Legacy Quarterly Update

In this edition of the Legacy Quarterly Update we will focus on developments and trends likely to occupy insurers in the legacy arena over the coming 12 months.

In particular we will consider:

The upcoming legislative agenda Discount rate changes Fixed costs are coming Appeal cases to watch Nanomaterials- the next wave of legacy claims? Idiopathic Pulmonary Fibrosis claims Diesel fumes litigation Bereavement damages changes Historic abuse claims to expand significantly in Scotland and elsewhere The rise of civil 'revenge porn' claims Alternatives to litigation opportunities Upcoming legislative agenda

Despite the Treasury Select Committee identifying the insurance sector as a priority for Brexit negotiations, it is perhaps the impact the Brexit agenda will have on the rest of the legislative timetable that will be of most concern for insurers in the next 12 months.

Several key Bills proposed in the Queens Speech have a somewhat uncertain future in light of the competing interests of Brexit legislation, which is undoubtedly going to take precedence over the next 18 months.

The first casualty is likely to be the Civil Liability Bill, which is still yet to be published. It is expected to include a tariff for reduced motor claims compensation and a ban on insurers making offers before victims have had a medical. It is anticipated that the Government is unlikely to push through these reforms before October 2018. Indeed this may be extended further, as it is not universally supported and is likely to receive a rocky journey through the Commons.

Whilst the recent Justice Committee hearings on the increase of the small claims track is an encouraging development, (particularly as the Government previously pledged to implement these reforms with the Civil Liability Bill), there is still much to resolve to prior to either initiative being completed.

Claims Management Company regulation is to be addressed in the Financial Guidance and Claims Bill which is presently being debated in the Commons, having started life in the House of Lords. The Bill proposes to transfer regulatory responsibility from the MOJ to the Financial Conduct Authority. However, despite proposals in the House of Lords, the Bill does not ban cold calling for personal injury claims or bring Medical Reporting Organisations within the scope of the FCA. Such regulation would be beneficial particularly following the implementation of the Civil Liabilities Bill which is likely to increase CMC presence in lower value personal injury claims.

The Automated and Electric Vehicles Bill may fair better. The draft legislation, which sets out the first wave of regulation and insurance provisions for driverless vehicles, has already been published and is appearing to have a smooth journey through parliament. The Bill appears to have cross party support and the risk to consumers if the legislation is not enacted is likely to see it become law sooner rather than later.

Discount rate

2018 could be the year that insurers put their discount rate woes behind them. The new draft legislation presents a clearer and fairer framework for setting the discount rate that should halt the chronic overcompensation recently acknowledged by the Ministry of Justice as occurring under the current -0.75% rate.

Insurers are expecting a change to a positive discount rate to be implemented in the next 6-12 months, although what the rate will be is still up in the air. Interestingly the Government has jumped the gun somewhat by indicating the discount rate would likely increase to between 0-1% under the new proposals. The vagaries in the methodology for setting the rate in the Bill (which gives the Chancellor the final decision) suggests this is probably the level the Government is aiming to reach, whatever the final legislation ends up looking like.

Although the provisions are predominantly good news for the market, there remains the possibility the Lord Chancellor will not go far enough, particularly as the recent increase in interest rates provides fresh evidence for the discount rate to be increased further. Moreover the Justice Select Committee's calls for further evidence on claimant investment behaviour may result in yet further argument on the correct approach.

Despite a potential further 12 month wait for this necessary legislative change, neither insurers or claimant representatives are...

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