Bringing Clarity to the Complex World of Legal Costs

This month will see the roll-out of new legislation in England and Wales which will improve certainty and efficiency in the overall claims process.

Legal costs have always proved to be a complicated area for claims professionals, with actual exposure unclear until quite late in a claim’s lifecycle.  That in turn makes claims handling more difficult at precisely the time that businesses and companies need certainty and timely settlements.

It’s an issue that the W/R/B Underwriting claims team has been aware of and managed for a long time.  Legal cost spend has been spiralling for some time as inflation has pushed hourly rates and lawyer salaries northwards.  That’s led to increased exposure to policyholders and their insurance providers.

Currently, for claims valued from £0 to £25,000 there is a fixed legal costs regime in place in England and Wales. For claims valued over £25,000 (subject to some exceptions) legal costs are calculated on a traditional hourly rate basis. Unfortunately, whilst costs are assessed for proportionality etc., often, legal costs significantly outweigh the value of the damages in dispute.

New regime starting in October

From this month, the fixed legal costs regime will be extended to claims up to £100,000 in value (subject to non-monetary exceptions). In theory, this should result in a reduction in legal costs incurred, compared to the existing rules.

The savings from the new regime are most likely to be felt by defendants and their insurance providers.  Claimants’ lawyers however, are more likely to feel the pinch. Accordingly, we may well see an uptick in claims being submitted ahead of the deadline at the end of September.

The primary benefits

Lower value claims should become more proportionate.  Claimant lawyers may choose to re-evaluate the way in which they manage claims.  They may choose to settle claims earlier in the process where it’s likely to be more profitable, rather than spending hours pursuing claims as fixed rates make them less profitable.

There’ll be greater certainty to what cost exposure exists from an earlier stage, because as soon as the claim comes in, the insurance provider will have a much better idea of the likely legal costs.

Collectively, these benefits will mean that a part of the claim with significant variance will become more definite.

Faster claims handling

Additionally, claims are likely to be resolved more quickly.  Traditionally, we have seen that more prescriptive legal processes tend to have a positive effect on timescales; fixed costs should eliminate much of the back-and-forth between lawyers on assessment. It will also some much-needed alleviation in court workloads.

This change in regime, alongside other recent developments in the cost world, is streamlining the process, which is welcomed.

At W/R/B Underwriting, one of our core principles is ‘Committed Claims Excellence’ – our dedication to efficient, professional, and timely claims resolution. These new rules should hopefully assist in this process, which will help us in securing the best outcomes for our policyholders.