PIAB: an assessment of the present and a look to the future - Patricia Byron, CEO
Insurance Institute of Ireland
Autumn/Winter CPD Lecture Series 2012
Tuesday, 25th September 2012
Good afternoon ladies and gentlemen,
I am delighted to be here today to discuss our mutual interest in the whole area of insurance and personal injury. Some of you may have been in attendance when I spoke to Institute members in December 2008 and this afternoon I look forward to updating you on the progress made by InjuriesBoard.ie since then. For those who may be less familiar with the Injuries Board, I thought it may be useful to recap on our background and function. Finally, I would like to touch on a few themes, trends and emerging issues impacting the personal injury landscape.
INJURIESBOARD.IE – A BACKGROUND
So, to recap firstly; InjuriesBoard.ie (formerly PIAB) is an independent statutory body which assesses the amount of compensation due to a person who has suffered a personal injury on our roads, in the workplace or in a public space. Our mission is to process personal injury claims in an efficient, fair and transparent manner.
We were established against a backdrop of high insurance premiums for both consumers and businesses, which had a detrimental impact on competitiveness in terms of costs of goods and services. This was compounded by a litigation system whereby claims were taking, on average, three to four years to be processed with costs running at a staggering 46% of the value of underlying claims. This was really bad news for all of us who had to pay higher insurance premia. It was also a real issue for the insurance industry given the controversy surrounding these annual price hikes.
Moreover the claims environment was adding to the frustration and stress of claimants and resulting in severe bottlenecks in our Courts. This lengthy and costly model for processing personal injury claims was identified as a major driving factor for reform.
That reform agenda can be traced back to the Deloitte & Touche Report on Insurance Costs in 1996. This was followed by a number of Government reports resulting in the establishment of the Motor Insurance Advisory Board. This pre-cursor to PIAB, was ultimately borne out of the Government Insurance Reform Programme in 2002. It resulted in PIAB opening its doors in mid 2004. Not everyone was happy with this new arrival as evidenced by the fact that 7,000 claims were processed through the courts in the three weeks before the Injuries Board came into operation. This was an undisguised attempt to extricate fees before the handover and to divert as many applications as possible away from the new Board.
In those early years, PIAB established that there were about 30,000 personal injury cases each year in Ireland. At that time, the Board was charged with resolving approx two thirds of these cases. Further objectives centred on:
- reducing the claim processing timeframe – from over 3 years
- lowering the cost of processing claims - from 46% of the value of underlying awards, and
- maintaining the same level of compensation for claimants.
Since then, we have developed a robust, non-adversarial, consumer-focused model that is delivering significant savings. It is a model that works. From an operational perspective, claims are assessed five times faster and at a fraction of the processing costs attaching to litigation.
Through our call centre and online facility, InjuriesBoard.ie delivers awards within a maximum nine month time frame. In 2011, we delivered awards within an average of 7 months which is five times faster than the previous Court based system.
Our administration costs stand at sub 9% of total awards versus the prior adversarial model where historic processing costs exceeded 46%. Today the comparable litigation costs would be comfortably in excess of 50%. Simply put, for every €100,000 we spend in processing claims the prior adversarial model would have incurred €600,000. This does not include the significant savings to the insurance industry arising from a quicker, simpler non adversarial claims resolution process. Those of you in attendance today will have a better appreciation of the economic benefit to insurers in the form of lower staffing, less administration and reduced management time.
It’s no surprise therefore that we have sought to deliver our services at no cost to the Exchequer as we are funded through fees charged, by and large, to insurers. Claimants pay a modest application fee of €45 whilst respondents, following a 19% reduction last year, pay an €850 fee
From a consumer perspective, we have and will continue to deliver compensation for personal injury awards at the same level as the Courts but without the stress of a court appearance for claimants. In calculating the compensation due to a claimant, we take full consideration of the injury sustained and the impact on their lives, the pain and suffering, the lost earnings and whether any special damages apply.
2011 saw us mark several significant milestones. By year end 2011 the Board had cumulatively assessed over 50,000 claims in total since its inception amounting to cumulative awards issued by the Board to date exceeding €1billion.
This has contributed to typical direct savings of between €40million and €50million per annum, though the total impact, inclusive of indirect savings arising from early settlements would likely double this figure. Our best estimate is that the Injuries Board model has facilitated claims processing savings, direct and indirect, of almost half a billion euro to date for the Irish economy.
Crucially in these more straightened times the Courts have also been freed up to focus on more pressing cases - as the number of personal injury litigation cases through the Courts has reduced from a high of 33,000 to just 14,000 cases in 2011.
Although it was never anticipated in our founding legislation we are self funding. Not only that, I am very pleased to report that in November 2011 we repaid, in full, our original establishment costs of €7m to the Exchequer.
InjuriesBoard.ie, as I mentioned at the outset was established to address the cost drivers of spiralling insurance costs for consumers and businesses. Today, motor premiums are 22% lower than a decade ago. In fact motor premium are now back at 1990 levels.
