Constitutional Affairs Committee

Press notice No.16 of Session 2005-06
27 February 2006


GOVERNMENT NEEDS TO ADDRESS EXCESSIVE RISK AVERSION

The first clause of the Government's new Compensation Bill, which is supposed to protect people who undertake desirable or useful activities from being sued, is redundant and should be scrapped. That's the conclusion of the Commons Constitutional Affairs Committee's inquiry into Compensation culture, which finds that, in fact, the clause may even have the perverse effect of increasing at least in the short term the amount and cost of litigation because of the need to define what is a 'desirable activity'.

The inquiry found that, contrary to public perception, the number of personal injury claims in the UK has not increased in recent years. However, inappropriate regulation - combined with public perception and misleading media coverage - can lead to an exaggerated fear of being sued which may prevent activities which require risk management and may also affect business competitivity. The Government needs to address this.

The Committee welcomes the Government's long-overdue moves to regulate 'claims farmers' - the organisations that act as brokers referring claims to solicitors and often selling some financial service in the process. However, there is not enough detail of how the Government's plans would work in various areas, including:

»advertising - the Committee suggests that some limits should be placed on the nature and placement of advertisements by claims managers and solicitors

»potential mis-selling of insurance products

»quality standards for authorised firms or people

The Committee says self-regulation of claims management companies would be insufficient and undesirable. Claims managers should be subject to the same type of regulation as that proposed for the legal profession itself.

The Committee also expresses surprise that the Department of Health (DoH) has produced an ambitious compensation scheme in the NHS Redress Bill without setting out any of the detail of how it would be run. During the course of the inquiry, the NHS' own Litigation Authority still did not know whether it would definitely be responsible for running the Redress Scheme. These details are crucial in assessing whether the Scheme will work. The Committee noted that the DoH had not sufficiently consulted doctors and lawyers, who would have to implement the Scheme.

»Given the concerns about the expenditure and potential difficulties of the scheme the Committee recommends that a pilot must be held and comprehensively assessed

»The Committee is alarmed that the DoH is "relaxed" about the cost implications of the Scheme: there is a danger that it will not be cost-effective

Rt Hon Alan Beith MP, Chairman of the Committee, said:

There is a real problem with excessive risk aversion in Britain today, but it is not caused by personal injuries litigation or the 'no-win-no-fee' system. The problem will not be solved by Clause 1 of the Compensation Bill, which could even make matters worse. The root causes of excessive risk aversion, such as misunderstanding of risk assessment, are what need to be addressed.

However, we do warmly welcome the move to regulate claims handling and want to see this made effective.


Notes:
1. The report is available on the Committee's website: www.parliament.uk/conaffcom
2. The inquiry coincided with the introduction of the Compensation Bill and the NHS Redress Bill. Copies of the Bills are available on the Public Bills page of the TSO website: www.publications.parliament.uk/pa/pabills.htm
3. Committee Membership is as follows: Rt Hon Alan Beith MP (Chairman), James Brokenshire MP, David Howarth MP, Barbara Keeley MP, Mr Piara S Khabra MP, Jessica Morden MP, Julie Morgan MP, Mr Andrew Tyrie MP, Keith Vaz MP, Dr Alan Whitehead MP, Jeremy Wright MP