§ Brian CotterTo ask the Parliamentary Secretary, Department for Constitutional Affairs if he will make a statement on the implications for the insurance industry of legal costs in relation to no win, no fee cases. [127804]
§ Mr. LammyConditional Fee Agreements (CFAs), the most common type of 'no win no fee' agreements, were first introduced in 1995. In April 2000 success fees and after the event insurance premiums were made recoverable from the losing party to help redress the problem of the legal system being open only to people who were legally aided or who had adequate private means. The intention was to make it easier and more affordable for a wider range of people to enforce their rights. The reforms also provided defendants and their insurers with a fairer system by which to recover costs in successfully defended cases, whereas under Legal Aid, defendants were rarely entitled to recover costs from their legally aided opponent. The reforms provided increased deterrents to the bringing or defending of weak claims and stronger incentives for parties to settle cases early and cheaply because of the increased potential liability in costs.
It is not possible to say yet whether legal costs to insurers have increased directly as a result of the introduction of CFAs, recoverable success fees and ATE insurance premiums. Recent research by Fenn, Gray and Rickman (January 2003) for the Civil Justice Council on the cost of road traffic accident cases up to £15,000 in value found that data on costs and damages from around April 2002 onwards showed large fluctuations in the volume and duration of settled claims and could not be relied upon. However, the research did indicate that there seemed to be little difference between 32W CFA and non-CFA claims with respect to agreed base costs and disbursements, and that success fees and ATE premiums remain a relatively small part of overall costs recovered from insurers.
The OFT commented in its recent fact finding study of the liability insurance market that it seemed unlikely the cost of individual claims has risen substantially as a result of the reforms and it was unclear whether they have had a significant impact on the frequency of claims. The OFT also said that while it had frequently been suggested the number of claims has risen because the reforms have made the claiming process easier and associated publicity has drawn more attention to the availability of compensation, the evidence for this was in fact largely anecdotal.