In the round, I believe it is fair comment to say that our non-adversarial model has delivered a more far reaching range of benefits than ever anticipated. It has also spawned a series of innovative processes that may have more broad-based application across the public and private sectors.
Advances in outsourcing, early intervention and facilitation processes – leading to early settlements - provide a useful template for lower cost dispute resolution. I am encouraged that mediation is gaining real traction as a more cost effective and efficient means of dispute resolution.
In fact InjuriesBoard.ie has been a pioneering model in Europe for the way in which personal injuries claims are handled and processed. Our counterparts in the UK are looking to InjuriesBoard.ie as a model and have approached us for guidance in developing their own injuries claims resolution system. The UK authorities are struggling to manage litigation costs in much the same way as Ireland did in the early 2000s.
THE EVOLVING CLAIMS ENVIRONMENT
- Consistent gradual increase in claims- no recession related spike
Following the onset of the recession and the coincidence of two harsh winters there had been something of an irrational exuberance to herald a spike in personal injury claims. Frankly this has not been borne out. If anything, a slight increase in public liability volumes has been offset by a reduction in the volume of workplace claims (circa. 1%), consistent with lower numbers at work.
That said, as we review claims volumes over recent years and specifically in the first half of 2012, we are seeing a gradual but consistent increase in claims volumes with little evidence of a matching increase in accidents. Whereas it is encouraging that we have not seen a dramatic recessionary spike - due in no small part to the efforts of the HSA, RSA and Insurance Industry Anti-Fraud initiatives – any increase is unhelpful at a time when individuals and businesses are seeking to contain insurance premiums.
So why is it happening? Well it is difficult to be definitive but anecdotal evidence suggests a mix of contributory factors.
- Some claimants undoubtedly are pursuing lower value claims given recessionary pressures, but there are also, supply-push factors, which are in my view a far greater cause of concern. These include:
- a noticeable increase in advertising and promotion by providers of claims related services, particularly online and
- anecdotal reports of regressive practices such as ‘claims harvesting’ and ambulance chasing
On the former InjuriesBoard.ie has noticed an increase in certain law firms advertising and promoting services in a manner which is at best inconsistent with the spirit of the Solicitors (Advertising) Regulations (S.I. No 518 of 2002) or is designed to circumvent the Law Society’s own guidance on the advertising of personal injury claims services. We have raised these issues repeatedly with the Advertising Standards Authority of Ireland and indeed the Law Society.
Of even greater concern is anecdotal evidence that third parties are advertising heavily to accident victims and then referring these individuals to a panel of solicitors, in effect ‘harvesting’ legal work on behalf of legal firms. This dubious practice raises ethical as well as cost concerns. Taken together with reports of US - style ambulance chasing at A&E wards and at accident repair shops, it is evident that those who prospered from the claims industry in the past have not given up the fight.
As a board we view the progress achieved as hard fought. That is what we are raising these issues with the key stakeholders involved, that is why we have successfully defended dozens of judicial reviews, that is why, in 2007 we sought amending legislation to discourage needless rejection of claims and that is why I am appealing to you in the insurance industry to play your part in voicing your concerns and in fighting practices that serve no one other than vested interests.
I would also call on the industry to lead by example and to reflect on factors within your own control that impact the integrity and sustainability of the non adversarial model. To be more specific:
- Central Bank’s Code on Consumer Protection:
As of 1st January 2012 the Central Bank’s Code on Consumer Protection, requires insurance intermediaries to provide consumers with details of the InjuriesBoard.ie claims process as soon as the insurer becomes aware of a potential claim. We see this as a very positive development which increases the likelihood that a claimant will contact InjuriesBoard.ie in the first instance - in preference to the more costly route of pursuing an application via a solicitor. We believe this is positive for insurance companies and for personal injury claimants who gain a better understanding of the cost differential between pursuing a claim directly or via a solicitor. We believe this could result in savings of €2,000 upwards per claim or up to €20million per annum. I would encourage the industry to adopt a compliance plus approach to this worthwhile addition to the consumer code, in all our interest.
- Settlement of rejected awards:
Each year, a portion of awards rejected by claimants are settled by insurance companies before ever seeing the inside of a court room. The question is why? For example, does it have anything to do with a ‘pragmatic’ but short sighted concession on legal fees? If so, we would caution that this self perpetuating practice may create a monster that will cost this industry. If not, then let’s have access to data and insights that might help combat this issue.
- Non -attendance at medicals:
I would also pose the question as to what, if any action, the industry is taking to challenge a lingering practice whereby claimants are advised to not attend medicals. Non attendance means that InjuriesBoard.ie has insufficient insight to assess a meaningful award and enables the claimant to pursue a higher award inclusive of legal costs, through litigation. Could insurance companies do more to identify anomalies between the claim presented to InjuriesBoard.ie and that presented for litigation? If so, does the industry have the appetite to challenge such practices and to put down a marker that those who speculate on a soft outcome expose both themselves and their clients to substantial loss. Only the industry can answer this question.
