insurer to try to get her to accept £1,000, whereas her lawyers settled for £5,000.
All of that should be covered by the Solicitors Regulation Authority and the FCA. From the consumers’ point of view, however, there are two big players that they are dealing with—insurance companies and large legal firms—whose business models they do not understand. These big players have far more knowledge of the accident and insurance world and the likely compensation than the policyholder has, and it appears that they do not always put the consumers’ interests first.
These amendments are not about replacing the SRA or FCA’s roles as regulators over these two areas but simply call for transparency, something which we know the Minister is very keen on in other clauses. They call for transparency, together with absolute clarity, as regards the right of clients to choose their lawyers so as to ensure that they are completely independent. I beg to move.