‘Personal Injury Shocked and Shaken Up’

24 February 2017

‘Personal Injury Shocked and Shaken Up’

The only thing that has come as a surprise is that the Government have responded so quickly and indeed over a month earlier than they said they would, in relation to the proposed whiplash reforms.  The content of their response I doubt has shocked anyone.  There has been so much talk about raising the small claims limit in the last decade that eventually it had to come.  To my mind, the purported involvement of the wider personal injury sector was always a political move to create a give-away and really concentrate on the motor sector.  Indeed, the raising of the small claims limit to £2,000 for other areas will more than likely benefit Claimants and be a disadvantage to insurers.

However, the big news is of course the increase in the small claims limit to £5,000 and therefore the removal of recoverable legal costs for soft tissue injuries sustained in motor accidents and the introduction of a tariff.

The Implication of the Reforms

Any law firm or accident management broker which relies significantly on income from motor related personal injury claims has significant threat to its business.  If they are entirely reliant upon income from that sector, then I don’t see how they have a business.  However, there are many specialist personal injury firms that simply rely upon the motor work to provide cash flow to allow them to fund bigger cases and generate marketing spend to attract new work.  Unless the businesses have sufficient scale, again I don’t see how they can survive, not because they can’t make a profit but because they are in danger or running out of cash, especially since lawyers are no longer flavour of the month with the banking sector.

I would therefore predict a significant contraction of that market and I don’t see how many of the small to medium boutique style businesses can survive.  That said, wherever there is a threat there is normally an equal and opposite opportunity and I would imagine the bigger players who enjoy critical mass and economies of scale will re-engineer themselves so as to still be capable of providing a full service.

The reason why this may be possible is of course the introduction of the tariff which means that frictional cost should be reduced to virtually zero and the skill in valuing a claim, or arguing as to where within the bracket it fits, disappears because the medical evidence should, at least in theory, provide a definitive figure at which the case can settle, 0-3 months, 3-6 months etc.

Turning Full Circle

The thing that strikes me about the proposals is that it is a little bit like winding the clock back 25 years.  It used to be commonplace for there to be a legitimate claim for ‘shock and shaking up’ but that was challenged by the case of Nicholls v Rushton and suddenly, unless you had a recognised psychiatric disorder, then you were not entitled to compensation.  On what inevitably the more routine whiplash injury was borne, and we all know what happened from then on particularly post-Woolf.  It strikes me that these reforms simply take us back to that time whereby minor injuries are legitimised and compensated, the only difference is you now need to pay almost as much to get a medical report as you do to receive the compensation, particularly since pre-medical offers are to be banned.

No doubt the medical agencies will be rubbing their hands at the thought but insurers will be a little wary about claims frequency, as potentially this introduces a whole new tranche of Claimants who currently wouldn’t consider making a claim.  The challenge will be attracting the claims enquiries and creating a customer experience as simple as possible, otherwise there is of course a danger that people simply won’t be bothered, albeit the culture of compensation for delayed flights and PPI suggest that if it is on offer people will take it.

What to do with my Law Firm?

I am sure there will be many owners of personal injury firms scratching their head and wondering where to next?

I certainly don’t think there is any future in boutique law firms specialising in motor claims, so I think the options are relatively simple:-

  • Liquidate the business for the maximum possible value
  • Consolidate with a number of other business to create economies of scale and diversify

this is not necessarily straightforward and it will be interesting to see who tries to achieve what.  Some of the more established firms where the ownership may be held by people contemplating retirement in any event, are more than likely to opt for option one and no doubt Accountants and Insolvency Practitioners will be able to give some thought as to the best way to extract maximum value from the businesses at the optimum tax rate.

As I believe Charles Darwin is supposed to have once said;

‘…it is not necessarily the strongest or the fittest that survive, it is those most adaptable to change…’

well that certainly applies to now, change or face extinction!