- Direct payments for medical services:
When InjuriesBoard.ie grants compensation for medical expenses, it has no guarantee that the monies will ever actually be re-paid to the hospital/service provider. InjuriesBoard.ie is currently engaging with the Department of Public Expenditure and Reform with regard to a means by which compensation awards related to medical expenses can be paid directly to the public body that provided the medical service.
This should help underpin the indemnity principle by ensuring the claimant has not benefited as a result of the accident. If successful, this would likely have more widespread application, encompassing the SCA and perhaps State backed redress schemes, such as army deafness.
- Health, safety and wellbeing initiatives:
InjuriesBoard.ie has been busy promoting health, safety and wellbeing initiatives. Taking the workplace as an example, doctors are increasingly of a mind that returning to work as soon as is appropriate results in improved outcomes for patients. This is consistent with our experience as a Board which is that claimants want to put the incident behind them as soon as possible. InjuriesBoard.ie has been recently providing advice to the public about the benefits of an early return to work. Another initiative is the featuring of celebrity doctor Mark Hamilton on our website who provides practical medical advice to claimants. I’m sure you will all agree that appropriate education on health, safety and wellbeing can deliver real savings for all stakeholders and is a valuable contributor to the bottom line.
In addition to the foregoing, I will touch briefly on a number of emerging trends including the receipt of a number of issue-specific claims linked to injuries arising from Thalidomide and hip replacements (De Puy).
In July, the Irish Thalidomide Association announced that its 25 members would be lodging individual applications for compensation with InjuriesBoard.ie. As liability remains in dispute between the parties, Injuries Board.ie has sought to release these claims to the Courts immediately so as to ensure no delays for long suffering Thalidomide survivors and their families.
In addition, year to date, InjuriesBoard.ie has received 605 claims in respect of the De Puy hip replacement recall. As a total of 3,500 implants are understood to have occurred, further claims seem likely.
As you may appreciate InjuriesBoard.ie relies on Court precedent to determine appropriate compensation and this can be difficult in circumstances where no precedent exists. As a result the Board is constrained in its capacity to assess cases in advance of test cases progressing through the Courts. Until then, issue-specific cases where liability remains in dispute are likely to be released to litigation. Given that litigation costs typically add over 50% to costs of the underlying awards there is a compelling case for the parties involved in such cases to reach agreement on the parameters for a collective, non adversarial resolution. In my view this could be administered at a fraction of the cost (typically 9% v’ 50%+), allowing greater scope to compensate those directly impacted by the negligence of others.
PUBLIC REFORM OBSERVATIONS
Finally, may I conclude my remarks by asking you to participate in a little interactive reflection. I won’t ask you to close your eyes, but feel free to do so should you wish!
I would like you to picture an organisation that is rightly proud of its progress over recent years. . ., picture half a billion euro of savings, . . .picture freeing up of the Courts, . . . .picture lower insurance and claims being assessed two and half years quicker, . . .picture outsourcing of non-core services equivalent to one billion pieces of paper each year. . . picture e-government, CMS initiatives and consumer advocacy, picture tackling vested interests.. .
Now. . . picture a QUANGO!
IN DEFENCE OF QUANGOS
That’s what we are. It may not have struck you, but we are, in fact part of this much maligned species. It’s a group of about 110 agencies. 70+ of those agencies with which I would be most familiar account for about 2% of the exchequer spend (about €900m), about 3% of public sector employees and many are fully, or substantially self funding. Collectively they represent the hatch or portal to a vast array of public services that includes:
- Supporting Irish business
- Regulating critical industries such as food, energy, aviation, pharma
- Protecting the environment & promoting sustainable practices
- Setting and maintaining standards of excellence
- Driving Irish research and innovation
- Protecting citizens and consumers
- Promoting and protecting culture and heritage
- Providing vital services
I hope you will indulge my raising this, but there has been a great deal of misinformation and ignorance about the blockages to public reform. If quangos account for somewhere north of 2% of exchequer funding and 3% of its staff, I would suggest that our contribution to the woes of this state have been somewhat overstated with little regard for the essential services we provide. As agencies, we know we are all obliged to do more with less; we welcome change and, through initiatives such as outsourcing, e-government, streamlining of medical payments and other measures we can play a lead role. I flag this because I think Ireland inc., and the insurance industry in particular, would be far worse off if organisations such as the HSA, the RSA, the Irish Medicines Board, the National Standards Authority or many of the other quasi governmental organisations did not exist. I appreciate the phrase ‘throwing the baby out with the bath water’ is grossly overused. In this instance it is a truism and one that I believe should inform any debate in this area.
Finally I would like to take the opportunity to acknowledge and thank the Irish Insurance Federation with whom we meet a number of times each year to discuss matters of mutual interest. The IIF’s input has in no small way contributed to the great strides that have been made in recent years in reforming the area of insurance and personal injury.
Ladies and gentlemen it has been a privilege to speak with you today. We have much in common. In the broader context of our collective responsibilities as service providers, let’s maintain and enhance our dialogue and let’s ensure that that the level of progress achieved to date is sustained in all our interest.