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Posted in Market developments, UK

UK: Government sets out in the Queen’s Speech measures for protecting insurance customers

The government has today set out the details of its legislative programme for the next two years in the Queen’s Speech.  One of the issues to be addressed in this parliamentary session will be tackling the “compensation culture” surrounding whiplash claims, in addition to much stricter regulation of the activities of claims management companies (“CMCs“).

The two bills announced in the Queen’s Speech of particular relevance are the Civil Liability Bill and the Financial Guidance & Claims Bill, both proposed as part of a series of new measures to protect consumers.

Civil Liability Bill

There has been an increase in the number of insurance claims for soft tissue injuries sustained in road traffic collisions of around 50% since 2006.  This is because it is comparatively easy to obtain substantial compensation for these injuries, which has led to the promotion of a “compensation culture” by claims management companies (“CMCs“), as well as an increased number of exaggerated claims.

The 2015-2017 government consulted on possible reforms in its November 2016 Consultation Paper on Reforming the Whiplash Claims Process (the “Consultation Paper“).  For more information about this consultation, see our blog post.

The Prisons and Courts Bill (which, amongst other things, included measures to address the issues discussed in the Consultation Paper) had reached Committee stage before the 8 June General Election was announced, but was scrapped during the “wash-up” period prior to the dissolution of Parliament.

This bill aims to reduce the number and cost of whiplash claims while ensuring that full and fair compensation is paid to claimants who have genuinely suffered an injury.  The key proposed measures are:

  • a ban on offers to settle claims that are not supported by medical evidence; and
  • the introduction of a new fixed tariff of compensation for whiplash injuries with a duration of up to two years.

The government anticipates that motorists could save an average of £35 per year on insurance premiums if these measures are introduced.  If passed, this legislation would apply in England and Wales only.

Financial Guidance and Claims Bill

Single Financial Guidance Body

If passed, this bill would establish a new Single Financial Guidance Body to replace the existing providers of publicly funded financial guidance (currently provided by the Money Advice Service, the Pensions Advisory Service and Pension Wise).  By doing this, the government intends to make it easier for consumers to access financial advice, as well as to improve efficiency and cost-effectiveness.

The new Single Financial Guidance Body would operate in England only, as debt administration is a devolved matter.

Regulation of CMCs

The bill also aims to strengthen the regulation of CMCs by placing them under the supervision of the Financial Conduct Authority (“FCA“).  It would also confer wide regulatory powers on the FCA to enforce a “robust regulatory regime” and to cap CMCs’ fees.  These measures would apply in England and Wales only.

By placing CMCs under this new regulatory supervision, the government intends to make it more difficult for CMCs to engage in malpractice such as nuisance calling and encouragement of fraudulent claims.

Next Steps

No timetable has yet been set for either of the proposed bills to begin their passage through Parliament.

When the draft legislation is published, the extent to which the approach set out in the Consultation Paper and the now-abandoned Prisons and Courts Bill will become clearer.  We will monitor developments and provide updates on this blog.  In particular, we will follow closely the proposals for FCA regulation of CMCs.

If you have any questions regarding the proposed changes in relation to CMCs and compensation, or more generally regarding the Queen’s Speech, please contact a member of the Hogan Lovells team.